Millions of older Australians could face higher private health insurance costs under a Federal Government proposal to remove the additional rebate currently available to people aged 65 and over.
For retirees already dealing with higher living costs, insurance premiums and healthcare expenses, it is an understandably important issue.
But there is one crucial point to understand:
The change is not yet law.
As at 21 September 2026, the Private Health Insurance Amendment (Modernising the Private Health Insurance Rebate) Bill 2026 remains before Parliament. Its provisions have been referred to the Senate Community Affairs Legislation Committee, which is due to report on 7 October 2026. If enacted as proposed, the changes would commence on 1 April 2027.
So what exactly is being proposed, how much could it cost, and why has the proposal generated so much debate?
How does the private health insurance rebate work now?
The Australian Government Private Health Insurance Rebate helps eligible Australians cover part of the cost of private health insurance premiums.
The amount depends on income and, under the current system, age.
For the period from 1 April 2026 to 31 March 2027, people in the base income tier receive rebates of:
| Age | Current base-tier rebate |
| Under 65 | 24.118% |
| 65–69 | 28.139% |
| 70 and over | 32.158% |
Different rebate percentages apply to higher income tiers.
In other words, under the current system an eligible 70-year-old can receive a larger percentage rebate than a 60-year-old on the same income.
What does the Government want to change?
The proposed legislation would remove the additional age-based component of the rebate for people aged 65 and over.
Instead, the rebate would primarily be determined by income tier, with people in the same tier receiving the same rebate percentage regardless of whether they are 55, 65 or 75.
This would mean people aged 65 and over currently receiving the higher age-based rebates would receive a smaller rebate towards their premiums than they do under the existing arrangements.
The proposed start date is 1 April 2027.
How much could it cost older Australians?
The exact impact would depend on your:
- age
- income
- private health insurance policy
- premium
- current rebate tier
The Government has previously estimated the average additional cost for affected people aged over 65 at around $250 a year, while acknowledging that individual impacts will vary.
For someone managing retirement on a fixed income, $250 may not sound enormous in isolation.
But household budgets do not operate in isolation.
Private health premiums already increased by an industry-wide average of 4.41% from 1 April 2026, reflecting higher healthcare and hospital costs.
Older Australians may therefore be absorbing increases across several categories at once — private health insurance, home insurance, council rates, food, electricity, medical expenses and other everyday living costs.
Around 3 million older Australians could be affected
The proposed reform would affect more than 3 million Australians aged 65 and over with private health insurance.
Recent Parliamentary Budget Office analysis reported by the ABC found around 1.5 million Age Pension recipients currently hold private health insurance.
That makes this more than an issue for affluent retirees.
A substantial number of people affected are Age Pensioners or part-pensioners who have chosen to maintain private health cover despite living on relatively constrained retirement incomes.
The same PBO analysis reported that approximately $1.6 billion of the Government’s forecast savings would come from Age Pension recipients over the relevant budget period.
Why is the Government proposing the change?
The Government’s argument centres on two issues: consistency between age groups and funding aged care.
Health Minister Mark Butler has argued that two households on the same income should receive the same level of taxpayer assistance towards private health insurance regardless of their age.
The Government also says savings from the measure would help fund additional aged-care services, including more residential aged-care capacity and support packages.
The Government has described this as part of the difficult funding choices required as Australia’s ageing population increases demand for both healthcare and aged care.
Why are critics concerned?
The proposal has also attracted opposition.
A central concern is that reducing the rebate could encourage some older Australians to downgrade or cancel their private health insurance.
Critics argue that if significant numbers of older policyholders move into the public hospital system, state health services could face additional demand.
The scale of that effect is disputed.
Minister Butler said departmental modelling estimated that approximately 44,000 fewer older Australians could hold private insurance as a result of the reform than would otherwise have been the case.
He has also pointed to University of Melbourne modelling suggesting an impact somewhere between approximately 12,000 and 41,000 people, while private health industry estimates have been higher.
Those differences are one reason the proposal continues to be debated.
For retirees, however, the more immediate question is simpler: what would the change mean for my premium?
An example of how the rebate change could work
Consider a retiree aged 72 who currently qualifies for the base-tier rebate.
Under the current 2026–27 settings, their rebate is 32.158%.
An under-65 policyholder in the same income tier receives 24.118%.
Under the proposed reform, the special age-based uplift would disappear.
That difference does not translate directly into the same percentage increase in the person’s final premium, because premiums, insurer pricing and future rebate indexation all affect the calculation.
But it illustrates why Australians aged 70 and over who currently receive the largest age-based rebate are likely to pay more if the legislation proceeds.
