Advertisement

Lifetime Cover in Private Insurance Markets

  • H. Shelton BrownIIIEmail author
  • Luke B. Connelly
Article

Abstract

In the last few decades, private health insurance rates have declined in many countries. In countries and states with community rating, a major cause is adverse selection. In order to address age-based adverse selection, Australia has recently begun a novel approach which imposes stiff penalties for buying private insurance later in life, when expected costs are higher. In this paper, we analyze Australia’s Lifetime Cover in the context of a modified version of the Rothschild-Stiglitz insurance model (Rothschild and Stiglitz, 1976). We allow empirically-based probabilities to increase by age for low-risk types. The model highlights the shortcomings of the Australian plan. Based on empirically-based probabilities of illness, we predict that Lifetime Cover will not arrest adverse selection. The model has many policy implications for government regulation encouraging long-term health coverage.

health insurance adverse selection public policy 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. ABS. (2003). Population by Age and Sex, Australian States and Territories. ABS, Canberra.Google Scholar
  2. AIHW. (2000). Australia’s Health 2000: The Seventh Biennial Health Report of the Australian Institute of Health and Welfare. AIHW, Canberra.Google Scholar
  3. Anderson, R. (1999). “US Abridged Life Tables, 1996.”In National Vital Statistics Reports 47(13), Centers for Disease Control and Prevention’s National Center for Health Statistics, Atlanta.Google Scholar
  4. Butler, J. R. G. (2002). “Policy Change and Private Health Insurance: Did the Cheapest Policy do the Trick?”Australian Health Review 25(6), 33–41.CrossRefGoogle Scholar
  5. Farber, H. S. and H. Levy (2000). “Recent Trends in Employer-Sponsored Health Insurance Coverage: Are Bad Jobs Getting Worse?”Journal of Health Economics 19(1), 93–119.Google Scholar
  6. Frech III, H. E. and S. Hopkins (2003). “Why Subsidise Private Health Insurance?”Curtain Business School Working Paper Series.Google Scholar
  7. Hall, J., L. D. Abreu, and R. Viney (1999). “Carrots and Sticks—The Fall and Fall of Private Health Insurance in Australia.”Health Economics 8, 653–660.Google Scholar
  8. Herring, B. and M. Pauly (1999). “Premium Variation in the Individual Health Insurance Market.”International Journal of Health Care Finance and Economics 1(1), 43–58.Google Scholar
  9. Herring, B. and M. Pauly (2003). “Incentive-Compatible Guaranteed Renewable Health Insurance Premiums.”NBER Working Paper.Google Scholar
  10. Hoffman, C. and M. Wang (2003). “Health Coverage in America: 2002 Data Update.”Technical Report, The Kaiser Foundation Commission on Medicaid and the Uninsured.Google Scholar
  11. Lewis, D. E. (2003). “An Evaluation of Recent Government Initiatives to Increase Participation in Private Health Insurance in Australia.”A Paper Presented to the Thirty-First Conference of the Economics Society of Australia, Adelaide.Google Scholar
  12. Pauly, M., R. Hirth and H. Kunreuther (1995). “Guaranteed Renewability in Insurance.”Journal of Risk and Uncertainty 10(2), 143–156.Google Scholar
  13. PHIAC. (2002). Coverage of Hospital Insurance Tables Offered by Registered Health Benefits Organisations By Age Cohort. PHIAC, Deakin, http://www.phiac.gov.au/statistics/membershipcoverage/agecohort.htm, Accessed 10 June 2003.Google Scholar
  14. Rothschild, M. and J. Stiglitz (1976). “Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information.”Quarterly Journal of Economics 90(4), 630–649.Google Scholar

Copyright information

© Springer Science+Business Media, Inc. 2005

Authors and Affiliations

  1. 1.University of Texas School of Public HealthBrownsville RAHCUSA
  2. 2.Centre of National Research on Disability and Rehabilitation Medicine (CONROD) and Australian Centre for Economic Research on Health (ACERH)Australia
  3. 3.School of Public Health BuildingBrownsville

Personalised recommendations