The Impact of Means‐Tested Premium Rebates and Tax Penalties on the Demand for Private Hospital Cover in Australia

Anam Bilgrami, Henry Cutler, Kompal Sinha and Zhiming Cheng

The Economic Record, 2021, vol. 97, issue 317, 170-211

Abstract: Many governments intervene in private health insurance markets to incentivise demand, balance efficiency and equity, and counter adverse selection. In the context of rising health‐care costs, this is a complex task, and understanding the relative effectiveness of interventions can help governments design an optimal policy mix. We evaluate the impact of means‐testing a premium rebate and increasing an income tax penalty rate on private health insurance hospital coverage in Australia. We employ difference‐in‐difference (DID) analysis on a Household Income and Labour Dynamics in Australia (HILDA) survey panel of 6,179 individuals. To construct a valid control group, we employ income band restriction and match individuals below the policy income threshold to the treatment group using entropy balancing on pre‐treatment covariates and trends. Our analyses suggest that Australia’s Fairer Private Health Insurance Incentives (FPHII) reform in 2012 increased the probability of holding hospital cover by 1.5 percentage points (P

Date: 2021
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