The determinants of the demand for private health insurance under Medicare

TLDR

Since Medicare’s 1984 introduction, private health insurance coverage in Australia has declined sharply, as public coverage is compulsory while private coverage remains optional. The study investigates the determinants of private health insurance demand in Australia and highlights key policy implications. Using a binary logit model and simulation analyses, the authors assess how age, income, health status, and geographic location influence demand. Results reveal adverse selection in the private insurance pool, refute the notion of a wealthy uninsured group, and show significant interstate variation in demand.

Abstract

Abstract Since the introduction of Medicare in 1984, the proportion of the Australian population with private health insurance has declined considerably. Insurance for health care consumption is compulsory for the public health sector but optional for the private health sector. In this paper, we explore a number of important issues in the demand for private health insurance in Australia. The socio-economic variables which influence demand are examined using a binary logit model. A number of simulations are performed to highlight the influence and relative importance of various characteristics such as age, income, health status and geographical location on demand. A number of important policy issues in the private health insurance market are highlighted. First, evidence is provided of adverse selection in the private health insurance pool, second, the notion of the wealthy uninsured is refuted, and finally it is confirmed that there are significant interstate differences in the demand for private health insurance.