Lifetime Cover in Private Insurance Markets

  • H. Shelton BrownIIIEmail author
  • Luke B. Connelly


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 


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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

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