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Impact of Private Health Insurance on the Choice of Public versus Private Hospital Services



The Australian health system is characterised by a mix of public and private service and private health insurance is used in addition to a compulsory universal public insurance to finance health services. A series of reforms have been implemented over the years in order to expand the private sector with the objective to relieve the overburdened public health care system. While private coverage has expanded, a large proportion of the privately insured still opt for public treatment in hospitals. The objective of this paper is to investigate the determinants of individuals’ choice between public and private hospital services, in particular, the impact of private health insurance status. It estimates a recursive trivariate probit system model with partial observability that allows for endogeneity of private insurance participation and potential selection bias as we only observe individuals’ public/private choices for those who have visited a hospital in the past 12 months. Relative to the prevailing two-step estimation for sample selection or endogenous treatment, our full information maximum likelihood (FIML) approach is both consistent and efficient. The study identifies private health insurance status and income as important determinants of private hospital care utilisation. An individual with a private hospital cover has nearly 70 per cent higher chance to opt for private treatment in a hospital and a person within the tenth income decile group has 46 per cent higher probability to seek private hospital care than someone who falls in the third or lower income decile groups. To some extent other factors such as perceived quality of care in the public sector and cost of access are also found to have some impact on the use of private hospital care.

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  • Srivastava, P & Zhao, X, 2008. "Impact of Private Health Insurance on the Choice of Public versus Private Hospital Services," Health, Econometrics and Data Group (HEDG) Working Papers 08/17, HEDG, c/o Department of Economics, University of York.
  • Handle: RePEc:yor:hectdg:08/17

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    Cited by:

    1. Daniele Fabbri & Chiara Monfardini, 2016. "Opt Out or Top Up? Voluntary Health Care Insurance and the Public vs. Private Substitution," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(1), pages 75-93, February.
    2. Sandra Hopkins & Michael P. Kidd & Aydogan Ulker, 2013. "Private Health Insurance Status and Utilisation of Dental Services in Australia," The Economic Record, The Economic Society of Australia, vol. 89(285), pages 194-206, June.
    3. Nathan Kettlewell, 2016. "Utilisation and Selection in an Ancillaries Health Insurance Market," Discussion Papers 2016-17, School of Economics, The University of New South Wales.
    4. 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.
    5. Doiron, Denise & Fiebig, Denzil G. & Suziedelyte, Agne, 2014. "Hips and hearts: The variation in incentive effects of insurance across hospital procedures," Journal of Health Economics, Elsevier, vol. 37(C), pages 81-97.
    6. Sergi Jimenez & Natalia Jorgensen & José María Labeaga, 2008. "Immigration and the Demand for Health in Spain," Working Papers 2008-38, FEDEA.
    7. Wang, Qing & Zhang, Donglan & Hou, Zhiyuan, 2016. "Insurance coverage and socioeconomic differences in patient choice between private and public health care providers in China," Social Science & Medicine, Elsevier, vol. 170(C), pages 124-132.

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    Hospital utilisation; Public/Private health care; Private health insurance; FIML;

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