Tax incentives and the demand for private health insurance |
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| Affiliation: | 1. University of Technology, Sydney, Australia;2. University of Wollongong, Australia;1. Irdes,CESP, Inserm, France;2. Université Paris-Dauphine, PSL Research University, Leda-Legos & Irdes, France;1. Centre for Health Economics Research and Evaluation, University of Technology Sydney, Sydney, Australia;2. UNSW Business School, University of New South Wales, Sydney, Australia;3. Faculty of Health, University of Technology Sydney, Sydney, Australia;4. Burnet Institute, Melbourne, Australia;1. Dalla Lana School of Public Health, University of Toronto, 155 College Street, 6th Floor, Toronto, ON, M5T 3M7, Canada;2. University of Toronto Scarborough Campus and Dalla Lana School of Public Health, University of Toronto, 1265 Military Trail, Toronto, ON, M1C 1A4, Canada;3. Factor-Inwentash Faculty of Social Work, University of Toronto, 246 Bloor Street W, Toronto, ON, M5S 1V4, Canada;4. Daphne Cockwell School of Nursing, Ryerson University, 350 Victoria Street, Toronto, ON, M5B 2K3, Canada;1. Boston University, Department of Economics, United States;2. Harvard Medical School, Department of Health Care Policy, United States;1. University of Lucerne, Department of Health Sciences and Health Policy and Center for Health, Policy and Economics, Frohburgstrasse 3, PO Box 4466, CH-6002 Lucerne, Switzerland;2. University of Bern, Department of Economics and CSS Institute for Empirical Health Economics, Tribschenstrasse 21, CH-6002 Lucerne, Switzerland |
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| Abstract: | We analyze the effect of an individual insurance mandate (Medicare Levy Surcharge) on the demand for private health insurance (PHI) in Australia. With administrative income tax return data, we show that the mandate has several distinct effects on taxpayers’ behavior. First, despite the large tax penalty for not having PHI coverage relative to the cost of the cheapest eligible insurance policy, compliance with mandate is relatively low: the proportion of the population with PHI coverage increases by 6.5 percentage points (15.6%) at the income threshold where the tax penalty starts to apply. This effect is most pronounced for young taxpayers, while the middle aged seem to be least responsive to this specific tax incentive. Second, the discontinuous increase in the average tax rate at the income threshold created by the policy generates a strong incentive for tax avoidance which manifests itself through bunching in the taxable income distribution below the threshold. Finally, after imposing some plausible assumptions, we extrapolate the effect of the policy to other income levels and show that this policy has not had a significant impact on the overall demand for private health insurance in Australia. |
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| Keywords: | Private health insurance Insurance mandate Tax incentives Australia Tax bunching |
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