Private health changes useless for most Australians

July 1 changes will make health cover cheaper for high income earners, not those that need it most.

The new financial year will bring changes to the price of private health insurance that could save some Australians hundreds of dollars.

But if you earn less than a $93,000 a year, you're shit outta luck.

Basically, the government is changing how much you need to earn to get a higher rebate on your private health insurance.

Currently, the private health insurance rebate gives everyone who earns less than $144,000 (or $288,000 if you have a spouse or kids) some sort of discount on their health insurance premiums.

The less you earn, the bigger the discount. If you earn less than $93,000 a year, your discount is around 24%, plus a bit extra if you're over 65 years old (around 28%).

So who is going to benefit from the changing income thresholds?

Mike vs Richard, who's benefitting?

Median Mike

Income: $67,600 a year (the national median income)
Current premium: $4,089 a year (Gold hospital & basic extras, with current rebate)
New premium: $4,089 a year
Changes after July 1: $0

Richie Richard

Income: $150,000 a year (just over the current rebate threshold)
Current premium: $5,425 a year (gold hospital & basic extras, no rebate)
New premium: $4,980 a year (now with an 8.202% rebate)
Changes after July 1: $445 better off

What's changing on July 1?

The government increased the thresholds last year, for the first time since 2015, and are doing it again this year. The full table of changes are here, but here are the main takeaways:

• The lowest income tier is increasing to $97,000 for singles (up from $93,000)
• The highest income tier is increasing to $151,000 for singles (up from $144,000)
• The rebate rates themselves aren't changing

So only people earning between $93,000 and $151,000 a year will be better off.

Based on the last Census, less than 20% of Australians have a personal income of more than $93,000.

So these changes will do nothing for the 80% of Australians that I would argue need help the most.

What changes would actually help?

The simplest change to the rebate that would actually help everyday Aussies is increasing the actual rebate percentage.

Increasing the rebate most Australians are eligible for from 24.608% to something closer to 30% would have an immediate effect for every Australian with health insurance who earns a typical income.

Admittedly, those typical earners are less likely to have health insurance, so many wouldn't technically receive that benefit until they took out a policy.

But that policy would be cheaper, which could go a long way to getting them to take out cover for the first time.

And isn't that the whole point of the rebate?

Is the rebate actually worth it?

Digging into the policy side, the private health insurance rebate costs the government $6.7 billion a year.

Multiple studies have found that the scheme doesn't do much to increase health insurance coverage and that a scheme that better targeted low-income earners would result in better outcomes.

Other research found high income earners weren't that motivated by the rebates anyway.

Taken together, a reasonable approach might be to reduce the highest threshold for the rebate to limit the number of high earners that get the rebate at all, and use the savings to increase the rebate for low-income earners.

Writing for the conversation, Yuting Zhang from The University of Melbourne said this was the thrust of their recommendations.

"Our findings suggest a more targeted subsidy program would be a more effective way to increase private health insurance. To achieve this, we recommend lowering income thresholds for rebates to target people of all ages on genuinely low incomes.

"A recent consultation report commissioned by the federal health department reviewed a range of health insurance incentives.

"The report recommends removing rebates for those with income higher than $108,000 for singles and $216,000 for families (we recommend removing them at $93,000 for singles and $186,000 for families). The report also recommends increasing rebates for those older than 65 (we believe income, rather than age, is a better marker of someone's means)."

What can you do?

Government gears move really slowly, so there's not much to be done about the situation.

The Labor government could reform private health insurance policy, but it's a big job that would negatively impact high earners.

And god forbid we remove rebates for high earners - we know how that turns out.

Meantime? Honestly the best advice I can give you is to compare your health cover. Even if your rebates don't change, you can at least get the exact right cover for you at the best price.

You can compare policies from every health fund in Australia at Finder.