2023 Australasian Actuarial Education and Research Symposium

Qingyue Li

Australian National University

Forecasting private health insurance participation in Australia: a microsimulation model

This is joint work with Timothy Higgins, Wai-Man Liu, Aaron Bruhn

Australia's Private Health Insurance (PHI) industry faces the persistent challenge of the adverse selection spiral, primarily attributable to community rating. This study endeavours to project the future of PHI participation in the years to come through the development of a microsimulation model tailored to the Australian context. To construct this model, we start with the 2016 Australian Census 1% sample as a foundational dataset. Subsequently, we employ a stochastic microsimulation approach to predict individual decisions pertaining to PHI, utilizing data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey to develop dynamic models of PHI decisions. The microsimulation model is structured into five distinct modules, addressing demographics, marital dynamics, education, income, and PHI-related choices. Our analysis also encompasses sensitivity tests for specific parameters. Our findings portray a consistent decline in the overall PHI participation rate over the forecasted years. Furthermore, there is a noteworthy increase in the proportion of the elderly population (ages exceeding 65) within the insured demographic. We also report on how different assumptions of future wage inflation and Medicare Levy Surcharge thresholds affect participation. This research extends beyond the realm of predicting PHI participation rates; it offers a systematic framework for evaluating the evolving characteristics of the insured population. Additionally, the model provides the means to assess the impacts of different government policy scenarios on participation rates. Our ongoing research also explores the effect of premium adjustments caused by shifting age demographics within the insured cohort.