A Critique of the Private Health Insurance Regulations

14 Pages Posted: 30 Sep 2004


The private health insurance sector is one of the most regulated sectors in Australia. The Private Health Insurance Incentives Scheme, along with community rating, is intended to make private insurance equitable, profitable and popular. We argue that the subsidy to health insurance ought to be a very effective tool for increasing insurance - but it was ineffective because community rating was ineffective. Using data from the Household Expenditure Survey we find that despite community rating rules which prohibit age-adjusted premiums, young adults paid considerably less for their insurance than older adults. We conclude that insurers circumvented community rating through plan design, screening older consumers into more expensive plans. We also find that the penalty of 2 per cent per year for delaying insurance, introduced as part of the lifetime cover plan, is too low to be effective. We reflect on the New Zealand experience, where a completely deregulated insurance industry continues to be profitable and enjoys similar rates of coverage to those of Australia, and we ask whether Australia too could not benefit from complete deregulation.

Suggested Citation

Vaithianathan, Rhema, A Critique of the Private Health Insurance Regulations. Available at SSRN: https://ssrn.com/abstract=595032

Rhema Vaithianathan (Contact Author)

University of Auckland ( email )

Private Bag 92019
Com. A, Room: 107
New Zealand
64-9-373-7599 ext. 7127 (Phone)

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