It should not be assumed that every private hospital service is essential care that would otherwise have to be performed in a public hospital. Like the public system, private healthcare delivers excellent and necessary care. But it also delivers care of little or uncertain value. Australian research has demonstrated low-value procedures in the private sector.
Tue 29 Sep 2026 10.18 AEST
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Parliamentary Budget Office analysis has added fuel to the debate over the government’s plan to remove the extra private health insurance (PHI) rebate for people aged 65 and over.
Commissioned by independent MP Monique Ryan, the analysis finds that about $1.6 billion of the government’s expected $3 billion in savings over four years would come from people receiving the Age Pension. Around 1.5 million insured people aged 65 and over are estimated to receive at least some pension.
Under the proposed change, Australians aged 65 and over will receive the same means-tested PHI rebate as everyone else, thus removing the current four-percentage-point uplift for over 65s (eight for those 70 and over). As we have argued, younger Australians already subsidise their older compatriots through Community Rating, which prohibits insurers from basing premiums on age and pre-existing medical conditions.
Pensioners have less capacity than wealthy retirees to absorb higher premiums, so there’s a reasonable argument for targeting assistance according to financial need.
But the media release accompanying the Budget Office analysis falls into a familiar trap. It argues that people dropping or downgrading their insurance will increase pressure on public hospitals and shift costs from Canberra to the states.
But government modelling and independent research expect the hospital impact to be marginal. There are two main reasons why: private hospitals provide a lot of low value care; and they compete with public hospital for the same scarce resources.
It should not be assumed that every private hospital service is essential care that would otherwise have to be performed in a public hospital.
Like the public system, private healthcare delivers excellent and necessary care. But it also delivers care of little or uncertain value. Australian research has demonstrated low-value procedures in the private sector, while the Australian Atlas of Healthcare Variation has repeatedly found large and unexplained differences in age-adjusted rates in procedures such as knee arthroscopy, invasive coronary tests and lumbar spine surgery. If somebody forgoes an unnecessary knee arthroscopy because they no longer have top private cover, there’s not necessarily a corresponding public hospital admission.
Public hospitals, meanwhile, juggle the majority of complex patients and emergencies (94% of strokes and 86% of heart attacks are treated in the public sector). And this is in addition to elective surgery – for which waits are growing.
Counting every lost private procedure as additional public demand thus exaggerates the transfer of medical need.
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The other problem is that the private and public systems are routinely spoken about as though they were two separate production lines, with private taking load off the public.
This ignores the reality that they share many of the same critical inputs.
Most medical care in private hospitals is provided by visiting specialists rather than doctors employed by the hospital. Public hospitals, meanwhile, employ almost 60,000 salaried medical officers and undertake the great bulk of emergency care. In 2024–25, 95% of surgery in private hospitals was elective, compared with 65% in public hospitals, while 27% of public-hospital surgery was emergency surgery.
So, increasing private activity does not necessarily create new health-system capacity, because surgeons and anaesthetists cannot be in two hospitals at once. More private elective activity can simply move scarce labour around the system.
When comparing the value of private health insurance, it is important to remember that private hospitals receive substantial public support. Through the PHI rebate, the Australian taxpayer directly contributes about $8 billion – a third of private-hospital funding – even before we count Medicare spending. That money could go directly to public hospitals, primary care or aged care.
Funding services directly, rather than through a circuitous route via insurers and private hospitals, was a key point in The Australia Institute’s submission on the proposed change to the PHI rebate.
The relevant question is how much valuable care the PHI rebate actually buys, not how much private activity disappears, and whether spending the same money elsewhere would produce greater health benefits.
Redirecting savings from reducing the PHI rebate for people over 65 into aged care could relieve hospital pressure more directly by helping patients leave hospital once they no longer need acute care.
Luke Slawomirski is a Senior Postdoctoral Research Fellow at The Australia Institute. He is a health economist, policy analyst and former clinician.
