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How effective is “lifetime health cover” in raising private health insurance coverage in Australia? An assessment using regression discontinuity

  • Alfons Palangkaraya
  • Jongsay Yong

The Australian government introduced three major private health insurance policy initiatives in recent years. These are, in chronological order, (i) the Private Health Insurance Incentives Scheme (PHIIS), which imposes a tax levy on high-income earners who do not have private health insurance and provides a means-tested subsidy schedule for low-income earners who purchase PHI; (ii) a 30% premium rebate for all private health insurance policies to replace the means-tested component under PHIIS; and (iii) lifetime health cover, which permits a limited form of age-related risk rating by insurance funds. Together, these policy changes have been effective in encouraging the uptake of PHI; the percentage of the population covered by PHI rose from 31% in 1999 to 45% at the end of 2001. The difficult issue, however, is in disentangling the effects of the three policy changes, given that they were introduced in quick succession. This article attempts to evaluate the effect of lifetime health cover using a regression discontinuity design, an approach that makes use of cross-section data that allows the effect of lifetime health cover to be isolated via local regression. The results suggest that the importance of lifetime health cover appears to be grossly over-rated in previous studies. Our estimates indicate that it accounts for roughly 22-32% of the combined effects of all the policy initiatives introduced in the late 1990s. While these figures suggest that its effect is clearly significant, it is nonetheless nowhere near the effect often associated with lifetime health cover.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 39 (2007)
Issue (Month): 11 ()
Pages: 1361-1374

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Handle: RePEc:taf:applec:v:39:y:2007:i:11:p:1361-1374
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  1. Edwin Leuven & Hessel Oosterbeek, 2004. "Evaluating the Effect of Tax Deductions on Training," Journal of Labor Economics, University of Chicago Press, vol. 22(2), pages 461-488, April.
  2. Cleveland, William S. & Devlin, Susan J. & Grosse, Eric, 1988. "Regression by local fitting : Methods, properties, and computational algorithms," Journal of Econometrics, Elsevier, vol. 37(1), pages 87-114, January.
  3. Jongsay Yong & Alfons Palangkaraya, 2004. "Discerning the Effects of Recent Private Health Insurance Policy Changes in Australia," Econometric Society 2004 Australasian Meetings 183, Econometric Society.
  4. Wilbert van der Klaauw, 2002. "Estimating the Effect of Financial Aid Offers on College Enrollment: A Regression-Discontinuity Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 1249-1287, November.
  5. H.E. Frech Iii & Sandra Hopkins & Garry Macdonald, 2003. "The Australian Private Health Insurance Boom: Was It Subsidies Or Liberalised Regulation?," Economic Papers, The Economic Society of Australia, vol. 22(1), pages 58-64, 03.
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