Means Test on Private Health Insurance Offsets - Essay Example

Running Head: Means test on private health insurance offsets Means test on private health insurance offsets xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Lecture xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 4 September 2012 The law as it was prior to the changes The government has enacted laws that will means test the private health insurance offset as from 1st July 2012. Means testing is a procedure used to determine those in need of help and how much of it they need. In this context, means testing is applied on the incomes of holders of private health insurance to determine those who are eligible for a tax refund and how much of it they will receive. This is set to impact heavily on high earners while offering a tax rebate to those that the government deems fit to receive offsets on their private health insurance premiums Prior to the changes the government embarked on a plan that offered a tax rebate for private insurance holders that helped private insurance holders to pay their insurance premiums. This made health insurance more affordable even for private health insurance holders. This was a vital government intervention as private health insurance accounted for a high percentage of the total health spending in Australia1. The high preference for private healthcare came due to the need to access other medical services that were not offered under Medicare plan such as dentistry and physical therapy. Private insurance also afforded holders preference and quick attention, access to private hospitals and preferred medical specialists. Prior to the changes, an open ended system had been in place since 1997 and it offered a 30% tax refund to families or single persons who held private insurance. It was not a means tested system as everyone was eligible. Those who supported the rebate were of the idea that it was a vital rewarding process for those who had been faithful to private health insurance2. Furthermore, given the high contribution of private insurance towards overall medical cover, the government was bound to intervene as it seemed as though private insurance holders were bearing the burden of the total cost of health insurance. The fact that a large percentage of private health insurance holders used it to access such medical services as dental care means that only the high and middle income earners had access to such services. More could definitely be done to reduce this inequality by for example, directing some of the funds to the provision of public dental health care. The nature of the changes With the introduction of the reviewed private insurance offset scheme, the government is seeking to change the plan from an open ended one to one based on level’s of income of private health insurance holders. This has been achieved through the introduction of three levels of income that are different for single persons and for families, accompanied by a review of the percentage rebate under each category. The rebate also takes into consideration the age bracket of the insurance holders , with the amount of rebate increasing proportionately with age under the different levels of income that are eligible. The table below better shows the revised offset scheme. Singles with an annual income of $84,000 or less and families with an annual income of $168,000 or less are eligible to receive a rebate of 30% for those under the age of 65, 35% for those singles or families aged between 65 and 69 and 40% for those aged 70 and over. This tier basically remains unchanged from the prior rebate scheme. Changes take effect for insurance holders whose incomes are between $84,001 and $97000 for single persons and $168,001-194,000 for families with rebates starting at 20% for those under the age of 65, 25% for singles and families aged between 65-69 and 30% rebate for those aged at 70 and over. For single persons with an income bracket of $97001-130,000 and families with a bracket double this amount, the rebate starts at 10% for both singles and families under the age of 65, 15% for those under the age bracket of 65-69 and 20% for those aged 70 and above. For the single persons with incomes of $ 130,000 or more and families with double this income annually, the government has scrapped the rebates eligible to them under all age brackets3.The government will review the income brackets under each tier annually in response to economic changes that have an effect on the levels of income of Australians. For families with more than one child, there is a $1500 increment in the income after the first child.   