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Dr Terence Cheng
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The Federal Government could save hundreds of millions of dollars each year without affecting patient outcomes by reducing the private health insurance rebate, a University of Melbourne study has determined.

Research by health economist Dr Terence Cheng argues the current 30% means-tested rebate is "expensive and fiscally unsustainable".

— See below for full report & interview —

"Rising expenditure on health care is expected to put significant pressure on public spending in Australia over the coming decades," he said.

"Currently, the Federal Government spends about $4.6 billion on the private health insurance rebate each year. Some of that money could be clawed back and put to better use in our public hospitals."

Using expenditure data from 2007-08, Dr Cheng's Policy Brief 'Does Reducing Rebates for Private Health Insurance Generate Cost Savings?' (see full report below) suggests a 10% reduction in the rebate would save taxpayers $215 million per year.

This is because the direct savings from reducing the subsidy ($359 million) would be higher than the subsequently required increase in government spending on public hospitals ($144 million). 

On the whole, savings from reducing spending on rebates outweigh the predicted increase in public hospital costs by a factor of roughly 2.5.


Dr Cheng — who is based at the University's Melbourne Institute of Applied Social and Economic Research — said Australians were generally supportive of Australia's mixed public-private healthcare model.

"But given Australians value having the choice of private care, it is reasonable that they pay for it," he said.

"The issue here is why the government should subsidise individuals to buy private health insurance?"

Dr Cheng said any reduction in the rebate should be gradual, so public hospitals have time to prepare for the higher demand.

The 'Policy Brief Series' is a collection of research publications produced by the Melbourne Institute. The subject of private health insurance rebates will be discussed further at the upcoming HILDA conference at the University of Melbourne, on the 3rd and 4th October.

 INTERVIEW — Journalists are free to use this recording on air.