Confusing taxation, health care and health insurance.


Apparently the federal government has secured support in parliament to means test the private health insurance (PHI) rebate and to raise the ‘penalty’ surcharge on high income earners who do not take out PHI. See here. The problem with this is that it continues the confusion between taxation, health care and private health insurance.

The government likes more people to take out private health insurance because this reduces the payments under the public health insurance system. This is because of overlap between the systems. A privately insured patient means less cost to the government for a procedure than if the patient were only on public insurance. The problem with this is that the system distorts incentives.

The overlap between PHI and Medicare means that high income earners have less incentive to take out private insurance. So the government forces them via the tax system rather than dealing with the overlap. The relationship between public patients and Medicare means that the government has an incentive to prefer longer waiting lines for ‘elective’ procedures. This saves money by creating an incentive for people to take up PHI. But it undermines the health care of Australians.

I have no problems with a more progressive income tax scheme for Australia. But I do have a problem with hidden taxes and distorted incentives. The latest moves by the federal government reflect the problems of health insurance in Australia, not the solution.

What are the alternatives? I have blogged on this before here and here. In comments on an earlier blog, fxh pointed out the Dutch alternative. Whatever the solution to better health care for Australia, the current approach of confusing incentives and mixing taxation changes with health insurance is bad policy.

3 Responses to "Confusing taxation, health care and health insurance."
  1. I feel kind of famous now being cited. (btw is this a “high impact” blog?)
    I’ve spent time with Netherlands Health services and can say the schemes works well – by our standards and theirs.
    Something rarely mentioned is that the nl scheme is a result of at least 15 years of debate and tweaking before it was implemented and with constant adjustments for reality – ie – a reduction in number of insurers  and end of year adjustments between insurers for risk and expenditure etc.
    There is a longer paper by Stoelwinder and others that was a submission to the National Health reform. Debate seems to have been stifled. If you cant find the submission online – I’ll see if I can find it later.

  2. The Dutch place a high value on what we might claim as a special Australian notion of a “fair go” for all.
    The Dutch also place great value on robust debate and thrashing things out, something we avoid, to reach consensus – after a LONG time. Not a pseudo consensus based on compromise, a short forced time frame and least offensive like we do.
    At its most basic the .nl system insists that every person take out health insurance with whoever they want – they have a choice – those that cant afford it are subsidised to varying degrees, but they still must take out insurance. Those % subsidised in one way or another is around 50%.

  3. The .nl scheme result in hospital and health services negotiating with each insurance provider – leading to different payments from different insurers for the same procedure with different packages of services.
    There is an incentive for insurers to offer PROVEN preventative / early intervention schemes that will lower their costs with a provider. Not the nonsense here where, say acupuncture, or gym shoes  etc are payed for.

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