Announcement Date
12 May 2026
Link to Announcement
Budget.gov.au | Budget 2026–27
Problem being addressed
Private Health Insurance (PHI) is relied upon by 15.4 million people in Australia to help them access healthcare and contributes to the overall sustainability of the Australia’s health system. Strong PHI participation amongst the young and healthy, particularly given the increasing age of the population, facilitated through targeted incentives and consumer safeguards, is critical to PHI affordability and takes pressure off the public health system.
The PHI Rebate incentivises people to take up and retain PHI by subsidising the premiums charged by private health insurers. However, the PHI Rebate is inequitable as it subsidises older Australians (that is, those aged 65 years and over) more, even if they have the same income as younger Australians. This creates intergenerational inequity in how the PHI Rebate is administered.
Proposal
The Impact Analysis noted the objectives of reform are to: continue to provide an incentive for people to participate in PHI through a simplified Rebate; ensure funds are not spent on the Rebate for older people if they are generally unlikely to alter participation decisions and/or could be better directed to other priority health, disability and aged care services; and ensure the Rebate is targeted equitably, while minimising any negative impact on participation.
The Impact Analysis considered three policy options to meet these objectives:
- Option 1: Status Quo, with no change to the PHI Rebate.
- Option 2 (preferred): Equalise Rebate rates across ages for each income tier.
- Option 3: Equalise Rebate rates across ages for low-middle incomes and remove Rebate for higher incomes (Tier 2).
Option 2 was considered the best option as it meets the identified objectives and has a smaller impact on insurers, policyholders and PHI participation than Option 3.
As a result of the reduced Rebate, a marginal negative impact on PHI participation is expected (-0.4% in 2028-29 compared to status quo) while noting that the overall number of people covered by PHI is expected to continue to grow. This slower growth in the insured population is expected to result in marginally lower demand for private hospital services and a corresponding marginal increase in demand for public hospital services, compared to status quo.
Moving to a model where Rebate entitlement is determined only by income, removing any aged-based rebate uplifts, will ensure the Rebate is equitably targeted while minimising any negative impact on participation.
Assessed Impact Analysis outcome
Adequate
Assessment comments
The quality of the analysis in the IA is Adequate. To be considered Good Practice as per the Australian Government Guide to Policy Impact Analysis, the IA would have benefitted from further consultation.
Regulatory burden
The Department of Health, Disability and Ageing estimated that Option 2 would have a one-off increase in the regulatory burden for impacted businesses of $689,584.