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May
11
The Medicare Levy change
May 11, 2008 | 7 Comments | Joshua Gans
So currently, if you earn more than $50,000 you get charged an extra levy if you don’t take out private health insurance. That income threshold is set to double next week. Suffice it to say, that will reduce the incentive for many households to take out private health insurance. It is like a tax cut except that some households will also be deciding to save themselves insurance premiums while the government will have to deal with some extra costs from them.
The interesting thing is why it was done? Clearly, for the households affected, to not have a levy held to their wallet when they make insurance purchase decisions is valuable. But there doesn’t seem to be a huge amount of political capital in this. Unless of course you were thinking of reforming the entire health insurance system in the future.
In that case, one thing you would want to know is: what is the elasticity of demand for private health insurance? By increasing the income threshold, you can pretty much calculate that for every household you identify that drops private health cover. If it turns out that that number is small, then maybe bigger reforms are possible. If it turns out that that number is really large, maybe bigger reforms are too costly. So this could all be about gathering information to pave a path to future reform; something I, for one, think is long overdue.
Comments
7 Responses to “The Medicare Levy change”
The economic rational person evaluates Australian Health Insurance by doing the calculations and assessing the risks. As you point out, for most people in Australia, Health Insurance is not for the economic rationalist because the things you need insurance for – the life threatening unforeseen accidents or heart attacks etc are covered by the public health system and it doesn’t matter if you are insured – in fact there is a disadvantage in being insured as there is more paper work when something bad happens.
Insurance seems to cover the things for which you do not need insurance – that is the thing many can afford to pay for – dental, elective surgery – and even here there is the “safety net”. Those who can’t afford to pay for these things do not take out insurance but those that can take it out!!!
I am in private health insurance and I know it is stupid because I can afford to pay for most health costs. The reason I am in it is because I thought the previous government were likely to change the rules so that health insurance was really health insurance – namely for those costs that would “ruin” me if they occurred. I am in it because I felt I could not trust the government to keep the rules and if they changed the rules then I may be better off because I was already in health insurance. Sounds stupid and naive and it is – but that is the reason and I suspect I am not alone. I have always felt I was bullied into keeping it.
What I really would like would be “MediSave” where I contribute to a saving account for health purposes and the government gives me an incentive to do so by matching my contributions with a small contribution that would decrease the more I put in. This would have the same effect as private health insurance but would be more economically efficient because I would be more careful with my health costs than I am now. Now I have every incentive to use medical services because there is little reason not to – particularly if I reach the safety net threshold. With MediSave then “my money” will go away if I use it and so I am less likely to touch it but will let it accumulate and I will be sure to get generic drugs etc. I will also object when I have to pay for systems that are clearly unnecessary and only put in to control abuses (not being able to see a specialist without seeing a GP first even for repeat specialist visits)
The Health Funds could offer such a system already and I think they would find it would be very popular. The government should like it because less money would be spent on health and more money would be saved for use on future health. (A bit like the future fund which seems all the rage).
One of the arguments I hear against MediSave is that people will not seek health services when they may need it. This says that people will be careful in choosing to seek health services which I would have thought was a good idea. The other argument is that it would be expensive. Wrong because it would be cheaper because the person would pay the whole bill at the one time instead of there being two payments – one from the person and one from the health fund.
“Now I have every incentive to use medical services because there is little reason not to” – really? You enjoy visiting the doctor?
I’ve never once been the doctor simply because it was free. And I’ve yet to meet someone who has.
There will be a group of people who will have a tax cut out of this – people like myslef who in increasing numbers have found themselves drifting into the bracket where they have to pay the surcharge.
Haven’t looked lately but there are I suspect a non-trivial number of people in this position.
You should also keep in mind that Medicare still pays for 75% of the MBS schedule fee even for private covered admissions.
[...] on the public system with a long comment thread, covering all sorts of health economics ground, and Joshua Gans comments that it is important to understand the price elasticity of health insurance when [...]
NPOV my health insurance gives me $100 a year that “goes” away if I do not spend it on things like massages!!!. It costs me no more if I use an expensive branded drug than if I use a generic. I go to a doctor every three months to get a prescription refilled. All trivial things but ones I would object to or change if I paid for it myself. This is what happens when governments deliver services instead of giving me a choice. Medisave is all about efficiency of expenditure through users having choices and voice in what goes on.
[...] Gans speculates that the Medicare levy change, doubling the threshold before the levy kicks in, might just be a test to determine the cost of [...]