Tax incentives and the demand for private health insurance

Olena Stavrunova () and Oleg Yerokhin

Journal of Health Economics, 2014, vol. 34, issue C, 121-130

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.

Keywords: Private health insurance; Insurance mandate; Tax incentives; Australia; Tax bunching (search for similar items in EconPapers)
JEL-codes: I13 I18 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Working Paper: Tax Incentives and the Demand for Private Health Insurance (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhecon:v:34:y:2014:i:c:p:121-130

DOI: 10.1016/j.jhealeco.2014.01.001

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