Unveiling The Hard Truth About Private Health Insurance Rebate
Published February 24, 2026
The rebates for private health insurance were introduced to make health insurance more affordable and to encourage ordinary Australians to purchase private hospital cover. However, the current system is not exactly doing the job it was meant to do. While the government is forking out $6.7 billion a year to subsidize private health insurance, take a closer look at the figures and you will see that this subsidy is primarily going to people who are likely to purchase health insurance anyway.
Now the question is who is really benefiting from the rebates for private health insurance?
The original purpose of private health insurance rebate
The private health insurance rebate has been around since 1999 as a universal subsidy that pays 30% of private health insurance premiums for all Australians. The original purpose was simple: make private health insurance more affordable and ease the pressure on the public health system by encouraging more Aussies to have treatment at private hospitals.
In 2005, the Howard government increased rebates for older Australians, with rebates increasing to 35% for people aged 65-69 and 40% for people aged 70 and over, regardless of income. The idea was that older Aussies who are more likely to need medical treatment would be more likely to purchase private health insurance if they were offered a greater financial incentive.
Over the years, rebates have been tiered according to income brackets, with people on higher incomes receiving lower rebates. That bit of it makes sense. But the increased rebates for older Australians have remained a constant part of the system.
Are older Aussies actually purchasing more private health insurance?
The effectiveness of these rebates in encouraging private health insurance among older Aussies has always been in question. According to an article published in the Conversation, a study examined tax return data from 300,000 Australians between 2001 and 2012. The study showed that a 10% decrease in the cost of premium prices through rebates only led to a 1-2% increase in private health insurance among Aussies aged 65 years and older. Doesn’t this indicate that rebates are not very effective in encouraging older Aussies to purchase private health insurance?
This is a rather small increase in participation for a government program that annually costs the Australian government billions of dollars.
Who actually benefits from the rebate?
The truth is that contrary to being originally designed as an affordability program, today, higher-income Aussies actually benefit the most from private health insurance rebate. The fact is that, for the 2025-26 financial year, singles and families earning up to $302,000 are eligible for rebates, despite having the financial means to purchase private health insurance without government rebates.
Research shows that people in higher income brackets would purchase private health insurance even without rebates, which means that the government subsidy is essentially a money windfall for people who are already likely to purchase private health insurance. Low-income earners benefit least because many singles and families can’t afford private health insurance even with rebates.
Find out who really benefits from the private health insurance rebate in Australia and how government subsidies are distributed. Compare plans with Utility Market – follow us on Facebook.
