IDEAS home Printed from https://ideas.repec.org/p/hpa/wpaper/200112.html
   My bibliography  Save this paper

Parallel Private Health Insurance in Australia: A Cautionary Tale and Lessons for Canada

Author

Listed:
  • Jeremiah Hurley

    (Department of Economics, Centre for Health Economics and Policy Analysis, McMaster University)

  • Rhema Vaithianathana

    (Economics Program, Research School of Social Sciences, Australian National University)

  • Thomas F. Crossley

    (Department of Economics, McMaster University, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University, Canberra)

  • Deborah Cobb-Clark

    (Centre for Economic Policy Research, Research School of Social Sciences, Australian National University, Canberra)

Abstract

Canada’s restrictions on the role of private health insurance for publicly insured physician and hospital services are unique among countries with universal, publicly funded health care systems. Pressure is mounting in Canada, however, to loosen these restrictions and create a parallel system of private finance. Advocates argue that creation of a parallel system of private finance will ensure the sustainability of the public system (by reducing public cost pressures), improve access to the public system (e.g., by reducing wait times), and improve quality in the public system (through competition). Opponents of parallel private finance argue that it will create “two-tiered” medicine, increase costs, compromise equity and reduce quality and access to publicly financed health care as those with the financial means (and often the strongest voice) exit to private insurance. Australia provides a particularly promising case study for Canada regarding the dynamics of parallel systems of public and private finance. This paper examines Australia's experience with parallel finance for inpatient hospital services to provide insight regarding: (a) the effectiveness of a parallel system of private finance in reducing costs and wait times in the public system; (b) risk selection between the parallel public and private insurance sectors; (c) the financial redistribution associated with the introduction and maintenance of a parallel system of finance; and (d) the dynamics of the broader political economy associated with parallel systems of finance. Australia's experience provides a number of lessons for Canada, including: (1) the potential for cost savings through introduction or expansion of a parallel private sector is very limited; (2) the introduction or expansion of a parallel private finance is unlikely to reduce wait times in the publicly financed system; (3) there is no simple way to regulate private insurers to pursue public objectives; (4) it is impossible to create an independent, isolated parallel system of private finance is false -- interactions between the public and private insurance sectors are complex and unavoidable; (5) quality plays a key role in driving the dynamics between the public and privately financed sectors; and (6) it is essential to articulate clear policy objectives for health care financing and to design public and private roles consistent with these objectives. Our overall conclusion is that the Australian experience provides a cautionary tale regarding the risks, costs and benefits of a parallel private system of health care finance.

Suggested Citation

  • Jeremiah Hurley & Rhema Vaithianathana & Thomas F. Crossley & Deborah Cobb-Clark, 2001. "Parallel Private Health Insurance in Australia: A Cautionary Tale and Lessons for Canada," Centre for Health Economics and Policy Analysis Working Paper Series 2001-12, Centre for Health Economics and Policy Analysis (CHEPA), McMaster University, Hamilton, Canada.
    • Handle: RePEc:hpa:wpaper:200112
    as

