Distributional impact of recent changes in private health insurance policies

Abstract

The impacts of changes to private health insurance (PHI) policies introduced since 1999 -in particular the 30% PHI rebate and the Lifetime Health Cover -have been much debated. We present historical analyses of the impacts in terms of the proportion of Australians having hospital insurance cover under different PHI policies, by age, gender and socioeconomic status, and project these to 2010 using a new Private Health Insurance coverage model.The combined effect of the 30% rebate and Lifetime Health Cover was to increase PHI membership from just over 30% in 1998 to just under 50% by the end of 2000, due mainly to more people taking out PHI cover from among the richest 20% of the population. Among the poorest 40% the impact was minimal. Model projections suggested that, had the new PHI policies not been introduced, then the proportion of Australians with PHI would have declined to around 20% by 2010, compared with 40% if the current arrangements remained in place. Also, analysis of 2001 survey data regarding choices to use a public or a private hospital indicated that higher income groups with or without PHI were the more likely to have used a private hospital than lower income groups. Among those with PHI, older people were more likely to have used a private hospital than ALTHOUGH IN RECENT DECADES the health of populations in developed countries like Australia improved considerably, the related expenditures tended to outpace economic growth. This resulted in nations searching for ways to contain costs, most typically in the hospital sector, such as the passing on of a larger share of the costs to individuals. 1,2 Examples of this latter approach are the Federal government' s recently introduced policies to increase the take-up of private health insurance (PHI). Basically, the policies are the 30% private health insurance rebate, Lifetime Health Cover and the Medicare Levy Surcharge (Appendix A). When the 30% rebate was introduced, one stated aim was to ease the burden on Medicare, in particular on public hospitals.A recent inquiry 3 examined the issue of whether these policies had achieved their aim of easing the burden on public hospitals. While researchers What is known about the topic? Recent changes in private health insurance (PHI) policies were motivated partly by concern about the continuing decline in the number of people purchasing PHI. The changes have been effective in reversing the decline in the short term and have led to strong increases in coverage among younger people. What does this paper add?Modelling of the impact of policy settings indicates that removal of the 30% rebate would cause a small drop in proportion covered compared to the impact of removal of life-time cover in combination with the rebate. Under all scenarios, the model indicates continuing long-term decline in the proportion of the population purchasing PHI. Under current policies, the proportion covered would decline to 40% by 2010. What are the implications?Removal of the 30% rebate would have a considerably lesser impa...

The income distributive implications of recent private health insurance policy reforms in Australia

“…17 Frech et al [8] gave yet another estimate of the decline using trend analysis. See also Walker et al [21] for further estimates based on trend analysis. These different estimates suggest that methodological differences do produce rather different values, and it is difficult to suggest whether one is superior to another.…”

“…The results are summarised in Table 7. 21 Table 7 suggests that around $887 million per year may have been spent on subsidising households who would have purchased PHI in any case. We make two remarks.…”

Public policy and private health insurance: distributional impact on public and private hospital usage

“…The model and the simulated scenarios are described in an earlier publication. 4 Briefly, the model uses logistic regression to estimate the probability of a person having private health insurance. Predictive variables are: age, sex, year (as number of years from 1983), premium costs (as a proportion of average household disposable income) and, to account for SES, gross income quintiles (at income unit level).…”

“…4 In Box 5 we reproduced the earlier income-based table, 4 but rearranged the income brackets into quintiles based on ABS data, 17 with the $0-$15 000 annual household income group representing SES quintile 1; $15 001-$35 000 quintile 2; $35 001-$50 000 quintile 3; $50 000-$70 000 quintile 4; and the over $70 000 group quintile 5. We then used the Box 5 tabulation to link the PHI and NSW hospitals models.…”

“…23 Regarding "inseparability", the 30% rebate was introduced 18 months earlier than Lifetime Health Cover, and the increase in PHI membership that followed was small. 4 While the rebate' s withdrawal would affect the cost of PHI, it has not as yet been demonstrated that its withdrawal would have the reverse impact of what occurred following its introduction. As recommended by a Senate Inquiry, 3 more research on the equity and effectiveness of the 30% PHI rebate and the integral Lifetime Health Cover policy could have considerable benefits.…”