House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Health and Ageing, the Honourable Tony Abbott MP)

Outline and financial impact statement

Outline

This Bill amends the Private Health Insurance Incentives Act 1998 and the Income Tax Assessment Act 1997 to maintain the affordability of private health insurance for older people.

The Bill amends the existing provisions that provide incentives for private health insurance, commonly known as the 'Private Health Insurance Rebate' (PHI Rebate) or the 'Federal Government 30% Rebate on private health insurance'. The current PHI Rebate helps Australians with private health cover, by reducing the cost of their premiums by 30%. These amendments will increase the rebate from 30% to 35% for policies covering at least one person aged 65 years to 69 years and to 40% for policies covering at least one person aged 70 and older.

The changes will take effect from 1 April 2005.

The changes in this Bill recognise that older people are more likely to need health care and that the affordability of private health insurance for people aged 65 and over is especially important. The changes mean that existing policy holders who have contributed to private health insurance for most of their adult lives are assisted in meeting the costs of their private health insurance at a time when they are likely to be on fixed and low to moderate retirement incomes.

As with the current PHI Rebate the higher rebate for older people will be available for hospital, ancillary and combined cover and can be claimed as a premium reduction from private health insurance funds, a direct payment from Medicare offices, or a tax offset in annual income tax returns. The increased rebate will apply to the whole premium for private health insurance policies where one or more of the individuals covered qualify for the age threshold.

Where a person is entitled to an increased rebate because someone else on the policy is 65 or older, he or she will continue to be entitled to the higher rebate if the older person leaves the policy, due for example to death, divorce or separation provided that the policy is not replaced by a couples or family policy with another person (other than adding a dependent child). The savings provision will not apply where its application would result in less rebate being payable.

Over the last decade the Government has initiated a number of reforms to introduce greater balance between the private and public health sectors. For example, the Government introduced the Medicare Levy Surcharge, PHI Rebate and Lifetime Health Cover. These initiatives have resulted in a significant growth in the membership of the private health insurance funds. They are also part of the Government's commitment to giving Australians greater choice in health care. By supporting a private health sector that complements the public health system, the Government is ensuring a sustainable and balanced health system for the future.

This Bill builds on the gains already made by these initiatives by increasing the affordability of private health insurance for older Australians.

Lifetime Health Cover and Department of Veterans' Affairs Gold Card

The Bill also makes a minor consequential amendment to the National Health Act 1953. The amendments extend protection from the application of Lifetime Health Cover, established via the Health Legislation Amendment (Private Health Insurance Reform) Act 2004, to persons issued with a Gold Card from 1 July 2004 under the Military Rehabilitation and Compensation Act 2004.

Financial impact statement

The financial impact of these changes will be to increase the cost of the administered appropriations for the existing Federal Government 30% Rebate. The application of this legislation from 1 April 2005 means the costs for 2004-05 are only those that occur in the last 3 months of the financial year.