Elderly responses to private health insurance incentives: evidence from Australia

Melbourne Institute Working Paper No. 08/22

Date: April 2022


Judith Liu
Yuting Zhang


Many governments with dual public and private health systems subsidise private health insurance (PHI) with the aim to ease the burden on the public system. Understanding how elderly individuals respond to subsidies is important because they can benefit more from PHI but often find it unaffordable. There is an extensive literature on the demand for PHI, but less is known about the elderly’s responses to PHI incentives. We leverage a unique age-specific policy in Australia which provided higher rebates for individuals over the age of 65. Using administrative tax data, we examine the effects of premium subsidies on PHI take-up decisions of elderly individuals under an event study difference-in-differences framework. We find that higher rebates led to a modest and transitory increase in PHI take-up. The estimated price elasticity of PHI demand is in the -0.1 to -0.2 range in the first two years of the policy. Moreover, the demand responses were more elastic among those with low incomes. Our results suggest that a more targeted subsidy program, with a focus on low-income elders, would be more effective in increasing PHI take-up.

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