IDEAS home Printed from
   My bibliography  Save this paper

Lifetime Fairness? Taxes, Subsidies, Age-Based Penalties, and the Price of Health Insurance in Australia


  • Connelly, Luke B.
  • Brown III, H. Shelton


Abstract Australia has voluntary private health insurance (PHI) markets in which open enrolment and community rated premiums are mandated by government. Historically, adverse selection in these markets led to a substantial decline in coverage, giving voice to fears about the viability of PHI markets in the longer-run. In order to preserve community rating but improve the PHI pool, the Australian Government instituted a novel scheme of age-based penalties (ABPs) for individuals who join a PHI fund later in life. This paper computes the price of health insurance under the so-called Lifetime Cover (LC) scheme and shows that the LC scheme per se is not appropriately calibrated to prevent another adverse selection death spiral (Butler 2002). Based on our results, we recompute age-based penalties that would result in a fair price of PHI for all age groups. The premium multipliers we derive suggest a premium ratio of 10:1 for the oldest and youngest joiners. Our premium multiplier sequence is well-approximated by a linear ABP scheme that is approximately three times that of the present LC scheme for older joiners.

Suggested Citation

  • 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.
  • Handle: RePEc:pra:mprapa:14671

    Download full text from publisher

    File URL:
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    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. Mitchel Y. Abolafia (ed.), 2005. "Markets," Books, Edward Elgar Publishing, number 2788.
    3. Luke B Connelly & H Shelton Brown, 2006. "Lifetime Subsidies in Australian Private Health Insurance Markets with Community Rating," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 31(4), pages 705-719, October.
    4. 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.
    5. Bradley Herring & Mark V. Pauly, 2006. "The Effect of State Community Rating Regulations on Premiums and Coverage in the Individual Health Insurance Market," NBER Working Papers 12504, National Bureau of Economic Research, Inc.
    6. Bradley Herring & Mark Pauly, 2003. "Incentive-Compatible Guaranteed Renewable Health Insurance," NBER Working Papers 9888, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Private Health Insurance; Lifetime Cover; Community Rating; Price; Taxes; Subsidies;

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I1 - Health, Education, and Welfare - - Health


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:14671. 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: (Joachim Winter). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.