Impacts of the 2012 ‘Fairer Private Health Insurance Incentives’ reforms on membership and coverage in Australia

This study estimates the impacts of the 2012 Fairer Private Health Insurance Incentives (FPHII) reforms, which encompassed means-testing private health insurance (PHI) rebates and increased rates of the Medicare levy surcharge (MLS) for higher income earners. The impacts of the reforms on changes in the probability of holding hospital cover and on downgrading in the treatment group (higher income earners directly affected by FPHII) were analysed using longitudinal data from the Household, Income and Labour Dynamics in Australia (HILDA) survey. This included analysis of PHI status variables and estimated household expenditure on PHI. A first-difference estimator and difference-in-difference analysis was employed to analyse a sample of approximately 6,500 individuals. The baseline analysis for the treatment group found that the reforms increased the probability of having hospital cover by 2.9% to 3.8%, and downgrading of hospital cover by 24.6% to 34.6%. The estimated effects on hospital cover and downgrading were relatively robust to all sensitivity analyses performed. The substantial downgrading impacts from the reforms hold important implications for health care use and equity in the current Australian PHI market, which is characterised by asymmetric information on the provider side and offers over 20,000 available policies with complex product features.