1. ^aAustralian Centre for Economic Research on Health (ACERH UQ) and Centre of National Research on Disability, Rehabilitation Medicine (CONROD), The University of Queensland, Mayne Medical School, Herston Road, Herston, QLD 4006, Australia. E-mail: l.connelly@uq.edu.au
2. ^bManagement Policy and Community Health, University of Texas School of Public Health, 80 Fort Brown, TX 78520, U.S.A. and Visiting Fellow, ACERH UQ. E-mail: shelton.brown@utb.edu

^*Support for Dr. Brown came from the Hispanic Health Research Center, supported by NIH CMHD P20 MD000170-03 located at the Brownsville Regional Campus of the University of Texas School of Public Health.

Abstract

This paper considers the problem of inducing low-risk individuals of all ages to buy private health insurance in Australia. Our proposed subsidy scheme improves upon the age-based penalty scheme under the current "Australian Lifetime Cover" (LTC) scheme. We generate an alternative subsidy profile that obviates adverse selection in private health insurance markets with mandated, age-based, community rating. Our proposal is novel in that we generate subsidies that are both risk- and age-specific, based upon actual risk probabilities. The approach we take may prove useful in other jurisdictions where the extant law mandates community rating in private health insurance markets. Furthermore, our approach is useful in jurisdictions that seek to maintain private insurance to complement existing universal public systems.