Competitive Health Markets and Risk Equalisation in Australia: Lessons Learnt from Other Countries
The aims of this paper are to evaluate the risk equalisation (RE) arrangement in Australia’s private health insurance against practices in other countries with similar arrangements and to propose ways of improving the system to advance economic efficiency and solidarity. Possible regulatory responses to insurance market failures are reviewed based on standard economic arguments. We describe various regulatory strategies used elsewhere to identify essential system features against which the Australian system is compared. Our results reveal that RE is preferred over alternative regulatory strategies such as premium rate restrictions, premium compensation and claims equalisation. Compared with some countries’ practices, the calculated risk factors in Australia should be enhanced with further demographic, social and economic factors and indicators of long-term health issues. Other coveted features include prospective calculation and annual clearing of equalisation payments. Australia currently operates with a crude mechanism for RE in which the scheme incentivises insurers to select on risk rather than focusing on efficiency and equity-promoting actions. System changes should be introduced in a stepwise manner; thus, we propose an incremental reform.
Francesco Paolucci wrote the first draft of Sects. 2.2 and 3.1 on Australia and the Netherlands, and Sects. 3.4 and 4, building on and further developing the chapter on the ACHR report “Health Care in Australia: Prescriptions for Improvements”; Ayman Fouda wrote the first draft of Sects 2.1, 3.2 and 3.3; Gianluca Fiorentini wrote the first draft of Sect. 3.1 on the UK. Ayman Fouda and Gianluca Fiorentini also reviewed subsequent drafts of the paper in light of the comments made by the referees for this journal.
Compliance with Ethical Standards
Francesco Paolucci gratefully acknowledges the financial support of the Australian Centre for Health Research (ACHR) for the research project published as a chapter of the ACHR report “Health Care in Australia: Prescriptions for Improvements”. The present paper, although inspired by that project, represents an autonomous development that has not been specifically financed.
Conflicts of interest
Ayman Fouda, Gianluca Fiorentini and Francesco Paolucci declare they have no conflicts of interest.
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