Private Healthcare Australia (PHA) is pressing the federal government to raise the Medicare Levy Surcharge on high-income earners as an alternative to legislation that would strip higher private health insurance rebates from Australians aged 65 and over.
The proposal would lift the Medicare Levy Surcharge from its current maximum of 1.5% to 3% for Tier 2 and Tier 3 high-income earners without private hospital cover, while setting a 1.5% surcharge for Tier 1 earners, PHA CEO Dr Rachel David said.
"A more equitable measure would be to increase the Medicare levy surcharge or the fines for people who are on higher incomes who don't have health insurance," she told news.com.au.
The surcharge proposal responds directly to the Private Health Insurance Amendment (Modernising the Private Health Insurance Rebate) Bill 2026, introduced by health minister Mark Butler on June 25. For base-tier policyholders, the current rebate is 28.139% for those aged 65 to 69 and 32.158% for those 70 and over, compared with 24.118% for those under 65, with lower rebates applying at higher income tiers.
A Senate Community Affairs Legislation Committee inquiry into the bill is due to report by October 7, with the Coalition opposed to the measure, meaning the government will need Greens or crossbench support to pass it. The timeline overlaps with the 2027 premium-setting cycle, with insurers expected to lodge premium applications by mid-November while pricing against unresolved legislation.
The scale of the change, and its likely effect on cover rates, is contested. The government's own estimate is that about 44,000 fewer people aged 65 and over will have private health insurance by 2028-29 than would otherwise have been the case, representing 0.4% fewer insured people than otherwise expected. PHA has argued this significantly understates the risk, pointing to RedBridge polling of 1,505 Australians it commissioned, which found 15% of over-65s said they would be "much more likely" to drop cover and a further 24% "somewhat more likely" – a combined figure PHA says points to a much larger share reconsidering cover than the government's projection.
PHA has estimated that Australians aged 70 and over with Gold hospital cover could face a combined premium increase of about $807 a year for an individual and $1,614 for a couple, once the rebate change and expected annual premium increase are taken into account.
PHA's preferred approach is to redirect savings toward lower-income households rather than remove the age-based tiers outright. The body has previously proposed increasing the Medicare Levy Surcharge to 1.5% for lower-tier high earners and 3% for higher tiers, alongside introducing a new 28% rebate tier for people earning under $55,000, arguing the combined package would deliver 70%–75% of the government's targeted revenue while better protecting low-income retirees.
David has also pointed to more than half a million high-income earners who currently hold no private hospital cover despite having the means to pay for it, arguing that lifting the surcharge would improve participation and equity without cutting support for older Australians on fixed incomes.
Health ministers in New South Wales, Queensland and Tasmania have also raised concerns about the proposal, warning that it could push more people into an already-stretched public hospital system.
Read Insurance Business's earlier coverage of the PHI rebate bill's actuarial dispute between Treasury, insurers and the states, and the industry's response to the initial rebate-tier proposal.
