Occasionally, one stumbles across actions of the regulatory state that masquerade as market policies. Irish health insurance falls into this category.
Health insurance is always a tricky subject as it falls into the wider issues of how private sector medicine can be established. In Europe, with its wide diversity of state driven medical practices, plus voluntary health insurance and complentary health insurance as a tolerated private sector, it is difficult to envisage how one would wean the populace off these systems, even with impending bankruptcy looming. The ‘Big Bang’ approach of deregulation would not work as the infrastructure and skillset to develop an entrepreneurial model does not exist and this is one area where the gradual replacement of state structures by the private sector and/or civil society may be more appropriate. Complex and difficult issues to grasp with few answers. One of the wrong answers has been established by the Irish Health Insurance Authority. Most Irish health insurance was the monopoly of a state mandated organisation, the VHI, until the European Union forced the government to open up the marketplace to competition.
In order to ensure that consumers were protected, the Irish government has enforced certain regulations that were written into EU law. The health insurance marketplace has to observe three rules: community rating, open enrollment and lifetime cover.
Community rating is a system that equalises the premiums of health insurance contracts for all consumers, regardless of the health risk individuals represent to a health insurer. Basically, subject to certain terms and conditions, the cost of private health insurance to consumers is the same irrespective of age, gender and state of health.
Open Enrolment is the practice whereby all applicants for private health insurance cover are accepted by a health insurer, regardless of their risk status (subject to maximum age limits and prescribed waiting periods).
Lifetime cover is a system that guarantees health insurance consumers the right to renew their policies, irrespective of factors such as age, risk status or claims history.
In practice, health insurers in Ireland are not allowed to differentiate risks on an individual basis, refuse candidates for insurance or cancel a policy. Furthermore, if the market structure develops so that the risk profile of some companies, based upon the claims experience and age profile of their insureds, worsens at the expense of others, the Irish Health Insurance Authority has the power to levy cash transfers between companies with favourable risk profiles to those without.
What are the consequences? Removing the individual differentiation of risk from insurers prevents them from incentivising individuals through lower premium payments to follow potentially less unhealthy lifestyles. Through the prevention of risk management, the Irish government has ensured that health insurers will be unwilling to innovate in order to maximise profits from their customers. Even if they do, they will probably be penalised for having a favourable risk profile (since this can be the only explanation for a more profitable health insurer in Ireland). Worst of all, they prevent their own population from understanding the risks and actions that are required to live a long and healthy life. It is now clear that health insurance policies do not provide for all of the health needs of individuals, families or the community. To provide for anticipated health costs, health insurance must be complemented by self insurance with people setting aside certain sums for these particular bills.
The Irish, like the British, will get a poor health service, due to the lack of market forces, and will still have to provide self insurance (or as it is known in the old fashioned sense, their savings), in order to save themselves pain and time.
In the USA health insurance customers suffer for such intervention in a (before) free market: premium increases, more people can’t afford such premiums and depends on MediCare, supported by tax-payers.
http://www.heartland.org/Article.cfm?artId=14644
Any private health insurance program needs to address the problems found in parts of the American system – what do you do with people who cannot afford the insurance? how do you prevent the constant litigation? what about people who cannot find work and thus cannot get insurance?
It was observed by my company in Alabama that many people wanted a job with us just so they could get the health insurance they otherwise couldn’t afford.
EG
Insurance that has forced transfers is not insurance. Insurance is a pooling of resources to provide coverage when an event occurs. The event is probable but not certain. That is the underlying logic of insurance. If all cases are covered by force, then there is no uncertainty in it. All known cases will be covered by resources coercively impounded. That is State sanctioned theft, not insurance.
None of this is different from the way that private health care is financed in the US. i work with people who have chronic problems ( in both cases, back problems, which are lifelong injuries); and both are covered by just working where I work – costs that are totally hidden from them as the company pays the insurance.
In some ways this form of health insurance is like getting fire insurance on a volcano. However, it seems that private health care has to be accessed like that – which probably explains why American health care is so inefficient and expensive – even though it operates under “market” conditions.
The challenges of the EU health insurance policies are not unique to Ireland, although the country can certainly be viewed as a pre-cursor of things to come.
Leaving aside universal access and its default – lifetime cover, the one area that can be realistically modified is community rating – but only so far. Certainly a case can be made for ratings based on age and sex. Health status is the challenge as rating based on health status, say a genetic predisposition to diabetes, would infringe on the universal access. In this case, costs could prohibit access.
A more “modern” approach may be the use of very large deductibles for compulsory coverage based on income. Allow for tax advantage savings to cover the deductible, e.g. Singapore’s 3Ms. Also a full “opt out” feature guaranteed with private cover, again “means tested” or income dependent.