title: Lifetime cover in private insurance markets.
abstract: In the last few decades, private health insurance rates have declined in many countries. In countries and states with community rating, a major cause is adverse selection. In order to address age-based adverse selection, Australia has recently begun a novel approach which imposes stiff penalties for buying private insurance later in life, when expected costs are higher. In this paper, we analyze Australia's Lifetime Cover in the context of a modified version of the Rothschild-Stiglitz insurance model (Rothschild and Stiglitz, 1976). We allow empirically-based probabilities to increase by age for low-risk types. The model highlights the shortcomings of the Australian plan. Based on empirically-based probabilities of illness, we predict that Lifetime Cover will not arrest adverse selection. The model has many policy implications for government regulation encouraging long-term health coverage.
authors.affiliation: University of Texas School of Public Health, Brownsville RAHC, 80 Firt Brown, Brownsville, TX 78520, USA.
authors.forename: H Shelton
authors.initials: HS
authors.lastname: Brown
authors.forename: Luke B
authors.initials: LB
authors.lastname: Connelly
mesh_terms: D000206:Actuarial Analysis; D000328:Adult; D000367:Age Factors; D000368:Aged; D001315:Australia; D005249:Fees and Charges / Q000331:legislation & jurisprudence / Q000639:trends*; D006801:Humans; D015273:Insurance Selection Bias; D007348:Insurance, Health / Q000191:economics* / Q000331:legislation & jurisprudence / Q000706:statistics & numerical data; D008875:Middle Aged; D017059:Models, Econometric; D011336:Probability; D011640:Public Policy; D012306:Risk