THE federal government has slashed $1.1 billion from private health insurance (PHI) in the mid-year budget update by again reducing the rebate paid to fund members.
The changes could cost an individual with average hospital cover around $13-a-year. Families could be $26 worse off.
From April 2014 the government will only pay the rebate on premium rises in line with inflation, saving $700 million over three years.
It will also scratch the rebate of up to 30 per cent on any penalty loadings people pay because they didn't take out private cover when they turned 30.
That measure will start in mid-2013 and save $390 million through to 2015/16.
The new cuts come after Labor earlier this year won a four-year battle to means test the 30 per cent PHI rebate, saving $2.4 billion over three years.
But Treasurer Wayne Swan insists the government isn't trying to get rid of the rebate by stealth.
"We are not hostile to the rebate," Mr Swan told reporters in Canberra on Monday.
"We are trying to make sure that we're not providing an endless rebate for any level of (premium) increase."
In April this year health fund premiums rose an average of 5.06 per cent.
In 2011 they jumped 5.56 per cent across the board.
By contrast the consumer price index (CPI) in the year to June 2012 was just 1.2 per cent. It's forecast to be 2.25 per cent in 2013/14.
Mr Swan said from April 2014 "the premium to which the rebate is applied will move in line with CPI or the commercial premium increase - whichever is lower".
The commonwealth spends $5 billion a year on the PHI rebate. The treasurer said without reform that would blow out to an unsustainable $8 billion by 2022.
Health Minister Tanya Plibersek also is looking to change the way premium rises are approved.
As well as linking the subsidy to inflation, Labor will scrap the rebate altogether on the so-called lifetime health-cover component of premiums from July 2013.
Under an initiative designed to encourage people to take out hospital cover if someone isn't in a fund when they turn 31, but join later, they pay a two per cent loading for every year outside the system.
For example, someone who takes out PHI at age 40 will pay 20 per cent more than someone who joined at 30.
But from mid-2013 they won't receive the government rebate on that component of their premium.
Under the new means-testing arrangements, which started in July, individuals earning more than $84,000 and families earning more than $168,000 have their rebate reduced depending on how much they earn.
It cuts out altogether for individuals earning more than $130,000 and families on more than $260,000.
Health insurer NIB said the decision to effectively freeze the rebate allocation in real terms meant the government should allow funds to set premiums independent of interference.
"Once its liability is capped there won't be any valid reason for the government to control prices from 2014," managing director Mark Fitzgibbon said in a statement.
"With 34 insurers in the market I expect the forces of competition will do a better job than government in keeping premiums as low as possible."
Earlier this year Ms Plibersek said the 5.06 per cent average increase for 2012 was lower than would have been the case if she hadn't asked 24 of the funds to resubmit their applications for a rise.
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