Effects of Recent Carrot-and-Stick Policy Initiatives on Private Health Insurance Coverage in Australia

Melbourne Institute Working Paper No. 20/04

Date: August 2004


Alfons Palangkaraya
Jongsay Yong


The Australian government implemented a sequence of new policy initiatives during 1997{2000 with a stated aim of raising the take-up rate of private health insurance (PHI). Taken together, it is quite clear that these new policy initiatives were effective. The overall proportion of Australian population with private health insurance cover increased by more than 35%. However, much less clear is the effctiveness of different components of the policies. This lacks of clarity results from the sequential implementation those policies. Because of the potentially large cost differences in their implementation, a better understanding of the each policy's effects can be valuable for future policymaking. This paper attempts to isolate the effects of those different policies using the 1995 and 2001 National Health Survey data. These two datasets allow the estimation of private health insurance demands before and after the policy changes. Consequently, they also allow for a counterfactual analysis of what would have happened had there been no new policies. Combined with the age-specific aspect Lifetime Health Cover (LHC), the counterfactual analysis indicates that the effects of LHC fall between 42% and 75% of the overall increase in PHI membership.

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