The Australian Medical Association says private health insurers should address low quality and sometimes "useless" products instead of attempting to use punitive tax hikes to push people into taking up their policies.
In a submission to the Turnbull government's budget process, Private Healthcare Australia, the sector's peak body, has said the Medicare levy surcharge should be raised for high-income earners who do not have private health insurance.
The representative body said the surcharge should be "recalculated" to boost the incentive for the wealthy, recommending a change that would see the top rate lifted from 1.5 per cent to 2 per cent.
"Bracket creep in combination with premium increases for some people, has resulted in the premium being paid now being less than the additional tax with the result that, over time, individuals and families may choose to pay the surcharge rather than hold [private health insurance]," the pre-budget submission said.
Currently, single people earning more than $90,000 and couples earning more than $180,000 pay a Medicare levy surcharge of up to 1.5 per cent if they do not have a private policy.
The AMA, the peak group representing Australian doctors, said the private health insurance sector should be focused on making their policies worthwhile.
"The sheer fact that there are wealthy Australians who are willing to pay more tax rather than go through the simple exercise of taking out health insurance surely must tell insurers that there's a problem with their products," AMA president Michael Gannon told Fairfax Media.
"Too many Australians find out only when they are sick that their health insurance policy is not what they expected and, in some cases, is nearly entirely useless."
Dr Gannon said private hospitals were an essential and important part of Australia's health system but warned that "junk policies" still needed to be dealt with. He said it would be ideal if zero Australians held basic health insurance policies that entitle them to very little.
The intent of the surcharge is to push people to take out private policies and ease the burden on the public system.
A federal government blueprint announced in late 2017 would allow private insurers to charge higher excesses, offer discounts to young people, cut more than a billion dollars from the medical devices sector and scrap coverage for natural therapies.
The package is intended to restrain the growth in premiums and prevent an exodus of customers that would, according to the government, threaten the entire industry and strain the public health system.
