ALMOST 1 million people are likely to drop or downgrade their private hospital cover as a result of the Government's budget cuts to the sector, the first industry analysis of the changes has found.
The Australian Health Insurance Association forecast directly challenges Treasury estimates of the effect of the Rudd Government's means test on the private health insurance rebate, predicting 10 times the drop out from the measure.
The Treasury modelling, which has not been released, expects only 25,000 people to exit private health insurance, with 99.7 per cent of members to retain their cover.
Last week's budget slashed $1.8billion from private health insurance subsidies, progressively reducing rebates for singles earning more than $75,000 and couples earning more than $150,000.
It will also increase the tax penalty on the uninsured by up to 50 per cent to try to stop a larger exodus.
AHIA chief executive Michael Armitage said the Government had got its figures badly wrong.
"There will be a major effect on everyone insured, including those under the $75,000 tier, and there will be a major effect on the public sector," Mr Armitage said.
The sector believes premiums will rise across the board as a result of the change, forcing more people on to a stretched public health system.
The AHIA analysis found many of those above the Government's new income thresholds faced a bigger loss if they kept their cover because the premiums would be higher than the surcharge increase, if they dropped it. About 241,000 people at present under private hospital cover are likely to abandon it, and a further 728,000 are expected to shift to a cheaper hospital policy, it warns. The number of people covered by "extras" policies is also tipped to fall by 774,000. The latest analysis magnifies the cost of the rebate cuts by basing average hospital cover premiums on industry figures, which are far higher than official ones.
Dr Armitage said Treasury had got its estimates of average premium costs wrong last year, when it modelled the impact of the Medicare levy surcharge threshold change in the 2008-09 budget.
An earlier AHIA-sponsored analysis used that data to predict an exodus of members from the industry because of last year's threshold increase.
The Government has since seized on official statistics showing growth in health fund membership numbers to accuse the industry of exaggerating the damage from its private health budget changes.
A spokeswoman for Health Minister Nicola Roxon yesterday maintained last week's budget announcement would have "very little impact on membership numbers".
"This is the same old scare campaign on drop outs from private health insurance that the Opposition and the industry tried to mount last year after the changes to the Medicare Levy Surcharge," the spokeswoman said.
"Last September, (Opposition health spokesman) Peter Dutton claimed that a million people would pull out out of insurance."
