Three essays on consumer behaviour in the Australian health insurance market

This thesis presents empirical evidence on the behaviour of consumers in the Australian private health insurance market. It comprises three essays that cover topics such as consumer demand, selection bias, moral hazard, state dependence, heuristics and choice quality. The first essay explores dynamics in the demand for private health insurance around family formation. Using a panel dataset of young Australian women, it is found that demand responds positively to the desire for additional children but that women often leave insurance when they finish family building. At the same time, state dependence - the propensity to maintain insurance from one period to the next regardless of circumstances - is also found to be important. These results are robust across a number of specifications. The second essay focuses on the private ancillaries health insurance market. Using data from the National Health Survey, the causal effect of insurance on utilisation for various health services is estimated. The essay also considers the impact of selection bias in this market, that is the propensity for insureds to have a different risk profile than the general population. Using an instrumental variables estimation strategy, insurance is found to increase utilisation of some health services, in particular dental and physical health services. There is also evidence that certain groups are adversely selecting into insurance, such as females and the highly educated, based on major health service categories. However, there is less evidence that selection bias across the joint probability of utilising multiple health services is important. The third essay focuses on choice quality and how this is influenced by an important form of complexity - the bundling of private ancillaries and private hospital health insurance. Using a discrete choice experiment, the quality of health insurance choices for a representative sample of Australians is evaluated. The results indicate that consumers are likely to make choices that violate expected utility theory, use heuristic decision strategies, and over-insure relative to minimising out-of-pocket costs. Decision quality is significantly lower when choosing a bundled hospital/ancillaries health insurance policy (compared to stand-alone ancillaries cover), which is the policy type most consumers purchase in Australia