Australia's proposed reduction in the private health insurance rebate for older Australians has raised concerns that higher out-of-pocket costs could prompt some retirees to drop or downgrade their cover, potentially adding pressure to the public healthcare system.
Under legislation introduced in June, the government plans to remove the higher private health insurance rebate currently available to policyholders aged 65 and over. If passed, the changes will take effect from 1 April 2027, with the rebate determined by income rather than age.
Currently, eligible Australians aged 65-69 receive a maximum rebate of around 28%, compared with 24% for those under 65, while those aged 70 and over receive a rebate of around 32%. The proposed changes would bring both older age groups into line with the 24% rate applying to younger policyholders in the same income tier.
The government expects the measure to save A$3bn over four years, with the savings to be redirected towards aged care. It estimates around 3.2m Australians aged 65 and over will be affected, with average additional premiums of about A$250 a year, although the increase could be higher for more expensive policies.
The government also estimates that around 44,000 fewer people aged 65 and over will hold private health insurance by 2028-29 compared with a scenario in which the existing rebate remained unchanged. This represents about 0.4% fewer insured older Australians than otherwise expected.
However, the insurance industry has warned that the impact could be more significant, particularly for retirees on fixed incomes.
Private Healthcare Australia has said more than 3m older Australians, including more than 400,000 pensioners with private health insurance, will be affected. It has warned that some policyholders could face substantially higher premiums when the rebate reduction is combined with annual premium increases.
According to the industry body, Australians aged 70 and over with ‘Gold’ hospital cover could see premiums rise by around 21% from April 2027, equivalent to an increase of about A$807 a year for an individual or A$1,614 for a couple.
The Australian Medical Association and National Seniors Australia have also raised concerns that older Australians could respond to higher costs by dropping or downgrading their cover, potentially shifting additional demand towards public hospitals.
The government, however, has maintained that the overall impact on private health insurance participation is expected to be limited and argues that removing the age-based rebate will create a more consistent, income-based system.
The legislation has been referred to the Senate Community Affairs Legislation Committee, which is due to report by 7 October 2026.