The Australian Medical Association (AMA) has said the federal government’s move to reduce the private health insurance rebate for Australians aged 65 and over will erode participation among older policyholders and increase demand on public hospitals, while leaving deeper structural problems in the private health sector unresolved.
Taking effect in April 2027, the rebate reductions apply to policyholders within defined income thresholds. Those aged 65-69 earning below $101,000 as a single, or $202,000 as a family, will have their rebate reduced from 28% to 24%. Policyholders aged 70 and over within the same income brackets will see a steeper cut, from 32% to 24%. The AMA said the timing compounds an already difficult picture for older policyholders. Prior to the budget, the association identified that 68% of hospital policies now carry exclusions, and that the share of premium revenue paid out by insurers on patient treatment had already fallen to 84% in 2024-25. Against that backdrop, the rebate reduction adds another layer of financial pressure on a cohort that relies most heavily on private cover.
Private Healthcare Australia (PHA), the peak body for health funds, put figures to the exposure. It calculated that when layered on top of premium increases averaging 4.4% in 2026, Gold hospital cover holders aged 70 and above could face a combined premium increase of around 21% from April 2027. That translates to an additional cost of approximately $807 per year for an individual and $1,614 for a couple.
AMA president Dr. Danielle McMullen said the rebate changes were likely to produce two outcomes the government may not have fully weighed: policyholders exiting private health insurance altogether, and a larger group moving to lower-tier products that leave them inadequately covered. “While we welcome a commitment to undertake consultation on private health reform, cuts to the private health insurance rebate for people who are 65 years and over are likely to see older Australians on modest incomes drop or downgrade their cover, and this may put more pressure on the public hospital system,” McMullen said.
PHA said the government’s own estimate of around 44,000 people exiting the market did not capture the full scope of the likely response. The industry body said a significant number of policyholders would instead move to cheaper products containing exclusions or restrictions, often without a clear understanding of what they had given up until a claim was declined. Those who reduce or lose private cover do not exit the healthcare system – they shift to public hospitals, adding to demand on services already operating under capacity pressure. PHA chief executive Dr. Rachel David said the changes would force difficult financial decisions on retirees living on fixed incomes, including more than 400,000 pensioners currently holding private cover. “For many retirees, this will not be a small change. It will mean difficult decisions about whether they can continue to afford health cover at all,” David said.
Regional Australia and Tasmania were identified as particularly exposed. Private health insurance participation among older Australians is higher outside metropolitan areas, and many regional communities depend on private hospitals to supplement public health infrastructure. A reduction in insured patient volumes in those areas could place financial pressure on facilities that serve as primary points of care for local populations.
The AMA said the rebate cuts arrived without the structural reforms it had argued were needed to stabilise the private health system. In its pre-budget submission, the association called for a mandatory minimum insurer payout ratio of 90% – up from the 84% recorded in 2024-25 – as a mechanism to restore value for policyholders and encourage broader participation in private health insurance. “The trend of people paying more for less when it comes to private health insurance cannot continue if we are serious about protecting our healthcare system. Our proposal of a minimum 90% pay-out ratio would help to address the growing imbalance we’re seeing,” McMullen said.
The association also called for a defined minimum payable benefit for hospital-in-the-home services in the private sector, backed by legislative protections for patient choice and clinical independence. McMullen said some funds had already begun rolling out home-based care models, but that the structure of those arrangements raised concerns about access. “We are starting to see some private health insurers introduce their own models, but these funnel patients to the insurer’s own services, and this vertical integration ultimately restricts patient choice and access,” McMullen said.
Central to the AMA’s reform agenda is the establishment of a dedicated independent authority to govern the private health system. The association said regulatory responsibility is currently fragmented across multiple departments and agencies, and that the government’s simultaneous role as regulator and policymaker creates an inherent conflict. “An independent body would have the objectivity and expertise to oversee reform while balancing the interests of patients, hospitals, insurers, and doctors. It would bring together stakeholders to enact urgently needed reforms to safeguard the viability of private healthcare and knit together regulatory functions currently delivered by disparate departments and agencies, while removing government from its conflicted role of regulator and policy maker,” McMullen said. The budget did not establish such a body. In its place, the government committed $2.1 million in 2026-27 to fee transparency measures for non-GP specialists, including updates to informed financial consent processes and the Medical Costs Finder tool.
On public hospitals, the budget confirmed $25 billion in additional funding under the next National Health Reform Agreement (NHRA). The AMA said its modelling put the remaining funding gap at $9.6 billion, and that without bridging that shortfall, the pressure on public hospitals from reduced private health participation would be difficult to absorb. The association also flagged the absence of meaningful Medicare rebate indexation for non-GP specialists, which it said continued to fall behind inflation, and the lack of funding for an Independent Health Workforce Planning Agency or additional specialist training capacity. McMullen said the cumulative effect of these omissions meant the budget had not set the health system on a sustainable footing. “Decisions taken about healthcare can leave a legacy that shapes the health of our communities for many, many years to come. The time for delay is over – it’s time to modernise Medicare,” McMullen said.
