By 2020 average income earners will be forced to buy private health insurance or pay extra tax after the government quietly extended a freeze in the threshold for the Medicare Levy Surcharge.
The income threshold, where rebates start to phase out and taxpayers without private cover are charged the surcharge, will stay fixed at $90,000 for singles until June 2021.
The Medicare Levy Surcharge originally targeted high-income earners and was indexed to average weekly full-time ordinary-time earnings.
Health Minister Sussan Ley. Photo: Andrew Meares
However, the first Abbott-Hockey budget in 2014 paused indexation until June 2018. The 2016 budget extends the freeze for another three years, saving about $370 million on the forward estimates.
He points out that the average full-time wage would be about $90,000 by 2020-2021, based on the long-term wage price index in the budget of 2.75 per cent.Ian McAuley, a fellow at the Centre for Policy Development, has highlighted the freeze in a paper on private health insurance and public policy to be presented at the 2016 Health Insurance Summit this coming Thursday.
The move was buried within the 2016 budget papers but has largely escaped public notice. Even the government’s ownprivatehealth.gov.au information site says indexation is due to resume in 2018, perhaps because the extension is yet to be legislated.
?Mr McAuley is a proponent of the idea that directly funding private hospitals alongside the public system would be more efficient than giving public subsidies to private health insurers.
He argues the freeze in the threshold for private health rebates and the Medicare Levy Surcharge takes the cost of subsidising the insurance sector off the budget and into the “dark world of hidden subsidies”. He argues exempting private health fund members from the Medicare Levy Surcharge is a form of subsidy for the industry.
Currently the government pays $6.5 billion in direct outlays for the rebate and $1.6 billion in “tax expenditures” (because the rebate does not count as taxable income). The freeze in the threshold means the government will gradually shell out less for the rebate, while the pressure on individual taxpayers to buy private health cover will increase.
“What has passed for an economic debate in the last two elections has been mainly about the size of the deficit,” Mr McAuley says in his paper. “That focus encourages cost-shifting and resort to what are known as ‘privatised taxes’. Private health insurance … is essentially a privatised tax, designed to achieve some of the same outcomes as Medicare, but without the exposure of public scrutiny and without the automatic community rating built into the tax system.”
He says the political emphasis on the size of the deficit leads to politicians prioritising bookkeeping and the “cosmetics of fiscal rectitude” over responsible economic management – meaning if a cost can be shifted off-budget it will be because it looks better, even if it’s less efficient. Toll roads and private health insurance are two key examples of this trend.
Health Minister Sussan Ley said the Coalition was committed to improving the value for money Australians get from private health insurance.
“While we are making it easier to compare policies and find a more-affordable deal, Labor and the Greens have only promised to take a bigger scalpel to people’s private health rebate if they were in power,” Ms Ley said. “The choice is clear.”