Plans to scrap the private health insurance rebate for high earners will help pay for an A$5.7bn funding package aimed at improving Australia’s health and hospital sector, it was announced in yesterday’s budget.

The extra funding pledged in Treasurer Wayne Swan’s 2009 to 2010 Federal Government budget will run across the next five years and contribute to a record borrowing level, as the government pushes spending during the economic downturn.

More than A$3bn has been allocated to improving hospitals and boosting the cancer care infrastructure across the country.

Costs for the spending plans will be offset by saving made in cuts to government aid towards private health insurance.

From 1 July 2010, singles earning more than A$120,001, or couples earning double, will not receive any health insurance rebate, with surcharges for those who do not pay for health insurance increasing to 1.5%.

Swan said some voters “will be unhappy with the hard choices we’ve taken…especially those we have asked to contribute more, because they can afford to do so.”

This has led to speculation that private health insurers such as NIB may be forced to raise premiums. Morgan Stanley has calculated that the means-testing scheme will put about 4% of policies at risk.

The government also aims to encourage health professionals into rural areas by an A$134m rework of an existing scheme that pays retention grants for rural doctors.

Doctors’ grants in the most rural areas could increase to A$47,000 a year, up from A$25,000. In addition, overseas-trained doctors will also be encouraged to take up rural posts.

By Natalie Coomber.