    Download full text from publisher

    File URL: http://www.chepa.org/Files/Working%20Papers/01-12.pdf
    File Function: First version, 2001
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jane Hall & Richard De Abreu Lourenco & Rosalie Viney, 1999. "Carrots and sticks—the fall and fall of private health insurance in Australia," Health Economics, John Wiley & Sons, Ltd., vol. 8(8), pages 653-660, December.
    2. Mark Stabile, 2001. "Private insurance subsidies and public health care markets: evidence from Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 34(4), pages 921-942, November.
    3. repec:bla:ecorec:v:78:y:2002:i:242:p:277-83 is not listed on IDEAS
    4. Amir Shmueli, 2001. "The effect of health on acute care supplemental insurance ownership: an empirical analysis," Health Economics, John Wiley & Sons, Ltd., vol. 10(4), pages 341-350, June.
    5. Besley, Timothy & Hall, John & Preston, Ian, 1999. "The demand for private health insurance: do waiting lists matter?," Journal of Public Economics, Elsevier, vol. 72(2), pages 155-181, May.
    6. Cutler, David M. & Zeckhauser, Richard J., 2000. "The anatomy of health insurance," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 11, pages 563-643, Elsevier.
    7. Chiu, W. Henry, 1997. "Health insurance and the welfare of health care consumers," Journal of Public Economics, Elsevier, vol. 64(1), pages 125-133, April.
    8. Besley, Timothy & Coate, Stephen, 1991. "Public Provision of Private Goods and the Redistribution of Income," American Economic Review, American Economic Association, vol. 81(4), pages 979-984, September.
    9. Jonathan Gruber, 2000. "Tax Subsidies for Health Insurance: Evaluating the Costs and Benefits," NBER Working Papers 7553, National Bureau of Economic Research, Inc.
    10. Garry F. Barrett & Robert Conlon, 2003. "Adverse Selection and the Decline in Private Health Insurance Coverage in Australia: 1989–95," The Economic Record, The Economic Society of Australia, vol. 79(246), pages 279-296, September.
    11. William Jack, 1998. "Intergenerational Risk Sharing and Health Insurance Financing," The Economic Record, The Economic Society of Australia, vol. 74(225), pages 153-161, June.
    12. Propper, Carol, 2000. "The demand for private health care in the UK," Journal of Health Economics, Elsevier, vol. 19(6), pages 855-876, November.
    13. repec:bla:ecorec:v:74:y:1998:i:225:p:153-61 is not listed on IDEAS
    14. Jeremiah Hurley, 2001. "Ethics, Economics, and Public Financing of Health Care," Centre for Health Economics and Policy Analysis Working Paper Series 2001-07, Centre for Health Economics and Policy Analysis (CHEPA), McMaster University, Hamilton, Canada.
    15. Ettner, Susan L., 1997. "Adverse selection and the purchase of Medigap insurance by the elderly," Journal of Health Economics, Elsevier, vol. 16(5), pages 543-562, October.
    16. Carol Propper & Alan Maynard, 1989. "The market for private health care and the demand for private insurance in Britain," Working Papers 053chedp, Centre for Health Economics, University of York.
    17. Rhema Vaithianathan, 2001. "An Economic Analysis of the Private Health Insurance Incentive Act (1998)," CEPR Discussion Papers 427, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    18. Evans, R.G., 2000. "Financing Health Care: Taxation and the Alternatives," Centre for Health Services and Policy Research 2000:15d, University of British Columbia - Centre for Health Services and Policy Research..
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mark Stabile & Sarah Thomson, 2014. "The Changing Role of Government in Financing Health Care: An International Perspective," Journal of Economic Literature, American Economic Association, vol. 52(2), pages 480-518, June.
    2. Benoit, Cecilia & Zadoroznyj, Maria & Hallgrimsdottir, Helga & Treloar, Adrienne & Taylor, Kara, 2010. "Medical dominance and neoliberalisation in maternal care provision: The evidence from Canada and Australia," Social Science & Medicine, Elsevier, vol. 71(3), pages 475-481, August.
    3. Joshua S. Gans & Stephen P. King, 2003. "Anti‐insurance: Analysing the Health Insurance System in Australia," The Economic Record, The Economic Society of Australia, vol. 79(247), pages 473-486, December.
    4. repec:spo:wpmain:info:hdl:2441/3ihldo33ik9ee94procjtfki5f is not listed on IDEAS
    5. Terence C. Cheng & Guyonne Kalb & Anthony Scott, 2018. "Public, private or both? Analyzing factors influencing the labour supply of medical specialists," Canadian Journal of Economics, Canadian Economics Association, vol. 51(2), pages 660-692, May.
    6. Ou Yang & Jongsay Yong & Yuting Zhang, 2024. "Effects of private health insurance on waiting time in public hospitals," Health Economics, John Wiley & Sons, Ltd., vol. 33(6), pages 1192-1210, June.
    7. repec:hal:spmain:info:hdl:2441/3ihldo33ik9ee94procjtfki5f is not listed on IDEAS
