Adverse selection and the decline in private health insurance coverage in Australia: 1989-95

The decline in private health insurance coverage over the period 1989-95 is analysed using the ABS National Health Surveys. Individuals' health status and health risk behaviours are found to be significant determinants of their decision to purchase private health insurance. At a point in time, the pool of the insured is very heterogeneous, with a mix of both good and bad health risks. It is found that the decline in insurance coverage over the period 1989-95 coincided with an increase in the degree of 'adverse selection' within the insured population.