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Lifetime Cover in Private Insurance Markets

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  • H. Brown

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  • Luke Connelly

Abstract

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

Suggested Citation

  • H. Brown & Luke Connelly, 2005. "Lifetime Cover in Private Insurance Markets," International Journal of Health Economics and Management, Springer, vol. 5(1), pages 75-88, January.
  • Handle: RePEc:kap:ijhcfe:v:5:y:2005:i:1:p:75-88
    DOI: 10.1007/s10754-005-6602-6
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. Pauly, Mark V & Kunreuther, Howard & Hirth, Richard, 1995. "Guaranteed Renewability in Insurance," Journal of Risk and Uncertainty, Springer, vol. 10(2), pages 143-156, March.
    4. 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, September.
    5. Bradley Herring & Mark Pauly, 2003. "Incentive-Compatible Guaranteed Renewable Health Insurance," NBER Working Papers 9888, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. 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.
    2. 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.
    3. Connelly, Luke B. & Brown III, H. Shelton, 2008. "Lifetime Fairness? Taxes, Subsidies, Age-Based Penalties, and the Price of Health Insurance in Australia," MPRA Paper 14671, University Library of Munich, Germany.
    4. 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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