Who has private health insurance?

Every now and again, one discovers some completely counter-intuitive information that changes the way you think about a situation.

Today I learned some fascinating facts about private health insurance and who buys it. Now, until today, I had pretty much thought that those with private health insurance would generally be older and sicker than those without it. Now there are various "carrots and sticks" to enourage people to take up private health insurance (the Medicare surcharge for high income earners, the rebates, and the surcharges for people who join after age 30), but still at the end of the day, you would think the people with private health insurance would still be somewhat older and sicker than those without, because some people will always say "I am young/healthy; I don't think I'll get sick, therefore I am financially better off to not take out private health insurance".

Well, the facts about private health insurance aren't what you might intuitively expect. The people who take out private health insurance *are* indeed older than those without, but only by a small amount (the average age of the privately insured is about 1 year older than the average age of the not-insured). But more counter-intuitively, the private insured are healthier (or perhaps more to the point "get sick less") than the non-insured.

And when you look at specific demographic groups, you discover that the "old sick" people who you might imagine would be in private insurance in fact are not. People aged over 65 are in fact under-represented in private health insurance. It is the middle-aged who are over-represented in private health insurance statistics.

Now when you think about these facts, the reasons become pretty clear. The older and sicker members of our community can't generally afford private health insurance. So when thinking about private health insurance, there are 3 groups:

1) those who can't afford private insurance
2) those who can and think their health risk warrants it
3) those who can and think their health risk doesn't warrant it

So all the effort that goes into trying to get group 3) to join group 2) isn't about cross-subsiding group 2)'s costs, but rather about removing group 3 from the public system so the public system only has to focus on group 1). Of course the more group 3) subsides group 2)'s costs, the lower the premiums for private insurance become. By lowering premiums, then further members of group 3) will think it economically worthwhile to join group 2) and also some members of group 1) will now be able to afford private insurance and join group 2).

Or to put it the other way, the larger group 3) gets, the higher the premiums paid by group 2), forcing some members of group 2) into group 1), increasing the size of group 1.

Fascinating? Well, maybe not. But I still learned something.