Lifetime Subsidies in Australian Private Health Insurance Markets with Community Rating

Luke Connelly () and H Shelton Brown ()
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H Shelton Brown: Management Policy and Community Health, University of Texas School of Public Health, 80 Fort Brown, TX 78520, U.S.A. and Visiting Fellow, ACERH UQ.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2006, vol. 31, issue 4, 705-719

Abstract: This paper considers the problem of inducing low-risk individuals of all ages to buy private health insurance in Australia. Our proposed subsidy scheme improves upon the age-based penalty scheme under the current “Australian Lifetime Cover” (LTC) scheme. We generate an alternative subsidy profile that obviates adverse selection in private health insurance markets with mandated, age-based, community rating. Our proposal is novel in that we generate subsidies that are both risk- and age-specific, based upon actual risk probabilities. The approach we take may prove useful in other jurisdictions where the extant law mandates community rating in private health insurance markets. Furthermore, our approach is useful in jurisdictions that seek to maintain private insurance to complement existing universal public systems. The Geneva Papers (2006) 31, 705–719. doi:10.1057/palgrave.gpp.2510099

Date: 2006
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