I should start by saying this piece is more of debate about ideology rather than economics. The medicare offset known commonly as the medicare rebate can be seen as a subsidy of 30% to the holders of private health insurance. These people are mostly middle class or in a high income bracket. However, many people, especially those with health issues choice to purchase a private health insurance policy despite not having a high income. Alternatively, the policy could be seen as a way of giving health consumers choice. In that if people decide to insure themselves privately they can at least claim a deduction on their tax for the cost of the policy allowing them to pay with their gross income rather than net.
How a tax offset differs from a deduction is that a deduction reduces a persons reportable income on their tax return and results in a reduction of tax of whatever the top marginal tax rate the consumer was paying. So assuming the person who bought the policy was earning 200k the deduction would be 45% plus a reduction in of the medicare levy making a total tax deduction of 46.5% of the policy cost. This would mean that the wealthy would get a bigger deduction for purchasing health insurance than people not paying the top marginal tax rate. An offset instead is a blanket 30% of the policy cost regardless of who buys it. It’s for this reason and to reduce the cost of the policy the Howard Government would have chosen to have an offset rather than a deduction.
This with the fact its commonly known as a rebate has seen this policy portrayed as middle class welfare. This with the private vs public school debate really comes down to the question should people be able to opt out of government provided services? Clearly in health people still continue to benefit partially by the public system and will still continue to receive benefits from it, but should people who choose to partially seek healthcare through the private market be made to pay the full cost of the public system that they now are far less likely to use. Many people have the view yes, if people choose to use private services than they should still contribute 100% to the public system and receive no assistant/deduction for their private expenditure.
Another argument that is often used is the claim that people should pay their fair share. Too often a person’s fair share is their share and about four other peoples share and then are to be told they can’t access the service they paid for becomes of a means test. It’s apparent that the expansion of middle class welfare in the late Howard years was a response to the fact the middle class felt they were paying taxes into a system that wasn’t interested in helping them or their family.
As a libertarian I believe in a perfect world much more of the health system would be left to the private market with competitive pressures rather than a system that helps line the pockets of the medical profession. (I believe we do need a public helathcare system, probably similar to what Queensland had pre Medicare) However, we do not have that system, we probably will never have that system as the average person does not under that government funding of many medical services in the long run raises the price of those services. So as a next best solution those people who do not want take a chance with government waiting lists is to allow them to choose to access services through the private market. By allowing a 30% rebate of private health insurance means the individual gets a small deduction of their tax as an incentive, while they still continue to pay the medicare levy and a significant proportion of their taxes still goes towards funding the system.