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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)

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.

Suggested Citation

  • 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.
    • Handle: RePEc:pal:gpprii:v:33:y:2008:i:4:d:10.1057_gpp.2008.24
    DOI: 10.1057/gpp.2008.24
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