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The regulation of Australian private health insurance premiums is not conducive to restricting premium increases because the criteria used by the Commonwealth Government to help set premiums do not consider efficient service delivery. This article examines levels of efficiency and productivity growth in Australian health funds. Efficiency frontiers are constructed using data envelopment analysis (DEA) methods, and Malmquist productivity indexes are constructed for the health funds. Our results demonstrate a wide disparity in productivity growth between large funds and smaller funds and funds open to the public and funds that have restricted public access. Consequently, there is scope for health funds to potentially reduce premium increases, on average, by about 0.4 per cent per year.
