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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, 701 Tappan St., Ann Arbor, MI 48109, U.S.A)

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. The Geneva Papers (2008) 33, 588–609. doi:10.1057/gpp.2008.24

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:p:588-609
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    References listed on IDEAS

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    1. Thomas C. Buchmueller & Agnès Couffinhal & Michel Grignon & Marc Perronnin, 2004. "Access to physician services: does supplemental insurance matter? Evidence from France," Health Economics, John Wiley & Sons, Ltd., vol. 13(7), pages 669-687.
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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. Daniel McFadden & Carlos Noton & Pau Olivella, "undated". "Remedies for Sick Insurance," Working Papers 620, Barcelona Graduate School of Economics.
    3. repec:pal:compes:v:59:y:2017:i:3:d:10.1057_s41294-017-0027-3 is not listed on IDEAS
    4. Frech, Ted E & Smith, Michael P, 2015. "Anatomy of a Slow-Motion Health Insurance Death Spiral," University of California at Santa Barbara, Economics Working Paper Series qt0w64d54d, Department of Economics, UC Santa Barbara.
    5. Cheng, Terence Chai, 2014. "Measuring the effects of reducing subsidies for private insurance on public expenditure for health care," Journal of Health Economics, Elsevier, vol. 33(C), pages 159-179.
    6. Damien S. Eldridge & Ilke Onur & Malathi Velamuri, 2017. "The impact of private hospital insurance on the utilization of hospital care in Australia," Applied Economics, Taylor & Francis Journals, vol. 49(1), pages 78-95, January.
    7. Buchmueller, Thomas C. & Fiebig, Denzil G. & Jones, Glenn & Savage, Elizabeth, 2013. "Preference heterogeneity and selection in private health insurance: The case of Australia," Journal of Health Economics, Elsevier, vol. 32(5), pages 757-767.

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