Moral hazard in Australian private health insurance: the case of dental care services and extras cover

Abstract

We assess ex post moral hazard in Australian private health insurance (PHI) relating to dental care services (so-called extras cover) using the longitudinal Household, Income and Labour Dynamics in Australia (HILDA) Survey. Cross-sectional probit regressions specify dental care use as a function of dental care demand and endogenous PHI policy holding, including selfassessed health condition, health risk factors and socioeconomic controls including age, income, education, family structure and welfare status. We find that ex post moral hazard results in the additional use of dental care services by PHI holders. Further, dynamic analysis indicates that PHI, no matter how sporadic, is always associated with significantly more likely use of dental care services, increasing when continuously held, suggesting strong persistence in moral hazard.Keywords Private health insurance ⋅ moral hazard ⋅ dental care services ⋅ Australia

A Proposal to Extend Universal Insurance to Dental Care in Australia

“…These characteristics also make it difficult for private health insurance markets to adequately cover dental care. Dental insurance suffers the classic problems of adverse selection (Godfried, Oosterbeek and van Tulder 2001) and moral hazard (Nguyen and Worthington 2023). Genetic testing, which may inform the risk of requiring orthodontic procedures, is likely to pose additional challenges for private dental insurance markets in the future (Bardey and De Donder 2024).…”