Effects of private health insurance on waiting time in public hospitals

Melbourne Institute Working Paper No. 09/23

Date: 2023


Ou Yang
Jongsay Yong
Yuting Zhang


The Australian government pays $6.5 billion per year in rebates to encourage Australians to purchase private health insurance (PHI) and an additional $3 billion to cover private inpatient medical services. What is the justification for large government subsidies to a private industry when all Australians already have free Medicare coverage? The government argues that more people buying PHI will relieve the burden on the public system and may reduce waiting times. However, the evidence supporting this is sparse. This paper uses an instrumental variable approach to study the causal effects of higher PHI takeup on waiting times in public hospitals. We use 2014-2018 hospital admission and elective surgery waiting list data linked at the patient level from the Victorian Centre for Data Linkage. These data cover all Victorian residents who had any inpatient admissions in all hospitals in Victoria (both public and private hospitals) and those registered on the waiting list for elective surgeries in public hospitals in Victoria. We find that one percentage point increase in the PHI take-up leads to about 0.34 days (or 0.5%) reduction in waiting times in public hospitals on average. The effects vary by surgical specialties and age groups. However, the practical significance of this effect is limited, if not negligible, despite its statistical significance. The small effect suggests that raising PHI coverage with the aim to taking the pressure off the public system is not an effective and practical strategy in reducing waiting times in public hospitals. Alternative policies aiming at improving the efficiency of public hospitals and advancing equitable access to care should be a priority for policymakers.

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