Elderly responses to private health insurance incentives: Evidence from Australia

Abstract

AbstractMany governments with dual public and private health systems offer subsidies for private health insurance (PHI) with the aim to ease the burden on the public system. Understanding how elderly individuals respond to these PHI subsidies is important because they typically have greater health care needs but often struggle with the affordability of PHI. However, prior studies provide little guidance on this issue because they have mainly focused on the responses to PHI incentives among the general population. This paper leverages a unique age‐specific policy intervention in Australia that provided higher rebates for individuals over the age of 65. Using administrative tax data, we examine how this policy affected PHI take‐up decisions of elderly individuals under an event study difference‐in‐differences framework. We find that higher rebates led to a modest increase in PHI take‐up. The estimated price elasticities of PHI demand were in the −0.1 to −0.2 range in the first 2 years of the policy. Moreover, the demand responses were more elastic among those with low incomes. Our findings indicate that a more targeted subsidy program, specially tailored to low‐income elders, would yield greater effectiveness in increasing PHI take‐up.