Private Health Insurance Incentives in Australia: In Search of Cost-Effective Adjustments



The appropriate structure, scope and cost of government incentives in the private health insurance (PHI) market is a matter of ongoing debate.


In order to inform policy decisions we designed a two-stage study to (1) model the uptake of PHI covering hospital treatment in Australia, and (2) identify the costs of various policy scenarios to the government.


Using a microsimulation with a cost-benefit component, we modelled the insurance decisions made by individuals who collectively represented the Australian insurance population in the financial year 2014–15.


We found that the mean willingness to pay (WTP) for PHI ranged from A$446 to A$1237 per year depending on age and income. Our policy scenarios showed a considerable range of impacts on the government budget (from A$4 billion savings to A$6 billion expense) and PHI uptake (from 3.4 million fewer to 2.5 million more individuals insured), with cost-effectiveness ranging from −A$305 to A$22,624 per additional person insured, relative to the status quo.


Based on the scenario results we recommend policy adjustments that either increase the PHI uptake at a small per-person cost to the public budget or substantially reduce government subsidisation of PHI at a relatively small loss in terms of persons insured.

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Author information




All authors contributed to the study concept and definition of policy scenarios. PMS and SK designed the microsimulation and analysed the data. PMS, JB and PAS wrote the manuscript.

Corresponding author

Correspondence to P. Marcin Sowa.

Ethics declarations

This study is an independent academic work following from a prior consultancy report prepared for Private Healthcare Australia (PHA), the peak body representing private health insurers in Australia. The researchers received financial and material support from PHA in the preparation of the consultancy report. The methods and results in this paper have been modified substantially since that report. PMS, SK, JB, SKN, TC and PAS declare no conflicts of interest.

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Sowa, P.M., Kault, S., Byrnes, J. et al. Private Health Insurance Incentives in Australia: In Search of Cost-Effective Adjustments. Appl Health Econ Health Policy 16, 31–41 (2018).

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