Health tax may threaten insurance industry

The health insurance industry has stepped up its campaign against a possible dedicated health tax, and repeated calls for tax breaks for health insurance.

The Health Funds Association today publishes a report suggesting a dedicated health tax could actually reduce spending on health, while increasing demand for public health services.

It has presented the report, prepared by the Institute of Economic Research, to the Government and the Health Ministry. The ministry is currently considering options for funding rising public health care costs, including introducing a possible dedicated health tax.

However, NZIER says such a tax might reduce a government’s ability to manage its finances and expose health funding to economic booms and busts.

The public might mistakenly believe a dedicated health tax made their entitlement to public health services more secure. That might lead them to give up their private insurance cover, increasing demand on the public health care system.

One way to help ease problems with health funding is to get the private and public health systems working together better, the report says.

To do that, the Government needs to be upfront with New Zealanders about what the public health system can and cannot afford to do for them. The public system is best suited to managing health issues across the population and cannot meet individual’s needs, NZIER says.

That is the role of private health insurers.

A second step towards improving the relationship between the private and public health systems would be to improve the uptake of private health insurance, it says.

This could be done by a tax credit to households.

However, the tax break suggestion is likely to get a cool reception from Finance Minister Michael Cullen, who recently rejected a similar proposal from the Consumers’ Institute.

The institute said there was a strong argument for tax breaks given that people with medical insurance were subsidising those who relied solely on a public health system that was now creaking.

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