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A Critique of the Private Health Insurance Regulations


  • Rhema Vaithianathan


The private health insurance sector is one of the most regulated sectors in Australia. The Private Health Insurance Incentives Scheme, along with community rating, is intended to make private insurance equitable, profitable and popular. We argue that the subsidy to health insurance ought to be a very effective tool for increasing insurance-but it was ineffective because community rating was ineffective. Using data from the Household Expenditure Survey we find that despite community rating rules which prohibit age-adjusted premiums, young adults paid considerably less for their insurance than older adults. We conclude that insurers circumvented community rating through plan design, screening older consumers into more expensive plans. We also find that the penalty of 2 per cent per year for delaying insurance, introduced as part of the lifetime cover plan, is too low to be effective. We reflect on the New Zealand experience, where a completely deregulated insurance industry continues to be profitable and enjoys similar rates of coverage to those of Australia, and we ask whether Australia too could not benefit from complete deregulation. Copyright 2004 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research.

Suggested Citation

  • Rhema Vaithianathan, 2004. "A Critique of the Private Health Insurance Regulations," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 37(3), pages 257-270, September.
  • Handle: RePEc:bla:ausecr:v:37:y:2004:i:3:p:257-270

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    Cited by:

    1. 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.
    2. Francesco Paolucci & James R. G. Butler & Wynand P. M. M. van de Ven, 2011. "Removing Duplication in Public/Private Health Insurance in Australia: Opting Out With Risk-adjusted Subsidies?," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 18(2), pages 49-70.
    3. Thomas C. Buchmueller, 2005. "Health Insurance Reform and HMO Penetration in the Small Group Market," NBER Working Papers 11446, National Bureau of Economic Research, Inc.
    4. Francesco Paolucci & Amir Shmueli, 2011. "The Introduction of Ex-ante Risk Equalisation in the Australian Private Health Insurance Market: A First Step," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 18(2), pages 71-92.
    5. Thomas Buchmueller, 2008. "Community Rating, Entry-Age Rating and Adverse Selection in Private Health Insurance in Australia*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 33(4), pages 588-609, October.

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