Unchanged Tier 1 Tier 2 Tier 3 Singles $84,000 or less $84,001-97,000 $97,001-130,000 $130,001 or more Families* $168,000 or less $168,001-194,000 $194,001-260,000 $260,001 or more Rebate Aged under 65 30% 20% 10% 0% Aged 65-69 35% 25% 15% 0% Aged 70 or over 40% 30% 20% 0% Australian government Australian taxation office, (2012). Table showing the tiers for the levels of income for the new means testing plan Retrieved from http://www.ato.gov.au/ [accessed 3rd September 2012]. Analysis of the desirability of the changes In terms of fairness, proposed review to the offset of private health insurance schemes hangs on the balance. From one view point, the rate of decrease of the rebate is inversely proportional to the level of income: high income earning families and single persons receive a lower percentage of rebates as compared to middle and low income earners, with those at the highest end of incomes receiving no rebate at all. Also, the percentage rebate that each family or single person is eligible for increases with the increase in the ages of the holders. This is an appropriate consideration since the medical bills also increase with increase in wage due to a higher propensity to sickness and diseases. This is vital in helping senior citizens to incur the cost of the heavy medical demands that they might have. Further, the government provides access equally for all Australians irrespective of whether they hold private or public insurance. Private health insurance only guarantees preferred access to specialists and to private hospitals. This ensures that there is fairness in the delivery of Medicare. On the other hand, since the new policy takes effect starting from the 2012-2013 financial year, private health insurance providers have been encouraging those who can raise the premiums for 12 months to pre-pay as a form of assisting subscribers to cope with the new scheme4. This is because those who have pre-paid their insurance premiums will continue to enjoy a 30% rebate for the next financial year. While this is an ingenious plan, in fairness, not many people can afford to raise 12 month’s premiums upfront and there is a risk of this policy being discriminative. Low income earners might not to need to pre-pay as their rates will remain unchanged but there is still a possibility that some middle income earning persons and families being locked out5. Though this is a once only occurrence there will be a big enough economic disparity as a result of this pre-pay plan. In terms of saving on government expenditure and the protection of government revenue, the proposed review will do exactly just that. According to Sue 6there are as many as 908,460 Australians who claim tax offsets. The cost to the government was $596.9 million during the 2009-10 financial years and the total government spending on health is expected to rise to $100billion in the next 10 years. The government expects to save as much as $370 million in the next four years from implementing this new scheme. Such cost cutting measures have been undertaken as a means of ensuring stability and sustainability of the health care system. The cost cutting measures are based on a means testing system where the high income earners are most affected. This reduces the adverse effects on low income earners. In terms of efficiency, statistics show that there is a percentage of the population that seeks for medical services in public hospitals even though they own private health insurance. Since, the government prohibits the use of private health insurance for the provision of services offered under Medicare, the percentage involved use private insurance to have access to doctors of their choice. Public hospitals receive payments from private health insurance funding for admitting such patients. This eliminates the need to use resources provided by the state. Further, doctors are able to offer their services to both public and private hospitals and these increases the efficiency with which they offer services7. Public hospitals also encourage holders of private insurance to use them in their hospitals by lowering the out-of pocket expenses that maybe incurred above the insurance policy. The possibility of preferential treatment between holders of private health insurance and those reliant on Medicare is checked by strict state rules and hence the overall outcome is an increase in efficiency with which medical services are offered. References Sharon Wilcox, Promoting private health insurance in Australia (2001) 20 Health affairs 3. Australian Government Australian taxation office ATO, Changes to private health insurance rebate and Medicare levy surcharge (2012) http://www.ato.gov.au/individuals/content.aspx?menuid=0&doc=/content/00233246.htm &page=12&H12 at 3 September 2012. Annette Sampson, Medical claims to be means tested (2012) The Sidney Morning Herald http://www.smh.com.au/business/federal-budget/medical-claims-to-be-means-tested- 20120508-1yba9.html at 3 September 2012. Sue Dunlevy, Medical tax offset to be slashed for high earners (2012) The Australian http://www.theaustralian.com.au/national-affairs/treasury/medical-tax-offset-to-be- slashed-for-high-earners/story-fndbwnla-1226350385921 at 3 September 2012. Francesca Colombo and Nicole Tapay, Private health insurance in Australia: A case study (2003) OECD Health Working Papers No.8 http://www.oecd.org/australia/22364106.pdf at 3 September 2012. Steven Duckett and Terri Jackson, The new health insurance rebate: an inefficient way of Assisting public hospitals. [2000] 172 Medical Journal of Australia 9 439–442. Read More