Thousands of older Australians could face higher private health insurance costs under proposed changes by the federal government, prompting concerns that more people could abandon or downgrade their cover.

The Albanese government plans to remove the additional age-based private health insurance rebate for people aged 65 and over from April 2027. The reform is expected to generate around A$3 billion in savings over four years, which the government says will be redirected into aged-care services.

Federal Health Minister Mark Butler argues that private health insurance support should be based on income rather than age. Under the current system, two households with similar incomes can receive different levels of government support depending on whether members are over 65.

However, the proposed changes have raised concerns in South Australia, where the state government fears even a small decline in private insurance membership could put further pressure on public hospitals.

South Australian Health Minister Blair Boyer said the state would closely monitor the number of older residents maintaining private health cover. Around 226,000 South Australians aged over 65 approximately 58 per cent currently hold private health insurance.

The state government has warned that a 1 per cent increase in the number of older people leaving private insurance could contribute to longer elective surgery waiting lists and increased demand for outpatient assessments, diagnostic services and rehabilitation.

The federal government, however, estimates that only 0.4 per cent of Australians would drop their private insurance as a result of the reform. Mr Butler has described the expected impact on insurance membership and public hospitals as “very, very modest”.

The legislation is currently before Parliament. If passed, the changes will take effect next year, with governments expected to monitor whether the reform leads to a significant shift from private to public healthcare.