Lifetime Cover in Private Insurance Markets

Henry Brown () and Luke Connelly ()

International Journal of Health Economics and Management, 2005, vol. 5, issue 1, 75-88

Abstract: In the last few decades, private health insurance rates have declined in many countries. In countries and states with community rating, a major cause is adverse selection. In order to address age-based adverse selection, Australia has recently begun a novel approach which imposes stiff penalties for buying private insurance later in life, when expected costs are higher. In this paper, we analyze Australia’s Lifetime Cover in the context of a modified version of the Rothschild-Stiglitz insurance model (Rothschild and Stiglitz, 1976). We allow empirically-based probabilities to increase by age for low-risk types. The model highlights the shortcomings of the Australian plan. Based on empirically-based probabilities of illness, we predict that Lifetime Cover will not arrest adverse selection. The model has many policy implications for government regulation encouraging long-term health coverage. Copyright Springer Science+Business Media, Inc. 2005

Keywords: health insurance; adverse selection; public policy (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s10754-005-6602-6

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