Lifetime Cover in Private Insurance Markets
In the last few decades, private health insurance rates have declined in many countries. In countries and states with community rating, a major cause is adverse selection. In order to address age-based adverse selection, Australia has recently begun a novel approach which imposes stiff penalties for buying private insurance later in life, when expected costs are higher. In this paper, we analyze Australia’s Lifetime Cover in the context of a modified version of the Rothschild-Stiglitz insurance model (Rothschild and Stiglitz, 1976). We allow empirically-based probabilities to increase by age for low-risk types. The model highlights the shortcomings of the Australian plan. Based on empirically-based probabilities of illness, we predict that Lifetime Cover will not arrest adverse selection. The model has many policy implications for government regulation encouraging long-term health coverage. Copyright Springer Science+Business Media, Inc. 2005
Volume (Year): 5 (2005)
Issue (Month): 1 (January)
|Contact details of provider:|| Web page: http://www.springerlink.com/link.asp?id=106603|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Pauly, Mark V & Kunreuther, Howard & Hirth, Richard, 1995. "Guaranteed Renewability in Insurance," Journal of Risk and Uncertainty, Springer, vol. 10(2), pages 143-56, March.
- Henry S. Farber & Helen Levy, 1998.
"Recent Trends in Employer-Sponsored Health Insurance Coverage: Are Bad Jobs Getting Worse?,"
NBER Working Papers
6709, National Bureau of Economic Research, Inc.
- Farber, Henry S. & Levy, Helen, 2000. "Recent trends in employer-sponsored health insurance coverage: are bad jobs getting worse?," Journal of Health Economics, Elsevier, vol. 19(1), pages 93-119, January.
- Henry S. Farber & Helen Levy, 1998. "Recent Trends in Employer-Sponsored Health Insurance Coverage: Are Bad Jobs Getting Worse?," Working Papers 781, Princeton University, Department of Economics, Industrial Relations Section..
- Bradley Herring & Mark Pauly, 2003. "Incentive-Compatible Guaranteed Renewable Health Insurance," NBER Working Papers 9888, National Bureau of Economic Research, Inc.
- H. E. Frech & Sandra Hopkins, 2004. "Why Subsidise Private Health Insurance?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 37(3), pages 243-256, 09.
- 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.
When requesting a correction, please mention this item's handle: RePEc:kap:ijhcfe:v:5:y:2005:i:1:p:75-88. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.