Close to the bone

Published 15 February 2012 13:39, Updated 16 February 2012 05:01

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Allied health professionals such as osteopaths and physiotherapists expect to be hit hard by the government’s move to reduce the health insurance tax rebate.

The Minister for Health, Tanya Plibersek, introduced the legislation last week and reportedly has enough support for it to be almost certain to be passed by Parliament.

Under the new rules, individuals earning more than $83,000 would no longer get the full 30 per cent rebate and this would drop until singles that earn more than $129,000 a year would get no rebate at all.

For couples, the phase-out would begin at $166,000 and the rebate would cut out altogether for those earning more than $258,000.

To ensure that high earners continue to self-insure, the government also plans to increase the Medicare surcharge for people that don’t have health insurance.

The government doesn’t expect many people to drop their health insurance cover as a consequence of the rebate becoming means-tested – according to its modelling, 99.7 per cent of policyholders will stay insured.

But experts say there is a risk that people may spend less on their overall health insurance cover if they aren’t getting a rebate.

A report commissioned by health insurance industry body Private Healthcare Australia, which has been lobbying against the rebate being means- tested, found that if the change was implemented, 554,000 consumers would withdraw from general treatment cover – which includes benefits for services such as physiotherapy, and optical and dental treatment, and 803,000 would downgrade their cover in the first year of implementation.

“You may see people drop their top cover to something more middle of the road,” says KPMG director of health economics Henry Cutler.

“Faced with a premium increase, people will re-evaluate what they actually need from private health insurance.”

Against that backdrop, health businesses that depend on insurance payments to cover a large portion of their fees are concerned that they may suffer as their patients opt for less expensive insurance policies that don’t cover them for extra services.

“Affordable ancillary cover is vital to the continued viability of physiotherapy in Australia,” says an Australian Physiotherapy Association spokesman. “We’re concerned that access to physiotherapy services might be diminished by this.”

According to data from the association, on average, about 49 per cent of clients seen by private physiotherapists go to their insurance companies with a claim.

“A small proportion of the population choosing to drop ancillary cover could have a dramatic impact on thousands of physiotherapy private practices around the country where profit margins are currently extremely tight,” the Australian Physiotherapy Association spokesman says.

Osteopaths are also warning that the prospects for some may be bleak. A study commissioned by the Australian Osteopathic Association in 2011 found that means-testing the rebate might cut the revenue for osteopaths by $10,000 a year. It might also mean reduced demand for osteopaths.

“Some osteopaths might become part-time and others close their doors: an especially unfortunate consequence in regional and suburban areas where there are often already few locally accessible osteopaths,” the study says.

Not all health professions are as concerned about the change.

Gregory Morris, a committee member of the Australian Dental Association, says dentists are worried that more than one in four patients already have trouble covering the cost of dental treatment.

But they aren’t likely to be the ones affected by the rebate change.

Morris says the high-income earners hit by the change aren’t necessarily likely to alter their behaviour, despite the higher cost and that their ability to afford dentistry isn’t likely to be affected.

“Health funds do put a fair amount of money into dentistry each year but whether these people will opt out of health insurance is going to be an interesting thing to follow,” he says.

Over the longer term, the health insurance business might also experience a negative impact, says UBS health-care analyst Andrew Goodsall.

If those who have been paying the top rates for premiums opt to scale back their spending, that means the amount of money going into insurance funds might fall, driving up premiums, as funds are required to hold a certain amount of money to meet claims.

It may lead to “a longer term degradation of the industry structure”, he says.

“The overall economic viability of the industry or the health funds is going to take a step down.”

That, in turn, may affect private hospital operators, he says.

That’s because if the health insurance business suffers, it will have less ability to meet the increasing costs of private hospitals.

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