In health insurance, adverse selection relates to the fact that unhealthy people who need health care are more likely to take out health insurance than healthy people. Insurers will set premiums partly based on the expected claims of subscribers, especially to cover the potentially higher risk of less healthy consumers. This year, private health insurance premiums in Australia have increased since April 2016 by an average of 5.6%. In the context of population ageing and chronic diseases in Australia, this paper examines the private health insurance market in Australia and offers some general insights regarding risk selection of the insured pool, focusing initially on customers with long-term health conditions and health-risk characteristics.
