The Australian government has a leading role in private health insurance [since the decline in private health insurance coverage after the formation on Medicare, the publicly-funded health care system, in 1984). We focus on the three key health policies introduced to encourage coverage among the Australian population: the Medicare Levy Surcharge, the 30% rebate and the Lifetime Health Cover. These policies may have been implemented as an effort to ease the increasing pressure of demand on the free public hospitals but our main concern is whether private hospital insurance is affordable to the population. Our analysis focuses on the 30% rebate policy on insurance premiums.
The scarcity of research and the absence of an official affordability threshold index for Australia leads us to look at similar studies in the USA, where this topic is widely researched. We use a standard recently implemented in Massachusetts [affordability threshold 5-8%).
Our results show that with the rebate, all the life cycle groups in Australia need to spend less than the minimum affordability threshold of 5% of their disposable income on private health insurance. However, without the rebate, the older singles would have to spend above the affordability threshold [8.27%) compared to the older couples [6.35%). Specifically, pensioners are more likely to face affordability issues compared to the younger groups. When the rebate is removed, the cost of premiums as a percentage of disposable income for the aged pensioners rises well above the affordability threshold of 5-8% [11.8% for singles and 14.02% for couples). Thus, we conclude that policy reforms should focus on the elderly population.