Industry regulation, fund characteristics, and the efficiency of Australian private health insurers

Lan Nguyen and Andrew Worthington

Accounting and Finance, 2021, vol. 61, issue 1, 781-801

Abstract: We examine the technical and scale efficiency of 30 Australian private health insurers during the period 2010–2017 using data envelopment analysis (DEA). We calculate industry pure technical efficiency of 91.6 percent and scale efficiency of 95.1 percent. We also employ a two‐stage DEA truncated bootstrapped regression to model efficiency on fund and policy factors. The results show that premium restrictions and risk equalisation policies, and fund characteristics like size, but not for‐profit/not‐for‐profit status, market share and leverage, exert significant effects. The findings suggest substantial scope for regulatory reform and structural change in the Australian private health insurance industry as a means of improving its efficiency.

Date: 2021
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