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| Publication: | Sunday Telegraph |
|---|---|
| Date: | 27 July, 2008 |
| Section: | Money & You |
| Page: | 2 |
Tax changes could hit medical funds
Will you dump your health insurance if there's no tax incentive to keep it? Can you think of better ways to spend the $1200 on average each member pays each year for private hospital and extras cover?
Forking out for the premium can seem such a waste of money if you're fit and healthy. But at least you have peace of mind. Since universal heath care was introduced in 1972, many Australians have seen it as a basic right. These people can pay upwards of $100 for a haircut, but expect to get their eyes tested free.
Many who earn more than $50,000 a year keep their hospital cover only to save being slugged with a bigger tax bill.
But deciding whether to stay with a health fund will soon become a lot harder for the 45 per cent of Australians with health cover across the 44 open and restricted funds.
The Rudd government wants to lift the threshold for those paying the extra one per cent in tax from $50,000 to $100,000 for singles and from $100,000 to $150,000 for families.
Average weekly earnings stand at $58,490, so the people induced to retain their cover will be high income earners.
The insurance industry predicts 913,000 Australians will drop their insurance because of changes to the tax system.
That stampede will result in a $1.8 billion patient surge into public hospitals, the Australian Health Industry Association has told a Senate inquiry.
Treasury estimates 484,000 adult-equivalent memberships will be abandoned, but the Australian Medical Association says the figure will be higher, based on the number of children covered by family memberships.
David Miller, the founder of moneytime.com.au, which compares health funds, believes many consumers will not tear up their health insurance policies if the levy threshold changes.
"I don't think people are going to be physically worse off,' Miller says.
From a cash-flow point of view you won't pay more, but we are going through some tough times and my feeling is that inertia may be tempered by people's daily expenses and some may opt out.
"But this is a great opportunity to have a look at your cover, ensure you're in the right fund, and work out which funds offer you the best value."
Most funds pay out 85 per cent of premiums in claims. The rest is spent on administration.
Central to the debate is the assumption that any loss of members will be concentrated among the young and healthy who rarely use hospital services anyway and who would be the least likely to hold private insurance without the levy surcharge.
Since these people subsidise the benefits to older and higher usage members, average premiums are expected to rise.
The health insurance association expects annual premiums to soar by as much as 10 per cent.
John Deeble, of the Australian National University, expects there won't be much immediate effect if the levy changes.
"Ignorance, apathy and uncertainty. Despite the publicity, some people will not even be aware of the change," he says.
The AMA wants low-income families with private insurance to be compensated for premium rises.
"This could take the form of increasing the private health insurance rebate or providing some other financial assistance or tax relief," it says.
But consumer group Choice argues the AMA and insurers have overstated the risk to consumers, concluding that changes to the levy surcharge are fair.