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Community Rating, Entry-Age Rating and Adverse Selection in Private Health Insurance in Australia*

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  • Thomas Buchmueller

    (Stephen Ross School of Business, University of Michigan and NBER, 701 Tappan St., Ann Arbor, MI 48109, U.S.A)

Abstract

The regulation of health insurance is an important and often controversial issue. Rules intended to improve access to insurance for high-risk consumers have the potential to reduce overall coverage by inducing adverse selection. This paper examines the issue of adverse selection in the context of the market for private health insurance in Australia, before and after the implementation of a major policy reform in 2000. The policy, known as Lifetime Health Cover (LHC), created a financial incentive for consumers to enter the insurance market at earlier ages. I examine the extent of adverse selection prior to this reform and evaluate its effect on premiums. The results confirm that implementation of LHC induced a greater number of younger consumers into the market, resulting in lower average premiums. The Geneva Papers (2008) 33, 588–609. doi:10.1057/gpp.2008.24

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal The Geneva Papers on Risk and Insurance Issues and Practice.

Volume (Year): 33 (2008)
Issue (Month): 4 (October)
Pages: 588-609

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Handle: RePEc:pal:gpprii:v:33:y:2008:i:4:p:588-609

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References

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  1. Denise Doiron & Glenn Jones & Elizabeth Savage, 2008. "Healthy, wealthy and insured? The role of self-assessed health in the demand for private health insurance," Health Economics, John Wiley & Sons, Ltd., vol. 17(3), pages 317-334.
  2. Hanming Fang & Michael P. Keane & Dan Silverman, 2008. "Sources of Advantageous Selection: Evidence from the Medigap Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 303-350, 04.
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  7. Francesca Colombo & Nicole Tapay, 2003. "Private Health Insurance in Australia: A Case Study," OECD Health Working Papers 8, OECD Publishing.
  8. Thomas C. Buchmueller & Agnès Couffinhal & Michel Grignon & Marc Perronnin, 2004. "Access to physician services: does supplemental insurance matter? Evidence from France," Health Economics, John Wiley & Sons, Ltd., vol. 13(7), pages 669-687.
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  11. Monheit, Alan C. & Steinberg Schone, Barbara, 2004. "How has small group market reform affected employee health insurance coverage?," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 237-254, January.
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  13. Amir Shmueli, 2001. "The effect of health on acute care supplemental insurance ownership: an empirical analysis," Health Economics, John Wiley & Sons, Ltd., vol. 10(4), pages 341-350.
  14. Thomas C. Buchmueller & Sabina Ohri, 2006. "Health Insurance Take-up by the Near Elderly," NBER Working Papers 11951, National Bureau of Economic Research, Inc.
  15. Alfons Palangkaraya & Jongsay Yong, 2007. "How effective is “lifetime health cover” in raising private health insurance coverage in Australia? An assessment using regression discontinuity," Applied Economics, Taylor & Francis Journals, vol. 39(11), pages 1361-1374.
  16. Joshua S. Gans & Stephen P. King, 2003. "Anti-insurance: Analysing the Health Insurance System in Australia," The Economic Record, The Economic Society of Australia, vol. 79(247), pages 473-486, December.
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  18. Ilayperuma Simon, Kosali, 2005. "Adverse selection in health insurance markets? Evidence from state small-group health insurance reforms," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1865-1877, September.
  19. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  20. Jane Hall & Richard De Abreu Lourenco & Rosalie Viney, 1999. "Carrots and sticks-the fall and fall of private health insurance in Australia," Health Economics, John Wiley & Sons, Ltd., vol. 8(8), pages 653-660.
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Citations

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Cited by:
  1. Cheng, Terence Chai, 2014. "Measuring the effects of reducing subsidies for private insurance on public expenditure for health care," Journal of Health Economics, Elsevier, vol. 33(C), pages 159-179.
  2. Buchmueller, Thomas C. & Fiebig, Denzil G. & Jones, Glenn & Savage, Elizabeth, 2013. "Preference heterogeneity and selection in private health insurance: The case of Australia," Journal of Health Economics, Elsevier, vol. 32(5), pages 757-767.
  3. repec:ltr:wpaper:2011.01 is not listed on IDEAS
  4. Eldridge, Damien & Koç, Cagatay & Onur, Ilke & Velamuri, Malathi, 2011. "The impact of private hospital insurance on utilization of hospital care in Australia: Evidence from the national health survey," Working Paper Series 1674, Victoria University of Wellington, School of Economics and Finance.
  5. Daniel McFadden & Carlos Noton & Pau Olivella, 2012. "Remedies for Sick Insurance," Working Papers 620, Barcelona Graduate School of Economics.

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