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Incentivising private health insurance through the income tax regime: Capitalising on behavioural models


The Australian income tax regime is generally regarded as a mechanism by which the Federal Government raises revenue, with much of the revenue raised used to support public spending programs. A prime example of this type of spending program is health care. However, a government may also decide that the private sector should provide a greater share of the nation's health care. To achieve such a policy it can bring about change through positive regulation, or it can use the taxation regime, via tax expenditures, not to raise revenue but to steer or influence individuals in its desired direction. When used for this purpose, tax expenditures steer taxpayers towards or away from certain behaviour by either imposing costs on, or providing benefits to them. Within the context of the health sector, the Australian Federal Government deploys social steering via the tax system, with the Medicare Levy Surcharge and the 30 percent Private Health Insurance Rebate intended to steer taxpayer behaviour towards the Government’s policy goal of increasing the amount of health provision through the private sector. These steering mechanisms are complemented by the ‘Lifetime Health Cover Initiative’.

This article, through the lens of behavioural economics, considers the ways in which these assorted mechanisms might have been expected to operate and whether they encourage individuals to purchase private health insurance.

Author profiles

Andrew Johnston
Andrew works for TC Beirne School of Law, University of Queensland and Research Associate, Centre for Business Research, University of Cambridge.
Current at 1 December 2011 - Current at 18 January 2012
Kerrie SADIQ
Kerrie is an Associate Professor, TC Beirne School of Law, The University of Queensland and Research Fellow, Taxation Law and Policy Research Institute, Monash University.
Current at 1 December 2011 - Current at 18 January 2012
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