Assessing the Efficiency Impact of COVID-19 on Australian Private Health Insurers Using DEA

The COVID-19 pandemic has had a pronounced effect on the Australian private health insurance (PHI) industry. With government-imposed restrictions limiting access to hospital and nonhospital treatments, fund benefits paid have declined or grown only slowly since 2020. At the same time, PHI insurers have pursued technological innovations in service delivery, including work-from-home arrangements under mandated lockdowns, resulting in declining fund administration and claims handling expenses, while the share of Australians with PHI increased for the first time since 2015 given the increased community focus on health, with a corresponding increase in premium revenue. Investment revenue has been and still is extremely volatile. This chapter examines the impacts of these on the technical and scale efficiency of Australia’s 31 largest PHI insurers during the period 2016–2022 using data envelopment analysis. We find that mean pure technical efficiency initially worsened and then quickly improved during and after 2020, while scale efficiency also declined but took longer to recover. However, the PHI industry continues to run at lower levels of technical and scale efficiency than before the pandemic, with fewer best-practice insurers, corresponding to the incredibly significant disruption of COVID-19 to this industry.