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The Impact of Private Hospital Insurance on the Utilization of Hospital Care In Australia

  • Damien S.Eldridge

    ()

    (School Economics, La Trobe University)

  • Ilke Onur

    ()

    (University of South Australia)

  • Malathi Velamuri

    ()

    (Independent Researcher)

  • Cagatay Koc

    ()

    (Senior Economist, Cornerstone Research, USA)

We use the 2004-'05 wave of the Australian National Health Survey to estimate the impact of private hospital insurance on the propensity for hospitalization as a private patient. We employ instrumental-variable methods to account for the endogeneity of supplementary private hospital insurance purchases. We calculate moral hazard based on a difference-of-means estimator. We decompose the moral hazard estimate into a diversion component that is due to an insurance-induced substitution away from public patient care towards private patient care, and an expansion component that measures a pure insurance-induced increase in the propensity to seek private patient care. We find some evidence of self-selection into insurance but this finding is not robust to alternative specifications. Our results suggest that on average, private hospital insurance causes a sizable and significant increase in the likelihood of hospital admission as a private patient. However, there is little evidence of moral hazard; the treatment effect of private hospital insurance on private patient care is driven almost entirely by the substitution away from public patient care towards private patient care.

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File URL: http://www.latrobe.edu.au/__data/assets/pdf_file/0003/269616/2013.03.pdf
File Function: first version, 2013.02.pdf
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File URL: http://www.latrobe.edu.au/__data/assets/pdf_file/0003/269616/2013.03.pdf
File Function: Revised version, 2013.02.pdf
Download Restriction: no

Paper provided by School of Economics, La Trobe University in its series Working Papers with number 2013.03.

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Length: 52 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:trb:wpaper:2013.03
Note: ISSN-1837-2198
Contact details of provider: Web page: http://www.latrobe.edu.au/economics

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  1. Jeff DeSimone, 2002. "Illegal Drug Use and Employment," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 952-977, October.
  2. Vaithianathan, Rhema, 2002. "Will Subsidising Private Health Insurance Help the Public Health System?," The Economic Record, The Economic Society of Australia, vol. 78(242), pages 277-83, September.
  3. Sylvia Dixon & David Maré, 2007. "Understanding changes in Māori incomes and income inequality 1997–2003," Journal of Population Economics, Springer, vol. 20(3), pages 571-598, July.
  4. Terence Chai Cheng, 2011. "Measuring the Effects of Removing Subsidies for Private Insurance on Public Expenditure for Health Care," Melbourne Institute Working Paper Series wp2011n26, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  5. 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.
  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. 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.
  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. Denzil Fiebig & Elizabeth Savage & Rosalie Viney, 2006. "Does the reason for buying health insurance influence behaviour? CHERE Working Paper 2006/1," Working Papers 2006/1, CHERE, University of Technology, Sydney.
  10. Mingshan Lu & Elizabeth Savage, 2006. "Do financial incentives for supplementary private health insurance reduce pressure on the public system? Evidence from Australia, CHERE Working Paper 2006/11," Working Papers 2006/11, CHERE, University of Technology, Sydney.
  11. Terence Chai Cheng & Farshid Vahid, 2011. "Demand for Hospital Care and Private Health Insurance in a Mixed Public–Private System: Empirical Evidence Using a Simultaneous Equation Modeling Approach," Melbourne Institute Working Paper Series wp2011n22, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  12. 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.
  13. 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.
  14. Francesca Colombo & Nicole Tapay, 2003. "Private Health Insurance in Australia: A Case Study," OECD Health Working Papers 8, OECD Publishing.
  15. Jacob Nielsen Arendt & Anders Holm, 2006. "Probit Models with Binary Endogenous Regressors," CAM Working Papers 2006-06, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  16. 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.
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