Academic journal article Australian Health Review

Distributional Impact of Recent Changes in Private Health Insurance Policies

Academic journal article Australian Health Review

Distributional Impact of Recent Changes in Private Health Insurance Policies

Article excerpt


The impacts of changes to private health insurance (PHI) policies introduced since 1999 - in particular the 30% PHI rebate and the Lifetime Health Cover - have been much debated. We present historical analyses of the impacts in terms of the proportion of Australians having hospital insurance cover under different PHI policies, by age, gender and socioeconomic status, and project these to 2010 using a new Private Health Insurance coverage model.

The combined effect of the 30% rebate and Lifetime Health Cover was to increase PHI membership from just over 30% in 1998 to just under 50% by the end of 2000, due mainly to more people taking out PHI cover from among the richest 20% of the population. Among the poorest 40% the impact was minimal. Model projections suggested that, had the new PHI policies not been introduced, then the proportion of Australians with PHI would have declined to around 20% by 2010, compared with 40% if the current arrangements remained in place. Also, analysis of 2001 survey data regarding choices to use a public or a private hospital indicated that higher income groups with or without PHI were the more likely to have used a private hospital than lower income groups. Among those with PHI, older people were more likely to have used a private hospital than younger ones.

Aust Health Rev 2005: 29(2): 167-177

ALTHOUGH IN RECENT DECADES the health of populations in developed countries like Australia improved considerably, the related expenditures tended to outpace economic growth. This resulted in nations searching for ways to contain costs, most typically in the hospital sector, such as the passing on of a larger share of the costs to individuals.1,2

Examples of this latter approach are the Federal government's recently introduced policies to increase the take-up of private health insurance (PHI). Basically, the policies are the 30% private health insurance rebate, Lifetime Health Cover and the Medicare Levy Surcharge (Appendix A). When the 30% rebate was introduced, one stated aim was to ease the burden on Medicare, in particular on public hospitals.

A recent inquiry3 examined the issue of whether these policies had achieved their aim of easing the burden on public hospitals. While researchers have not come up with unanimous answers to this question,4,5 the inquiry concluded that there were not sufficient analyses and recommended "that an independent inquiry be established to assess the equity and effectiveness of the 30% private health insurance rebate, and the integral Lifetime Health Cover policy".3 (Recommendation 11.1, p. 168.)

Key aims of this paper are to assess the distributional impacts of PHI policies - a topic that has not been generally covered in PHI research published to date - and to describe a new PHI coverage model able to estimate distributional impacts. The model's capabilities are indicated through analysis of illustrative scenarios.

We first present historical analyses, and projections to 2010, of hospital insurance cover with and without the new PHI policies introduced between 1997 and 2000 - mainly for the 30% rebate and the Lifetime Health Cover (Appendix A).6 For the projections we used a new PHI coverage model developed at the National Centre for Social and Economic Modelling (NATSEM) under a 3-year Australian Research Council (ARC) grant, with the NSW Health Department, the Health Insurance Commission and the Productivity Commission as industry partners. The research presented below is part of the larger ARC project.7,8

In this paper we analyse and project - by age and socioeconomic status (SES) - the PHI coverage and distributional impacts of the 30% rebate and Lifetime Health Cover policies, using illustrative scenarios.

Second, we present findings about people's actual choices of hospital types as a function of age, SES and whether they had PHI.

The private health insurance coverage model

The private health insurance model was developed to enable estimation of the proportion of the population covered by hospital insurance under different policy settings and economic circumstances, building on earlier models developed by NATSEM. …

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