Don’t cancel your health insurance based on the headlines
Importantly, there is no need to make an immediate decision about your private health insurance because of this proposal.
The bill is still before Parliament.
The Senate committee examining its provisions is due to report on 7 October, and the proposed change would not commence until April 2027 even if legislation is eventually passed.
Older Australians should therefore be cautious about cancelling or substantially changing cover purely because of predictions about future costs.
Private health insurance choices can affect waiting periods, hospital choice, excess levels and access to particular types of treatment.
A better approach may be to wait until the final rules are known, then ask your insurer to explain exactly how any rebate change would affect your own premium.
The bigger issue: healthcare is becoming a larger retirement expense
The debate also highlights something many retirees already know from experience.
Healthcare can become a more significant part of the household budget as we get older.
The cost is not limited to private health premiums.
Depending on individual circumstances, retirees may also face expenses associated with:
- dental treatment
- optical care
- specialist appointments
- medications
- mobility equipment
- home modifications
- allied health
- in-home assistance
- residential aged care later in life
For people living largely on the Age Pension and modest savings, an unexpected medical bill or another $20 or $30 a month of recurring expenses can place additional pressure on household cash flow.
What can homeowners do when retirement costs keep rising?
Many older Australians are in an unusual financial position.
They may own their home outright — sometimes worth $800,000, $1 million or considerably more — while having relatively limited income available to meet everyday expenses.
That is why home equity is increasingly part of the retirement-funding discussion.
One option available to eligible homeowners aged 55 and over is a Reverse Mortgage, which can allow them to release a portion of the wealth in their home without having to sell or move.
What is a Reverse Mortgage? — Seniors First
Depending on the lender and the borrower’s circumstances, funds may potentially be used for purposes such as:
- building a retirement cash reserve
- medical or dental expenses
- home renovations or modifications
- paying down existing debt
- supplementing retirement income
- helping fund aged-care or in-home care costs
However, using home equity is a major financial decision.
Reverse Mortgage interest compounds over time and reduces the equity that would otherwise remain in the property, so borrowing should generally be structured carefully around actual needs rather than simply accessing the maximum amount available.
A cash reserve can sometimes be more efficient than taking a large lump sum
For retirees concerned about future medical and living expenses, there can also be an important difference between having access to money and borrowing all of that money immediately.
With some Reverse Mortgage structures, borrowers may be able to establish access to a larger approved facility while drawing funds progressively as they are required.
Because interest is generally charged only on money actually drawn, carefully structuring future access to funds may help reduce long-term interest costs compared with taking a large lump sum upfront.
This is one reason Seniors First focuses on loan structure as well as simply comparing the amount different lenders will provide.
You can explore how different borrowing amounts may affect the loan over time using the Seniors First Reverse Mortgage Calculator.
Use the Reverse Mortgage Calculator
What should over-65s do now?
At this stage, the most useful response is to stay informed rather than make rushed changes.
If you have private health insurance:
Check your current rebate tier. Your age and income both determine the rebate you currently receive.
Review your annual premium. Understand what you are paying today before assessing any future increase.
Watch the legislation. The proposal has not yet become law.
Ask your health fund for an individual estimate. Once the final rules are known, your insurer should be able to explain the dollar impact on your policy.
Review your broader retirement budget. Look at healthcare alongside food, utilities, insurance, rates and other recurring costs rather than treating each increase separately.
And if rising expenses are creating a structural shortfall in retirement income, consider the full range of possible solutions before simply drawing down savings.
The bottom line
The proposed private health insurance rebate changes represent a potentially significant additional cost for millions of Australians aged 65 and over.
Under the proposal, the extra age-based rebate currently available to eligible people over 65 would disappear and rebates would instead be based primarily on income.
The Government argues this creates more consistent treatment between generations and would free up funding for aged care. Critics are concerned about the effect on household budgets and the possibility that some older Australians may abandon private health insurance.
As at 21 September 2026, however, the proposal remains before Parliament.
For retirees, the sensible response is therefore not to panic — but to understand the potential cost and factor it into longer-term retirement planning.
For homeowners whose income and savings are struggling to keep pace with healthcare and other living costs, accessing home equity may be one option worth investigating.
Seniors First helps Australians aged 55 and over understand and compare Reverse Mortgage options, including ways of structuring loans to minimise unnecessary interest costs.
For those who would prefer to research independently first, SERAH™ provides a secure online environment where older Australians can learn about home equity release, use educational tools and explore their options at their own pace.
Learn more about SERAH™ from Seniors First
This article provides general information only and does not take into account your individual financial, health insurance or Centrelink circumstances. Check information with your private health insurer, Services Australia and appropriate professional advisers before making financial decisions.
