Out-of-pocket expenditure, need, utilisation, and private health insurance in the Australian healthcare system

Despite widespread public service provision, public funding, and private health insurance (PHI), 20% of all healthcare expenditure across the OECD is covered by out-of-pocket expenditure (OOPE). This creates an equity concern for the increasing number of individuals with chronic conditions and greater need, particularly if higher need coincides with lower income. Theoretically, individuals may mitigate OOPE risk by purchasing PHI, replacing variable OOPE with fixed expenditure on premiums. Furthermore, if PHI premiums are not risk-rated, PHI may redistribute some of the financial burden from less healthy PHI holders that have greater need to healthier PHI holders that have less need. We investigate if the burden of OOPE for individuals with greater need increases less strongly for individuals with PHI in the Australian healthcare system. The Australian healthcare system provides public health insurance with full, partial, or limited coverage, depending on the healthcare service used, and no risk rating of PHI premiums. Using data from the Household, Income and Labour Dynamics in Australia survey we find that individuals with PHI spend a greater share of their disposable income on OOPE and that the difference in OOPE share between PHI and non-PHI holders increases with greater need and utilisation, contrary to the prediction that PHI may mitigate OOPE. We also show that OOPE is a greater concern for poorer individuals for whom the difference in OOPE by PHI is the greatest.