Despite ever-rising health insurance premiums, alongside the rising cost of living more generally, the federal government has come up with further ways to worry us.

Private health insurance is a structurally important part of our society. Australians routinely pay significant amounts of money to ensure they have access to the right care for them when and if they need it.

The deal with private health insurance was always a simple one. Pay your way and you will be rewarded for sticking with it later in life. This deal has underpinned our system for decades.

This government boldly and courageously thinks it can change the deal but keep the system working.

From April next year, their proposal is to cut the higher private health insurance rebate available to Australians aged 65 years and over.

They government calls this “modernising” the rebate and argues this is a good way of improving intergenerational equity.

The problem, of course, is that there is nothing particularly modern nor equitable about any of this. In fact, the flow on effects are completely absent from the government’s thinking.

The Australians who will largely foot the bill for the government’s latest budget repair exercise are pensioners in their late seventies who have paid private health insurance premiums, without interruption, for over fifty years.

The government’s preferred talking point here is that two households on the same income should get the same rebate regardless of age.

As a debating point, that sounds neat enough. As serious health policy reform for a complex system groaning under immense pressure, and with soaring costs across just about every facet of life, it just doesn’t hold water.

If this legislation is passed, the federal government will strip out roughly $3 billion over four years from the premiums of older Australians. Worse, this will happen at precisely the time in their lives when they are most likely to need a hospital bed.

Many of those hospital beds belong to not-for-profit Catholic hospitals who have served their communities for decades, and which are sometimes the only private hospital for hours in any direction in regional areas.

There are three key realities that show the government can’t just change the deal and expect everyone to jog on.

First, the higher rebate for over-65s was never simply a gift, it was a fundamental part of the deal to encourage people to stay in the system for as long as possible.

John Howard acknowledged and understood this back in 2004 when the government announced the increased rebate for older Australians.

Over twenty years later, the support that has held these members in the system is about to be removed. Many older Australians will be priced out of cover and will drop out. That much is known, and the government acknowledges this.

However, fewer people in the pool is not a good way to keep an insurance system working. It will mean even higher premiums for those that remain.

Second, the rebate is means-tested and has been since 2012. The largest rebates flow to those on the lowest incomes. In many cases they are full or part Age Pensioners, people for whom private cover is not a luxury.

Rather, they have been engaging in a decades-long act of self-reliance and choice. People choosing to pay their own way, easing the burden on the public system, and doing exactly what governments of both persuasions have been asking Australians to do since the 1990s.

To what end then, when the government decides that’s no longer as valuable as it once was? Trust diminishes, and fewer people sign up in the first place.

Third, the government’s modelling ignores the elephant in the room and the broader reality.

The most concerning part is what’s not there.

People don’t just drop their cover, they often downgrade. Faced with a four-figure premium rise on a fixed income, some pensioners will cancel their cover but many more will look to downgrade.

Unfortunately, lower-level policies don’t tend to cover expensive things like hip replacements, cataract surgery, or dialysis which older Australians took out insurance to cover in the first place.

It should surprise and concern us that these downgrades are not accounted for in the government’s modelling of these changes. This means they miss the bigger picture.

Catholic Health Australia’s modelling shows these cuts to the private health insurance rebate will drive around 200,000 downgrades, cost public hospitals an extra $675 million a year, and potentially force some private hospitals to close.

Australia’s private hospitals are not, contrary to what government may believe, swimming in money. Margins across the sector have been increasingly ground down while insurer profits have grown.

The warning lights are flashing red in our regions.

For example, almost three in four admissions at St Vincent’s Private Hospital in Lismore, NSW, are patients 65 and over. If just 15 per cent of the privately insured patients in that group downgrade or drop their cover, up to 1,800 local residents will join the public hospital waiting list and the hospital will lose up to $3.9 million in revenue.

These changes push hospitals like this to the brink. It goes without saying that the regional public hospital system is in no condition to take the load.

The $3 billion this measure is estimated to save is apparently earmarked for our chronically and acutely underfunded aged care sector.

Proper funding is critical, but what’s also important is the trade-off we are being asked to buy into.

Older Australians who cannot get a hip replaced or a heart repaired because their private health insurance doesn’t cover it any more cannot hit a giant pause button.

Rather, while they wait on public waiting lists stretching months to years, their health will deteriorate. They will arrive in residential aged care years before they otherwise might.

The sad irony is that the government can’t quite see the forest from the trees. The proposal is to fund aged care from a cut that will end up increasing demand for aged care.

This is not reform. It is an intergenerational trap that we shouldn’t fall into.

The government will of course soon discover, as governments often do, that the savings they are eyeing up are a mirage.

Costs will reappear in growing public hospital waiting lists and be shifted onto the very people the public system exists to protect.

The Government claims its policy will save an average of $750 million a year over the forward estimates, but Catholic Health Australia estimates it will cost public hospitals around $675 million more a year to deal with the extra pressure.

There will also be flow-on costs to the aged care sector due to patients’ care being delayed in the public system.

The Senate inquiry reports in October. Between now and then, Senators and Australians might ask themselves what test they could apply here.

In our view, a country reveals its character in how it treats those who kept their side of the bargain. These Australians kept theirs, and the Government should do the same.

This article first appeared in The Canberra Times “Cutting the health insurance rebate is ticking timebomb for public hospitals”