The Australian hospital system is characterised by the co-existence of private hospitals, where individuals pay for services and public hospitals, where services are free to all but delivered after a waiting time. The decision to purchase insurance for private hospital treatment depends on the trade-off between price of treatment, waiting time and the insurance premium. Clearly the potential for adverse selection and moral hazard exists. When the endogeneity of the insurance decision is accounted for, the extent of moral hazard can be substantial increasing the expected length of a hospital stay by a factor of up to three.
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Paper provided by CHERE, University of Technology, Sydney in its series Discussion Papers with number
44.