Does private health insurance reduce public hospital procedure wait times?

In countries that have universal health insurance, but limited patient out-of-pocket costs for public hospital services, non-urgent hospital treatment often has a waiting list in public hospitals. To address this issue, some countries (e.g., UK, Canada) use strategies such as setting maximum wait targets, monitoring provider performance, or adding public funding; other countries (e.g., Australia, Ireland) rely on a parallel private health sector to alleviate pressure on public hospitals when privately insured individuals use private hospital care. A key question is, does increased rates of private health insurance actually alleviate public hospital wait times?

That is the question that Yang et al. (2024) attempts to answer. They do this using a case study from Australia. Some background on the Australian health insurance system:

Australia has a universal health insurance coverage, Medicare, which covers free care in public hospitals. In addition, the Australian government implements several interventions to support a parallel private system. The government subsidizes A$6.7 billion per year in insurance premium rebates to encourage individuals to purchase PHI [private health insurance]…and directly subsidizes inpatient medical services in private hospitals…In addition, the government implements age-based penalty to encourage individuals to enroll in PHI earlier in life and tax penalty for those who do not have PHI if their income is above a certain threshold.

As of 2022, 45% of Australians were covered by private health insurance, which is a very high figure relative to other countries with universal health care coverage. Private health insurance premiums, however, are regulated by the federal government and use community rating (i.e., premiums do not vary by age, gender, or underlying health status).

The authors use data from the state of Victoria in Australia to examine the impact of private health insurance on public hospital wait times for elective surgery. The specific databases used include the Victorian Admitted Episodes Dataset (VAED) and the Victorian Elective Surgery Information System (ESIS) between 2014/15 and 2017/18.

Using these data, the authors use an instrumental variables approach, using housing prices as an instrument for private health insurance rates. House prices are correlated with income/wealth, which are predictors of private health insurance levels, but claim that public hospital wait times are not correlated with income/wealth because the authors claim that clinical information and political considerations are the key factors impacting wait times. The authors’ two-stage approach is described as follows:

In the first stage, using the individual patient-level data, we first aggregate waiting times to area level (by quarter), after adjusting for patient characteristics that may affect waiting times. In the second stage, we regress the quarterly average adjusted waiting times on PHI coverage in the area. Because PHI coverage is endogenous, we employ an instrumental variable approach. We use area-level average house prices as the instrument to identify the causal relationship between PHI coverage among all admitted patients in an area and the average waiting times experienced by public patients in the area.

Using this approach, the authors find the following:

…higher PHI [private health insurance] coverage experienced lower waiting times on average…a one percentage point increase in PHI coverage in an area reduces waiting times in public hospitals in the area by about 0.5%, or approximately 0.3 days of waiting if we use the sample mean waiting time of 69 days as a guide. The OLS estimate is larger at 0.22%, which implies the endogeneity bias over-estimates the effect of PHI coverage on waiting times. This may be due to reverse causality; that is, patients who expect long wait times may buy PHI to avoid the anticipated long waiting at public hospitals.

There was some heterogeneity in the effect. The impact of PHI on wait times had a larger impact for patients aged <55 (compared to >55). Also the impact of PHI reduced wait times was smaller in magnitude for plastic surgery and ophthalmology procedures, but larger in magnitude for general surgery, ear, nose & throat (ENT) surgery, orthopedic surgery, and neurosurgery. 

Additional background on health insurance in Australia

PHI typically consists of two parts: private hospital cover, and auxiliary or extra care cover that includes dental, optical care, physiotherapy, etc. Individuals and households can buy combination plans including both parts, or only one of them. The government interventions primarily apply to hospital cover, not the cover for extra care…The cost of premiums can vary greatly depending on specific policy details. Generally basic hospital policies start from around A$100 per month for a single adult, but basic level has limited coverage. More comprehensive family policies can go up to A$500 per month or more, depending on the level of coverage and the inclusion of extras.
Competition between health insurers varies by region, which is more pronounced in large cities such as Sydney or Melbourne. Nationally, there are about 30 health insurers, with the largest two insurers dominating the market with a combined market share of about 52%. Government regulations limit the behavior and performance of both established companies and new and potential entrants.

…private patients have more flexibility in choosing care in private hospitals or as a private patient in public hospitals, the choice of attending doctors, and access to better amenities and private rooms…However, in addition to paying insurance premiums, private patients often incur out-of-pocket expenses due to insurance deductibles and/or gap payments between what insurers cover and what doctors charge.