Tax Incentives and the Demand for Private Health Insurance
This paper studies the effect of an individual insurance mandate (Medicare Levy Surcharge) on the demand for private health insurance (PHI) in Australia. It uses the administrative income tax returns data to show that mandate has several distinct effects on taxpayers' behavior. First, despite the large size of the tax penalty for not having PHI cover relative to the cost of the cheapest eligible insurance policy, the compliance with mandate is relatively low: the proportion of population with PHI cover increases by 6.5 percentage points (15.6%) at the income threshold at which the tax penalty starts to apply. This effect is most pronounced for young age taxpayers, while the middle aged people 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 the effect of the policy is extrapolated to other income levels to show that overall this policy hasn't had a significant impact on the demand for private health insurance in Australia.
|Date of creation:||01 Nov 2013|
|Date of revision:|
|Contact details of provider:|| Postal: PO Box 123, Broadway, NSW 2007, Australia|
Phone: +61 2 9514 7777
Fax: +61 2 9514 7711
Web page: http://www.uts.edu.au/about/uts-business-school/economics
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, vol. 142(2), pages 698-714, February.
- Randall Ellis & Elizabeth Savage, 2008. "Run for cover now or later? The impact of premiums, threats and deadlines on private health insurance in Australia," International Journal of Health Care Finance and Economics, Springer, vol. 8(4), pages 257-277, December.
- Henrik J. Kleven & Mazhar Waseem, 2013. "Using Notches to Uncover Optimization Frictions and Structural Elasticities: Theory and Evidence from Pakistan," The Quarterly Journal of Economics, Oxford University Press, vol. 128(2), pages 669-723.
- Emmanuel Saez, 2010.
"Do Taxpayers Bunch at Kink Points?,"
American Economic Journal: Economic Policy,
American Economic Association, vol. 2(3), pages 180-212, August.
- Meliyanni Johar & Glenn Jones & Michael Keane & Elizabeth Savage & Olena Stavrunova, 2011. "Waiting times for elective surgery and the decision to buy private health insurance," Health Economics, John Wiley & Sons, Ltd., vol. 20(S1), pages 68-86, 09.
- Finkelstein, Amy, 2002. "The effect of tax subsidies to employer-provided supplementary health insurance: evidence from Canada," Journal of Public Economics, Elsevier, vol. 84(3), pages 305-339, June.
- Jonathan Gruber, 2011. "The Impacts of the Affordable Care Act: How Reasonable Are the Projections?," NBER Working Papers 17168, National Bureau of Economic Research, Inc.
- Gruber, J. & Poterba, J., 1994.
"Tax Incentives and the Decision to Purchase Health Insurance: Evidence from the Self-Employed,"
94-10, Massachusetts Institute of Technology (MIT), Department of Economics.
- Jonathan Gruber & James M. Poterba, 1993. "Tax Incentives and the Decision to Purchase Health Insurance: Evidence from the Self-Employed," NBER Working Papers 4435, National Bureau of Economic Research, Inc.
- Raj Chetty & John N. Friedman & Tore Olsen & Luigi Pistaferri, 2009.
"Adjustment Costs, Firm Responses, and Micro vs. Macro Labor Supply Elasticities: Evidence from Danish Tax Records,"
NBER Working Papers
15617, National Bureau of Economic Research, Inc.
- Raj Chetty & John N. Friedman & Tore Olsen & Luigi Pistaferri, 2011. "Adjustment Costs, Firm Responses, and Micro vs. Macro Labor Supply Elasticities: Evidence from Danish Tax Records," The Quarterly Journal of Economics, Oxford University Press, vol. 126(2), pages 749-804.
- Bruce Chapman & Andrew Leigh, 2009.
"Do Very High Tax Rates Induce Bunching? Implications for the Design of Income Contingent Loan Schemes,"
The Economic Record,
The Economic Society of Australia, vol. 85(270), pages 276-289, 09.
- Bruce Chapman & Andrew Leigh, 2006. "Do Very High Tax Rates Induce Bunching? Implications for the Design of Income-Contingent Loan Schemes," CEPR Discussion Papers 521, Centre for Economic Policy Research, Research School of Economics, Australian National University.
- Jonathan Gruber & James Poterba, 1994. "Tax Incentives and the Decision to Purchase Health Insurance: Evidence from the Self-Employed," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 701-733.
- Gruber, Jonathan, 2011. "The Impacts Of The Affordable Care Act: How Reasonable Are The Projections?," National Tax Journal, National Tax Association, vol. 64(3), pages 893-908, September.
When requesting a correction, please mention this item's handle: RePEc:uts:ecowps:16. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Duncan Ford)
If references are entirely missing, you can add them using this form.