Efficiency and Productivity of Australian Private Health Insurers

Abstract

Private health insurance plays a central role in the Australia’s healthcare system and improving the efficiency of the industry as a means of lowering premiums to policyholders is an important goal of the existing legislation and regulatory framework. In this paper, we examine the technical and scale efficiency of 30 major health insurance funds during the period 2010-2016 using a two-stage approach. In the first stage, we use data envelopment analysis using both constant and variable returns-to-scale assumptions to measure technical efficiency. In the second stage, we employ the truncated bootstrapped regression framework proposed by Simar and Wilson (2007) to model the estimated efficiency scores on fund-level information and the environmental variables. The results show that government policy and fund factors exert significant effects on fund efficiency. We also analyze the productivity of funds using Malmquist productivity indexes. We find that the while the industry averaged an increase of 1.5% in technical efficiency during the period, this was accompanied by a 4.3% regress in technological change and a 2.8% decrease in productivity growth.

Keywords: Private health insurance, Technical and scale efficiency, Data envelopment analysis, Malmquist index, Productivity

JEL Classification: C14, C61, I13