utilisation and insurance for private hospital length of stay. They found that insurance
could more than double the average length of private hospital stay.
The introduction of the insurance incentives generated considerable research. Butler
(2002) analysed the "carrots and sticks" financial incentives for PHI and found that
the membership uptake that occurred was largely attributable to LHC, a policy that
had virtually no cost to government. He also examined the changing age composition
of the insured pool after September 2000, and observes that the increasing average
age of those insured suggests the possible reappearance of an adverse selection
dynamic. He argues that the 'trick' delivered by LHC may not be maintained in the
longer term. Walker et al (2005) present an historical analysis of the impacts of the
different PHI incentives in terms of the proportion of Australians having hospital
insurance cover by age, gender and socioeconomic status. They found that the
increased cover was due mainly to the richest 20% of the population. Among the
poorest 40% the impact was minimal.
Dawkins et al (2004) found strong evidence that households most affected by the PHI
policy changes were those with high socio-economic standing and high income and
little evidence that the policies alleviated the burden of public hospitals. Vaithianathan
(2004) argues that the subsidy to health insurance should have been an effective
means to increase PHI coverage, but was ineffective because community rating was
ineffective. Despite community rating rules which prohibit age adjusted premiums,
Household Expenditure Survey data indicate that young adults pay considerably less
for their insurance than older adults. She concludes that insurers circumvented
community rating through plan design, screening older consumers into more
expensive plans. She also found that the penalty of 2 per cent per year for delaying
insurance, introduced as part of the lifetime cover plan, is too low to be effective.
Doiron et al (forthcoming) investigated the relationship between ex ante risk and
private health insurance using the NHS 2001 and found a strong positive association
between self-assessed health and private health cover and identify the factors
responsible for favourable selection. They found that those persons who engage in
risk-taking behaviours are simultaneously less likely to be in good health and less
likely to buy insurance.
Palangkaraya and Yong (2005) attempted to isolate the effects of the different
insurance incentives using 1995 and 2001 NHS data. Focusing on single individuals
their counterfactual analysis indicates that LHC caused between 42% and 75% of the
overall increase in PHI membership. Ellis and Savage (2005) developed and used
NHS 2001 data to estimate a model of individual decisions to enroll in private health
insurance order to understand the effects of the PHI reforms on the age and income
distribution of those with private cover over time. They conclude that the major
impacts of the three reforms can be understood as a broad-based “Run for Cover”, a
response to a deadline and an advertising blitz, rather than a pure price response. They
also found that LHC would have had a larger impact on coverage for families without
the 30% premium subsidy.
Lu and Savage (2006) used the 2001 NHS to examine the impact of increased private
insurance coverage on use of both public and private hospital systems focusing on
how behaviour varies with insurance duration. They found that those who enrolled in
response to the incentives behave more like the uninsured than the long-term insured.