The deduction of health insurance contributions as an example of fiscal illusion in Poland

Abstract

Background: The article analyses the use of fiscal illusion in the introduction and regulation of the health insurance contribution in Poland. After the economic transformation, the contribution played a key role in financing the healthcare system. Due to potential social resistance, the authorities introduced it gradually, using an income tax deduction to reduce its perceived burden. From 1996 until the “Polish Deal”, this mechanism allowed citizens to become accustomed to the costs, which, in 2022, were passed on to most of the taxpayers. The changes planned for 2025 will shift the full cost of the contribution onto citizens.
Research purpose: To confirm or reject the hypothesis that the health insurance contribution and its deduction from personal income tax are a case of fiscal illusion. An additional research question addressed was whether and why public authorities had to use fiscal illusion when introducing the health insurance contribution.
Methods: The main part of the study consisted of a historical analysis of legal acts and data obtained from the Ministry of Finance and the National Health Fund concerning healthcare financing in Poland between 1997 and 2023, with the aim of describing the mechanism applied in the case of the health insurance contribution. Attempts to link this mechanism with the theoretical part of the article allowed for the confirmation or rejection of the hypothesis. In the event of confirmation, for the social justification, available literature on tax mentality and tax morality was used. The social justification and the collected data served as the basis for justifying the existence of fiscal illusion from an economic perspective.
Conclusions: The mechanism of tax deduction for the introduced health insurance contribution, employed by Polish public authorities, fits within the definitions of fiscal illusions proposed by Puviani and Buchanan, which can be considered a confirmation of the article’s main research hypothesis. The article confirms the existence of fiscal illusion and demonstrates that, despite delaying the positive economic effects of the financing reform, its use was justified – particularly due to citizens’ reluctance toward additional burdens and the importance of the health insurance contribution for the functioning of healthcare in Poland, given its difficult financial situation and the advantages of contribution-based financing over subsidies.