The Impact of Private Hospital Insurance on the Utilization of Hospital Care in Australia
La Trobe University: School of Economics Working Paper No. 3
53 Pages Posted: 27 Jun 2013
Date Written: June 26, 2013
Abstract
We use the 2004-'05 wave of the Australian National Health Survey to estimate the impact of private hospital insurance on the propensity for hospitalization as a private patient. We employ instrumental-variable methods to account for the endogeneity of supplementary private hospital insurance purchases. We calculate moral hazard based on a difference-of-means estimator. We decompose the moral hazard estimate into a diversion component that is due to an insurance-induced substitution away from public patient care towards private patient care, and an expansion component that measures a pure insurance-induced increase in the propensity to seek private patient care. We find some evidence of self-selection into insurance but this finding is not robust to alternative specifcations. Our results suggest that on average, private hospital insurance causes a sizable and significant increase in the likelihood of hospital admission as a private patient. However, there is little evidence of moral hazard; the treatment effect of private hospital insurance on private patient care is driven almost entirely by the substitution away from public patient care towards private patient care.
Keywords: Health Insurance, Health Care Consumption, Moral Hazard
JEL Classification: I11, I18, C35
Suggested Citation: Suggested Citation