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    Anti-insurance: analysing the health insurance system in Australia

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    Anti-insurance: analysing the health insurance system in Australia (519.4Kb)

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    Author
    Gans, Joshua S.; King, Stephen P.
    Date
    2003-04
    University of Melbourne Author/s
    GANS, JOSHUA; King, Stephen
    Affiliation
    Economics and Commerce: Melbourne Institute of Applied Economic and Social Research
    Metadata
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    Document Type
    Preprint
    Citations
    Gans, Joshua S. and King, Stephen P. (2003) Anti-insurance: analysing the health insurance system in Australia.
    Access Status
    Open Access
    URI
    http://hdl.handle.net/11343/33739
    Description

    ISSN 1328-4991 (Print) ISSN 1447-5863 (Online) ISBN 073403122X MIWP No. 10/03

    Abstract
    This paper develops a model to analyse the Australian health insurance system when individuals differ in their health risk and this risk is private information. The Australian system involves mixed public and private health insurance with private insurance both duplicating and supplementing public insurance. We show that, absent any other interventions, the Australian system implicitly transfers wealth from those most at risk of adverse health to those least at risk. When considered over society as a whole, these transfers represent a mean preserving spread of income, creating social risk and lowering welfare. We refer to these implicit transfers as anti-insurance. Further, we use comparative statics to show that a decline in the take-up of private insurance may lead to a reduction in the welfare of all members of society. Increased take-up of private health insurance may be Pareto improving. We consider the recently introduced rebate on private health insurance and show that this alleviates this welfare reducing anti-insurance. However, its ad valorem nature distorts insurance premiums. We demonstrate that a lump sum rebate could achieve the same reduction in anti-insurance while avoiding additional dead weight losses. Nonetheless, we conclude by suggesting that more significant reform of the Australian system is needed, for example by moving to a system of supplementary private health insurance.
    Keywords
    Australian health insurance system; anti-insurance; private health insurance; public health insurance; rebate

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