The Impact of Means‐Tested Premium Rebates and Tax Penalties on the Demand for Private Hospital Cover in Australia*

Abstract

Many governments intervene in private health insurance markets to incentivise demand, balance efficiency and equity, and counter adverse selection. In the context of rising health-care costs, this is a complex task, and understanding the relative effectiveness of interventions can help governments design an optimal policy mix. We evaluate the impact of means-testing a premium rebate and increasing an income tax penalty rate on private health insurance hospital coverage in Australia. We employ difference-in-difference (DID) analysis on a Household Income and Labour Dynamics in Australia (HILDA) survey panel of 6,179 individuals. To construct a valid control group, we employ income band restriction and match individuals below the policy income threshold to the treatment group using entropy balancing on pre-treatment covariates and trends. Our analyses suggest that Australia's Fairer Private Health Insurance Incentives (FPHII) reform in 2012 increased the probability of holding hospital cover by 1.5 percentage points (P < 0.1). The effect was driven by a significant increase in coverage of 2.4 percentage points (P < 0.1) for those in the highest income tier, despite this group experiencing the largest premium increase from the reform. Estimates were relatively robust to sensitivity analyses, including removing those with complicated income streams and removing potential income shifters. Our results suggest that

Accuracy of self‐reported private health insurance coverage

“…Many studies have used survey data to study the determinants of PHI enrollment worldwide (Besley et al., 1999; Buchmueller et al., 2021; Frean et al., 2017; Hullegie & Klein, 2010; Nguyen & Leung, 2013). As documented above, there are numerous Australian studies employing self‐reported PHI measures as a dependent variable (Bilgrami et al., 2021; Buchmueller et al., 2021; Cameron & Trivedi, 1991; Doiron et al., 2008; Ellis & Savage, 2008; Johar et al., 2011; Kettlewell et al., 2018; Palangkaraya & Yong, 2005). However, up till now, we know little about the implications of PHI misreporting on such estimates.…”

“…This paper contributes to the literature by utilizing the newly available linked Australian National Health Survey and administrative population income tax data to exclusively examine the accuracy in PHI reporting outside the US context. Australian literature has heavily used self‐reported PHI measures as dependent (Bilgrami et al., 2021; Buchmueller et al., 2021; Cameron & Trivedi, 1991; Doiron et al., 2008; Ellis & Savage, 2008; Johar et al., 2011; Kettlewell et al., 2018; Palangkaraya & Yong, 2005) or independent variables (Cameron et al., 1988; Cheng, 2014; Doiron et al., 2014; Doiron & Kettlewell, 2018; Eldridge et al., 2017; Kettlewell, 2019b; Savage & Wright, 2003; Srivastava et al., 2017). While there are some concerns about the accuracy of self‐reported measures of PHI coverage (Buchmueller et al., 2021; Liu & Zhang, 2022), there has been no formal validation study on this topic prior to our current study.…”

“…NHSs have been a popular data source to study PHI in Australia(Buchmueller et al, 2013;Cameron et al, 1988;Cameron & Trivedi, 1991;Doiron et al, 2008;Johar et al, 2011;Kettlewell, 2019b;Palangkaraya & Yong, 2005;Savage & Wright, 2003). Other survey data sources include Household, Income and Labor Dynamics in Australia(Bilgrami et al, 2021;Buchmueller et al, 2021;Cheng, 2014;Kettlewell, 2019a) and the 45-and-Up Study(Doiron et al, 2014;Johar & Savage, 2012;Kettlewell et al, 2018). A few Australian studies have used data from PIT, the same data source as one of our data sources, to document PHI enrollment(Kettlewell & Zhang, 2021;Liu & Zhang, 2022;Stavrunova & Yerokhin, 2014).5 An appropriate level of cover must have an excess of $750 or less for singles and $1500 or less for couples or families(ATO, 2022).…”

Elderly responses to private health insurance incentives: Evidence from Australia

“…Although there are several studies on the effects of these policies (Cheng, 2014; Doiron et al., 2014; Doiron & Kettlewell, 2018; Einarsdóttir et al., 2012; Eldridge et al., 2017; Ellis & Savage, 2008; Palangkaraya et al., 2009; Palangkaraya and Yong, 2005, 2007; Stavrunova & Yerokhin, 2014), it is difficult to disentangle the independent effects of the three different policy incentives because they were implemented within such a short period of time. Findings from more recent studies on later policy changes generally suggest that the demand for PHI is price inelastic in Australia, likely due to the existence of public insurance (Bilgrami et al., 2021; Buchmueller et al., 2021; Cheng, 2014; Kettlewell et al., 2018). However, there is still much to learn about how policy changes impact PHI take‐up among the elderly, who could benefit more from having PHI.…”

“…While the demand for PHI has been widely studied, both internationally (e.g., Finkelstein, 2002; Frean et al., 2017; Gruber & Washington, 2005; King & Mossialos, 2005; López Nicolás & Vera‐Hernández, 2008; Rodríguez & Stoyanova, 2008) and in the Australian context (Bilgrami et al., 2021; Buchmueller et al., 2021; Cheng, 2014; Kettlewell et al., 2018; Palangkaraya et al., 2009; Palangkaraya and Yong, 2005, 2007; Stavrunova & Yerokhin, 2014), there is little evidence on how elderly individuals respond to PHI incentives.…”