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How effective is "lifetime health cover" in raising private health insurance coverage in Australia? An assessment using regression discontinuity

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The Australian government introduced three major private health insurance policy initiatives in recent years. These are, in chronological order, (i) the Private Health Insurance Incentives Scheme (PHIIS), which imposes a tax levy on high-income earners who do not have private health insurance and provides a means-tested subsidy schedule for low-income earners who purchase PHI; (ii) a 30% premium rebate for all private health insurance policies to replace the means-tested component under PHIIS; and (iii) lifetime health cover, which permits a limited form of age-related risk rating by insurance funds. Together, these policy changes have been effective in encouraging the uptake of PHI; the percentage of the population covered by PHI rose from 31% in 1999 to 45% at the end of 2001. The difficult issue, however, is in disentangling the effects of the three policy changes, given that they were introduced in quick succession. This article attempts to evaluate the effect of lifetime health cover using a regression discontinuity design, an approach that makes use of cross-section data that allows the effect of lifetime health cover to be isolated via local regression. The results suggest that the importance of lifetime health cover appears to be grossly over-rated in previous studies. Our estimates indicate that it accounts for roughly 22-32% of the combined effects of all the policy initiatives introduced in the late 1990s. While these figures suggest that its effect is clearly significant, it is nonetheless nowhere near the effect often associated with lifetime health cover.
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Document Type: Research Article

Affiliations: Faculty of Economics & Commerce, Melbourne Institute of Applied Economic & Social Research and Centre for Microeconometrics, The University of Melbourne, Parkville, Victoria 3010, Australia

Publication date: 2007-06-01

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