IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

The Impact of Private Hospital Insurance on Utilization of Hospital Care in Australia: Evidence from the National Health Survey

  • Damien Eldridge


    (School of Economics, La Trobe University)

  • Catagay Koc

    (University of Texas at Arlington, USA)

  • Ilke Onur

    (University of South Australia, Australia)

  • Malathi Velamuri

    (Victoria University of Wellington, New Zealand)

We use the 2004-'05 wave of the Australian National Health Survey to estimate the impact of private hospital insurance on the utilization of hospital care services in Australia. We employ the two-stage residual inclusion approach (2SRI) to account for the endogeneity of supplementary private hospital insurance purchases. Health care consumption is measured by two variables: hospitalization, and the number of nights spent in hospital. We apply a negative binomial type II model to estimate the utilization of hospital services. We calculate moral hazard based on a difference-of-means estimator. Our three-stage estimation framework provides evidence of selection into private hospital insurance in Australia. We find strong evidence of moral hazard when we treat private hospital insurance as exogenous. After controlling for the endogeneity of hospital insurance, we find strong and robust evidence of substitution from public to private hospital care but no evidence of ex-post moral hazard in the number of nights spent in hospital.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: First version, 2011.01.pdf
Download Restriction: no

File URL:
File Function: Revised version, 2011.01.pdf
Download Restriction: no

Paper provided by School of Economics, La Trobe University in its series Working Papers with number 2011.01.

in new window

Length: 44 pages
Date of creation: Jan 2011
Date of revision: Jan 2011
Handle: RePEc:trb:wpaper:2011.01
Contact details of provider: Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Chai Cheng, T; & Vahid, F;, 2010. "Demand for hospital care and private health insurance in a mixed publicprivate system: empirical evidence using a simultaneous equation modeling approach," Health, Econometrics and Data Group (HEDG) Working Papers 10/25, HEDG, c/o Department of Economics, University of York.
  2. Chesher, Andrew & Irish, Margaret, 1987. "Residual analysis in the grouped and censored normal linear model," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 33-61.
  3. Randall Ellis & Elizabeth Savage, 2008. "Run for cover now or later? The impact of premiums, threats and deadlines on private health insurance in Australia," International Journal of Health Care Finance and Economics, Springer, vol. 8(4), pages 257-277, December.
  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, vol. 33(4), pages 588-609, October.
  5. 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.
  6. Cameron, A C & P. K. Trivedi & Frank Milne & J. Piggott, 1988. "A Microeconometric Model of the Demand for Health Care and Health Insurance in Australia," Review of Economic Studies, Wiley Blackwell, vol. 55(1), pages 85-106, January.
  7. Garry F. Barrett & Robert Conlon, 2003. "Adverse Selection and the Decline in Private Health Insurance Coverage in Australia: 1989-95," The Economic Record, The Economic Society of Australia, vol. 79(246), pages 279-296, 09.
  8. Terza, Joseph V. & Basu, Anirban & Rathouz, Paul J., 2008. "Two-stage residual inclusion estimation: Addressing endogeneity in health econometric modeling," Journal of Health Economics, Elsevier, vol. 27(3), pages 531-543, May.
  9. Denise Doiron & Glenn Jones & Elizabeth Savage, 2008. "Healthy, wealthy and insured? The role of self-assessed health in the demand for private health insurance," Health Economics, John Wiley & Sons, Ltd., vol. 17(3), pages 317-334.
  10. Savage, Elizabeth & Wright, Donald J., 2003. "Moral hazard and adverse selection in Australian private hospitals: 1989-1990," Journal of Health Economics, Elsevier, vol. 22(3), pages 331-359, May.
  11. repec:tpr:qjecon:v:115:y:2000:i:1:p:45-97 is not listed on IDEAS
  12. Manning, Willard G. & Marquis, M. Susan, 1996. "Health insurance: The tradeoff between risk pooling and moral hazard," Journal of Health Economics, Elsevier, vol. 15(5), pages 609-639, October.
  13. repec:tpr:qjecon:v:90:y:1976:i:4:p:630-49 is not listed on IDEAS
  14. Francesca Colombo & Nicole Tapay, 2003. "Private Health Insurance in Australia: A Case Study," OECD Health Working Papers 8, OECD Publishing.
  15. Rhema Vaithianathan, 2004. "A Critique of the Private Health Insurance Regulations," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 37(3), pages 257-270, 09.
  16. Kees van Gool & Elizabeth Savage & Rosalie Viney & Marion Haas & Rob Anderson, 2009. "Who's Getting Caught? An Analysis of the Australian Medicare Safety Net," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 42(2), pages 143-154.
  17. James L. Heckman, 1999. "Causal Parameters and Policy Analysis in Economcs: A Twentieth Century Retrospective," NBER Working Papers 7333, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:trb:wpaper:2011.01. 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: (Stephen Scoglio)

The email address of this maintainer does not seem to be valid anymore. Please ask Stephen Scoglio to update the entry or send us the correct address

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.