The cost of the 30 per cent private health insurance rebate has risen faster than any other component of government health spending. Photo: Josh Robenstone
Abolishing the private health insurance rebate could save the budget $3 billion a year, dwarfing the savings that would be generated by introducing a $6 fee for GP visits, according to a think tank.
The GP fee proposal, made by Tony Abbott's former policy adviser Terry Barnes in a submission to the Commission of Audit, is forecast to deliver $750 million over four years in savings by reducing ''avoidable'' GP visits and reducing incentives for doctors to over-service. But doctors and health groups have attacked the proposal, predicting such a change would have the greatest impact on the poorest and sickest and risked overwhelming hospital emergency departments.
The 30 per cent private health insurance rebate was introduced in 1999. Its annual cost has risen faster than any other component of government health spending, from $1.4 billion in 1999-2000 to $5.5 billion in 2012-13.
A Grattan Institute analysis predicts removing the rebate would increase demand for public hospital services by between $1.5 billion and $3.8 billion a year, but suggests the increase would be at the lower end of the range because the Medicare Levy Surcharge (paid by middle and high-income earners who do not have private cover) and the Lifetime Cover policy (a penalty on those who first take out private cover after the age of 30) would provide incentives for people to keep their insurance.
The institute settles on an estimate of $2.5 billion in extra public hospital costs, projecting that scrapping the rebate would produce a net saving of $3 billion.
In a paper published last July, Terence Cheng, a research fellow at the Melbourne Institute of Applied Economic and Social Research modelled the impact of reducing the rebate by 5, 10, 15, 20 and 25 per cent on spending on rebates and on public hospitals.
He concluded in each case the government would save more than it would incur in increased public hospital costs. Dr Cheng said that cutting the rebate by 5 per cent would yield a net annual saving of $106 million, while cutting the rebate by 25 per cent would save $549 million a year.
Dr Cheng argued that private health insurance rebates were ''expensive and fiscally unsustainable''. He said while Labor's introduction of a means test on the rebate in July 2012 was ''a positive first step'', gradually removing the rebates would be a ''logically and fiscally responsible next step''. But Dr Cheng said this should not happen rapidly as the public hospital system would need time to expand its capacity.
He found that private health insurance subsidies did little to shift costs from the public to the private sector because public hospitals were responsible for caring for the most complex and expensive cases, and people with private cover continued to use the public system.
Health Minister Peter Dutton said last week there was growing concern that the growth in health costs was ''unsustainable''.
Mr Dutton said when he considered the added pressure conditions such as dementia and diabetes would place on the health budget as the population aged, ''it's hard to understand where we are going to find money to pay for these services''.
''The threshold question is whether people want the health system of today strengthened for tomorrow, because at the moment the health system is heading to a point where it will become unmanageable,'' Mr Dutton said.