    8. Omar Paccagnella & Vincenzo Rebba & Guglielmo Weber, 2013. "VOLUNTARY PRIVATE HEALTH INSURANCE AMONG THE OVER 50s IN EUROPE," Health Economics, John Wiley & Sons, Ltd., vol. 22(3), pages 289-315, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. López Nicolás, Ángel & Vera-Hernández, Marcos, 2008. "Are tax subsidies for private medical insurance self-financing? Evidence from a microsimulation model," Journal of Health Economics, Elsevier, vol. 27(5), pages 1285-1298, September.
    2. Randall Ellis & Elizabeth Savage, 2008. "Run for cover now or later? The impact of premiums, threats and deadlines on private health insurance in Australia," International Journal of Health Economics and Management, Springer, vol. 8(4), pages 257-277, December.
    3. Kiil, Astrid, 2012. "What characterises the privately insured in universal health care systems? A review of the empirical evidence," Health Policy, Elsevier, vol. 106(1), pages 60-75.
    4. Neil J. Buckley & Katherine Cuff & Jeremiah Hurley & Logan McLeod & Robert Nuscheler & David Cameron, 2012. "Willingness‐to‐pay for parallel private health insurance: evidence from a laboratory experiment," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(1), pages 137-166, February.
    5. Pau Olivella & Marcos Vera-Hernández, 2006. "Testing for Asymmetric Information in Private Health Insurance," Working Papers 246, Barcelona School of Economics.
    6. Thomas Buchmueller, 2008. "Community Rating, Entry-Age Rating and Adverse Selection in Private Health Insurance in Australia*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 33(4), pages 588-609, October.
    7. Pau Olivella & Marcos Vera-Hernandez, 2006. "Testing for adverse selection into private medical insurance," IFS Working Papers W06/02, Institute for Fiscal Studies.
    8. Panos Pashardes & Nicoletta Pashourtidou, 2011. "Consumer welfare from publicly supplemented private goods: age and income effects on demand for health care," Empirical Economics, Springer, vol. 41(3), pages 865-885, December.
    9. Colm Harmon & Claire Finn, 2006. "A dynamic model of demand for private health insurance in Ireland," Open Access publications 10197/666, School of Economics, University College Dublin.
    10. Atella, Vincenzo & Deb, Partha, 2008. "Are primary care physicians, public and private sector specialists substitutes or complements? Evidence from a simultaneous equations model for count data," Journal of Health Economics, Elsevier, vol. 27(3), pages 770-785, May.
    11. Fabbri, Daniele & Monfardini, Chiara, 2009. "Rationing the public provision of healthcare in the presence of private supplements: Evidence from the Italian NHS," Journal of Health Economics, Elsevier, vol. 28(2), pages 290-304, March.
    12. Costa-Font, Joan & Ferrer-i-Carbonell, Ada, 2022. "Does devolution influence the choice and quality of public (vs private) health care?," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 632-653.
    13. Joan Costa & Jaume Garcia, 2001. "Demand for private health insurance: Is there a quality gap?," Working Papers, Research Center on Health and Economics 531, Department of Economics and Business, Universitat Pompeu Fabra.
    14. Marisol Rodríguez & Alexandrina Stoyanova, 2008. "Changes in the demand for private medical insurance following a shift in tax incentives," Health Economics, John Wiley & Sons, Ltd., vol. 17(2), pages 185-202, February.
    15. Joan Costa-i-Font & Ada Ferrer-i-Carbonell, 2017. "Can Regional Decentralisation Shift Health Care Preferences?," CESifo Working Paper Series 6779, CESifo.
    16. Joan Costa-Font & Ada Ferrer-i-Carbonell, 2019. "Regional Decentralisation and the Demand for Public Health Care," Studies on the Spanish Economy eee2019-41, FEDEA.
    17. Tynkkynen, Liina-Kaisa & Alexandersen, Nina & Kaarbøe, Oddvar & Anell, Anders & Lehto, Juhani & Vrangbӕk, Karsten, 2018. "Development of voluntary private health insurance in Nordic countries – An exploratory study on country-specific contextual factors," Health Policy, Elsevier, vol. 122(5), pages 485-492.
    18. Ángel López-Nicolás & Marcos Vera-Hernández, 2002. "Are tax subsidies for private medical insurance self-financing? Evidence from a microsimulation model for outpatient and inpatient episodes," Economics Working Papers 632, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2004.
    19. Perronnin, Marc, 2013. "Effet de l'assurance complémentaire santé sur les consommations médicales, entre risque moral et amélioration de l'accès aux soins," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/13659 edited by Wittwer, Jérôme.
    20. Buchmueller, Thomas C. & Fiebig, Denzil G. & Jones, Glenn & Savage, Elizabeth, 2013. "Preference heterogeneity and selection in private health insurance: The case of Australia," Journal of Health Economics, Elsevier, vol. 32(5), pages 757-767.

    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hpa:wpaper:200112. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lyn Sauberli (email available below). General contact details of provider: https://edirc.repec.org/data/chepaca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.