Essays on Private Health Insurance in Australia: Household Decisions, Participation Projections, and Policy Explorations

Abstract

This thesis presents several research topics around Private Health Insurance (PHI) in Australia. Australia's healthcare system features a unique blend of public and private health services, with PHI playing a crucial role in supplementing the publicly funded Medicare system. The participation in PHI is shaped by a range of factors, including government policies, demographic shifts, and economic conditions. Chapter 1 provides a comprehensive analysis of these factors, investigating what drives Australian households' decisions regarding PHI. Subsequently, Chapter 2 introduces a dynamic microsimulation model designed to project future PHI coverage in Australia, incorporating the adverse selection effect. Finally, Chapter 3 employs this model to evaluate the impacts of various assumptions, scenarios, and potential policies on PHI participation and sustainability.

Chapter 1 presents an empirical analysis of the determinants influencing households' decisions to acquire or cancel PHI. The analysis highlights the effectiveness of government policies such as the Medicare Levy Surcharge (MLS) and the Lifetime Health Cover (LHC) in encouraging PHI uptake. It also reveals that younger individuals are more likely to cancel their cover or less likely to purchase a policy, while those with higher financial literacy and less financial risk aversion are less likely to drop their PHI coverage.

Chapter 2 details the development of the dynamic microsimulation model, which forecasts future trends in PHI participation. The model accounts for demographic changes, family formation patterns, transitions in education levels, and income variations. Crucially, it includes the adverse selection effect, where premium increases from the previous year influence households' PHI decisions in the current year. The model forecasts a significant decline in PHI participation due to adverse selection, with a diminishing proportion of young people among policyholders.

Chapter 3 further explores the use of the microsimulation model to examine the poten- tial outcomes of adjustments to key variables, such as mortality rates and wage growth rates. It also explores variations in the model's key assumption regarding adverse selection, including differing levels of adverse selection by age. These analyses offer valuable insights into the long-term sustainability of PHI under varying conditions. The chapter further incorporates the impact of the COVID-19 pandemic by adjusting for changes in mortality, economic conditions, and claim experiences. Finally, it explores potential policy options designed to enhance the sustainability of the PHI market, with a particular focus on mitigating adverse selection through measures like age-differentiated premium increases. Show more