A formal proposal by Private Healthcare Australia to double the Medicare Levy Surcharge (MLS) for high-income earners without hospital cover is now part of a Senate inquiry submission – and it reframes what had appeared to be a consumer-finance story into a direct question about the future composition of Australia’s insured pool. For insurance professionals, the legislative contest over age-based private health insurance (PHI) rebates is not political noise. It is a participation and pricing variable with a firm deadline: April 1, 2027.
The industry body’s MLS proposal, published in an April 23, 2026, media release, goes beyond a blanket doubling. Private Healthcare Australia is calling on the government to increase the MLS to 1.5% for Tier 1 earners and to 3% for Tier 2 and Tier 3 earners who do not hold private hospital cover. Under the existing structure, the MLS tops out at 1.5% for the highest income tier. When combined with the existing 45% top marginal tax rate and the 2% Medicare Levy, a Tier 3 earner without hospital cover would face an effective rate of 50%, according to News.com.au.
Critically, this is not presented as a standalone measure. Private Healthcare Australia’s broader reform package also includes removing age-based rebate differentials, introducing a new 28% rebate tier for those earning under $55,000 – or $110,000 for couples and families – simplifying rebate tiers from 2027 to whole numbers and reducing the price of medical devices from July 1, 2026. The organisation estimates this package would achieve around 70% to 75% of the government’s revenue target while protecting low-income older Australians from premium shocks. Chief executive Dr Rachel David said that more than half a million high-income earners currently do not hold private hospital insurance, despite having the capacity to contribute more to their healthcare costs. The MLS increase is designed to alter that calculus.
The Private Health Insurance Amendment (Modernising the Private Health Insurance Rebate) Bill 2026 proposes to equalise rebate rates across all ages from April 1, 2027. Under current settings, base-tier policyholders under 65 receive a rebate of 24.118%, compared with 28.139% for those aged 65-69 and 32.158% for those aged 70 and over. The bill removes those higher age-based tiers so that rebate entitlement is determined by income alone.
The Office of Impact Analysis (OIA), in its May 2026 assessment of the measure, projected a net reduction of approximately 42,304 insured non-dependants by 2028-29 under the government’s preferred option, compared with the status quo. The same document noted that around 99% of the approximately 3.2 million older Australians affected by the rebate change are expected to continue to hold PHI, based on research indicating older Australians tend to be less price-sensitive given the higher value proposition PHI holds for them relative to younger cohorts. The OIA also identified a key implementation risk: if those dropping PHI are less likely to have made a claim than those who remain, insurers could face reduced premium revenue without a proportionate reduction in benefits paid – compressing margins, particularly for funds with a higher proportion of older policyholders.
The reform debate is unfolding against a backdrop of rising premiums and pressure on private health insurance affordability. The government approved an average premium increase of 4.41% from April 1, 2026 – the highest increase in almost a decade – reflecting rising costs of providing medical and hospital services, which rose 5% in the previous financial year. According to the Australian Prudential Regulation Authority’s (APRA) December 2025 annual coverage survey, 12.7 million Australians held hospital cover, representing 45.6% of the population – a record in absolute terms, but a figure that provides limited forward guidance while the bill and its downstream pricing implications remain unresolved.
APRA’s December 2025 quarterly statistics show the age group for which the most hospital treatment benefits are paid is the 75-79 cohort – the same group that recorded the largest gross coverage increase of any age group in that quarter. If price-sensitive members in that high-utilising segment exit following the rebate reduction, the claims impact on funds extends well beyond lapse volumes alone – affecting the risk pool, premium sustainability, and the community-rating cross-subsidy that underpins the entire PHI pricing model. Private Healthcare Australia’s data show approximately 2.6 million Australians aged 65 and over hold hospital cover, with 70% living outside inner metropolitan areas – including 27%, or 705,000 people, in rural electorates. For brokers with regional books of business, the exposure is geographic as well as demographic.
The Senate Community Affairs Legislation Committee is due to report by October 7, 2026. That deadline falls ahead of the annual premium round, in which insurers submit proposed premium changes to the government and APRA for approval before increases take effect on April 1. Insurers will need to price for the potential membership and claims impacts of the rebate change while the legislative outcome remains uncertain. For brokers managing health portfolios with significant over-65 or rural exposure, the period between the committee’s report and the commencement of the 2027 premium round is where fund pricing decisions will be shaped. Proactive client conversations about cover level, excess, and the risk of cover downgrade are most usefully held before those decisions are locked in – not after.
Whether the MLS increase proposal gains government support remains a live question pending the Senate’s deliberation. What is already confirmed by the OIA’s primary analysis, APRA’s participation data, and the industry body’s own modelling is that the incentive architecture sustaining Australia’s PHI market is in active transition – and the distribution consequences will be felt well before the outcome of that transition is clear.
