The Effect of Health Insurance on the Substitution between Public and Private Hospital Care

Researchers have long been interested in estimating the causal effect of health insurance on health-care utilisation. Less attention has been given to measuring the impact of insurance on the substitution between private and public sector care. We estimate this effect for hospital admissions in Australia. To identify causal effects we use household variables as instruments, namely, information on partner's health and family aspirations. We find that having private health insurance increases the probability of a hospital admission by 5-6 percentage points. This net effect is the result of a considerable substitution from public to private care, which has important policy implications.