Does Reducing Rebates for Private Health Insurance Generate Cost Savings?

Melbourne Institute Policy Brief No. 03/13

Date: 2013


Terence C. Cheng


In the healthcare system, there are few clear ways that the escalating growth in expenditures can be reduced whilst maintaining or improving health outcomes. This policy brief provides evidence that reducing rebates on private health insurance in Australia is likely to lead to substantial cost savings. It first discusses the policy context and motivation for subsidising private health insurance in Australia, and presents some evidence and reasons why subsidising private health insurance is not likely to generate cost savings. It presents evidence from econometric modelling on the budgetary effects of reducing private health insurance rebates. A 10 percent reduction in rebates is expected to yield net savings of $215 million each year, as the savings from reducing the subsidy ($359 million) are higher than the expected increase in government spending on public hospitals ($144 million). On the whole, savings from reducing spending on rebates outweigh the predicted increase in public hospital costs by roughly a factor of 2.5.

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