Abstract
The percentage of Australians taking up Private Health Insurance (PHI) was in decline
following the introduction of Medicare in 1984 (PHIAC). To arrest this decline the
Australian Government introduced a suite of policies, between 1997 and 2000, to create
incentives for Australians to purchase private health insurance. These policies include an
increased Medicare levy for those without PHI on high incomes, introduced in 1997, a
30% rebate for private hospital cover (introduced 1998), and the Lifetime Health Cover
(LHC) policy where PHI premiums are set at age of entry, increasing for each year older
than 30 years (introduced 2000). In 2004 the longitudinal study on Household Income
and Labour Dynamics in Australia (HILDA), included a series of questions on private
health insurance and hospital use. We used the HILDA data to investigate the
demographic, health and income factors related to the PHI decisions, especially around
the introduction of the Lifetime Health Cover policy. Specifically we investigate who was
most influenced to purchase PHI (specifically hospital cover) in 2000 as a response to the
Lifetime Health Cover policy deadline. Are those who have joined PHI since the
introduction of LHC different from those who joined prior to LHC? What are the
characteristics of those who have dropped PHI since the introduction of LHC? We model
the PHI outcomes allowing for heterogeneity of choice and correlation across
alternatives. After controlling for other factors, we find that LHC prompted moderately
well-off working age adults (30-49 yrs) to purchase before the 2000 deadline. Young
singles or couples with no children, and the overseas born were more likely to purchase
since 2000, while the relatively less well-off continue to drop PHI in spite of current
policy incentives.