Effects of private health insurance on waiting time in public hospitals

The Australian government pays $6.7 billion per year in rebates to encourage Australians to purchase private health insurance (PHI) and an additional $6.1 billion to cover services provided in private hospitals. What is the justification for large government subsidies to a private industry when all Australians already have free coverage under Medicare? The government argues that more people buying PHI will relieve the burden on the public system and may reduce waiting times. However, the evidence supporting this is sparse. We use an instrumental variable approach to study the causal effects of higher PHI coverage in the area on waiting times in public hospitals in the same area. The instrument used is area‐level average house prices, which correlate with average income and wealth, thus influencing the purchase of PHI due to tax incentives, but not directly affecting waiting times in public hospitals. We use 2014–2018 hospital admission and elective surgery waiting list data linked at the patient level from the Victorian Center for Data Linkage. These data cover all inpatient admissions in all hospitals in Victoria (both public and private hospitals) and those registered on the waiting list for elective surgeries in public hospitals in Victoria. We find that one percentage point increase in PHI coverage leads to about 0.34 days (or 0.5%) reduction in waiting times in public hospitals on average. The effects vary by surgical specialities and age groups. However, the practical significance of this effect is limited, if not negligible, despite its statistical significance. The small effect suggests that raising PHI coverage with the aim to taking the pressure off the public system is not an effective strategy in reducing waiting times in public hospitals. Alternative policies aiming at improving the efficiency of public hospitals and advancing equitable access to care should be a priority for policymakers.