What is a “Means Test” and how it affects your health insurance costs

Kevin Murphy is a freelance writer and former insurance industry professional. He spends most of his time in his native Australia, and he writes about Health Insurance for Frank Health Insurance.

The Australian healthcare system changed forever on July 1st, 2012. To many, it was just another July day, but to others it significantly changed the way their health care costs were structured. Among other things, the government passed a law through the Senate that will require Means Testing for many Australian families with private health insurance in order to determine their eligibility for the 30% health care rebate. Along with that, they also reorganized the way that rebates are paid out. They are now in separate tiers that will provide a lower or higher rebate depending on factors like your age and income level.

The day everything changed

Prior to July 1st, 2012, as we all know, there was a rebate of 30% across the board for anyone with private health insurance. This was mercifully uncomplicated and made it so a lot of those families with middle to lower middle class income levels could pay less out of pocket each year for their private health care coverage. The downside was that if you were a family who made $168,001 per year or more, you would have to pay just as much out of pocket for private health insurance as someone who earned millions of dollars a year, making the burden a little bit harder on those on the lower end of the income spectrum. The government wanted to both lighten the load on lower income families and ensure that those who couldn’t afford private health insurance weren’t negatively affected.

Paving a path with good intentions

As with many things that the Australian or any government does, they start out with good intentions. The health care rebate Means Test is meant to help the government be able to more accurately payout health care rebates and prevent overpaying to those who could otherwise afford the treatment they received. The purpose of which was to save the government money and, in turn, put less strain on the already overburdened public health care system. This looks great on the surface, but it could have far-reaching unintended consequences for the entire health care system as it stands.

Is it a fair shake for everybody?

Of course, there are two sides to this coin. Many people feel that putting a higher monetary strain on those with the most money would be an appropriate measure to ensure that those with little to low income have access to affordable, adequate health care. While that looks good on paper, it may do just the opposite, warns Dr. Michael Armitage, Chief Executive Officer of the Australian Health Insurance Association, who predicts that “means-testing the 30 per cent rebate will force people out of the private healthcare sector.”

Dr. Armitage has spoken out against Means Testing since the bill was in its infancy a few years ago. He also warns that “The costs of treating consumers in the public hospital system are expected to rise substantially above what is currently anticipated by the government, with an estimated rise of $3.8 billion over five years, and an estimated 850,000 person increase in public hospital admissions.” If you look at it that way, then the July 1st restructuring could force people out of private health care and back into the public system, clogging an already clogged infrastructure.

Change, good or bad, is happening

While it will be a while before we can truly see the effects of the Means Test on our health care system, we do know that change is in the wind. Whether it’s for better or for worse, only time will tell. Until then, the best advice would be to keep your private health insurance coverage as long as is feasible in order to provide the best possible care for you and your family.