Govt's Medicare changes criticised

Health premiums are set to go through the roof and public hospitals will be $43 million a year worse off after the federal government doubles the Medicare levy surcharge threshold, critics claim.

Federal Treasurer Wayne Swan said the tax, which was introduced in 1997 when the average income was around $35,000, was intended to apply to high-income earners.

Lifting the levy threshold from $50,000 to $100,000 for singles and from $100,000 to $150,000 for couples means middle-income earners will no longer be slugged by a tax designed for the rich, he said.

"Up to two million people have been caught in a tax trap," Mr Swan told reporters in Canberra.

"We have removed that tax trap. I think it is a fair thing to do and it is a very fair decision."

But Australian Health Insurance Association (AHIA) chief executive Michael Armitage said lifting the threshold to keep pace with inflation would put it under $75,000.

Dr Armitage said the change would prompt 400,000 people to opt out of private health insurance.

Even after a $600 million injection from the federal government designed to trim waiting lists, public hospitals will be $172 million worse off over four years, he said.

Dr Armitage said all private health insurers would be forced to hike premiums.

"There is no question that premiums will rise, it's a given," he told reporters in Canberra.

"It's what happens in private health insurance when smaller numbers of people are sharing the same number of costs."

Health Minister Nicola Roxon, who can knock back proposed premium increases, said she would not allow the funds to use the change as an excuse to lift charges.

"I don't think the industry can use every change and every reason for a (premium) increase," she told ABC Radio.

"Sometimes they have to look at what actually might keep their cost structures down."

Federal opposition health spokesman Joe Hockey said the effect of the threshold change on private health funds and private hospitals would be severe.

"No matter what happens tomorrow I would suspect that any fair dinkum state health minister would be quivering today at the thought that the Rudd Labor government is taking a baseball bat to private health insurance," he told journalists in Canberra.

"Ultimately, everyone in Australia pays a price for that because it means fewer funds for health care overall."

But Australian Private Hospitals Association executive director Michael Roff denied there would be a significant exodus from funds.

He said private health insurance members will stay with their funds as they value having fast access to care provided in private hospitals.

"We believe that despite the changes announced in the budget, when people sit down and evaluate the value proposition, they will decide the benefits provided by private health care outweigh any small financial saving that may accrue," Mr Roff said.

Greens senator Christine Milne said if the health insurance companies are providing customers with a quality product then they should not be worried about the threshold increase.

The Greens want the government to abolish the private health insurance rebate, which provides a 30 per cent rebate to all policy holders.