The private health insurance peak body is trying to “dress up a taxpayer handout as a tax concession” in its call for employers to be given tax breaks if they pay for employee private health cover, Grattan Institute health economist Dr Stephen Duckett has said.

Duckett made the comments in response to a Private Healthcare Australia report to the government proposing measures to stymie the exodus of young people from the private health system. Among the suggestions was introducing a fringe benefits tax exemption to private health insurance premiums for employees under the age of 40.

“Why would an employee want that?” Duckett told Guardian Australia.

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“Basically, this is just the private health industry having to dress up a request for another big handout in a way that looks innovative. The industry already gets billions in taxpayer subsidies. By making it appear to be a tax concession people may think it won’t cost them money. But of course, whether they pay through taxes or their salary it will cost them.

“Rather than the private health industry addressing inefficiency and issues in the system themselves, as the health minister has told them to do, or managing itself as Apra [the Australian Prudential Regulation Authority] told them to do, the industry is essentially just saying, ‘give us more money’.”

In a statement issued on Friday, the Private Healthcare Australia chief executive, Dr Rachel David, said health funds had gone as far as they could to manage premium costs at the consumer level, while health inflation remained above CPI. The Australian government could work with the health funds to halt a decline in youth uptake of private health insurance, which David said “will help keep premiums down for everyone”.

As well as fringe benefit tax exemptions for employers who buy health insurance cover for their employees, Private Healthcare Australia wants the government to introduce a 5% reduction in private health insurance premiums for younger members, and increase awareness of existing private health insurance incentives. The $1.2bn cost of the measures would be partially offset by $310m in savings, David said.

The chair of the Australian Healthcare Reform Alliance and a fellow of the Centre for Policy Development, Jennifer Doggett, said the private health insurance sector “obviously got the message from government that they can’t expect public subsidies so now they’re casting around trying to find anyone else they can persuade or coerce into giving them money”.

“The thing that worries me about calls for employers getting involved in private health is it can exclude people out of workforce, adding inequity to retirees and those who are unemployed,” she said. “The industry is just desperately looking for solutions but none of them address the fundamental structural flaw of the system.

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“Consumers need to be aware their employers won’t just give money away, they would make insurance cover as part of a salary package. All of this is taking power away from consumers.”

She added that the generations who had grown up with Medicare were happy to rely on the public system, and there was a “generational” gap in attitudes towards the private industry.

The CEO of the Consumers Health Forum, Leanne Wells, is concerned employer-related private health insurance subsidies would open the way towards the expensive and failing US job-related health insurance funding system.

“That system has left many without cover and led to the single greatest cause of bankruptcies there,” Wells said. “As it is in Australia many people, even with health insurance, are having to call on their superannuation nest egg to pay for high-cost private healthcare.”

The Australian Healthcare and Hospitals Association (Ahha) chief executive, Alison Verhoeven, reiterated Ahha’s calls for a Productivity Commission review of government spending on private health insurers.

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“Before Australia launches into any further subsidies for PHI [private health insurance] we need a thorough in-depth investigation into the heavy price taxpayers are already paying to support PHI, into why we subsidise it and what the health economic benefits are.”

“It’s 20 years since the commission looked at it in detail and in that time there been significant changes in subsidies and tax arrangements,” she said.

“It’s really now time for those matters to be properly reviewed to ensure the $6.2bn in subsidies the government puts forward are good value and a good spend.

“The view put forward by Private Healthcare Australia, that we might move to a type of model used in US, is frankly bewildering when you consider the US spends 17% of GDP on health. We spend 10% for much better outcomes. Why on earth would we want to move towards that?”