WHY DO TWO million Irish people pay for private health insurance? The only answer is fear.
They’re strapped for cash yet they pay thousands of Euro to VHI, Laya, Aviva and others. They’re already contributing through general taxation to pay the €14bn a year it costs to run the public health system. That includes the wages of almost 100,000 health workers.
Yet they choose to pay even more for private cover because they think, rightly or wrongly, that they are purchasing a type of preferential treatment. Ninety-seven years after Ireland proclaimed itself a Republic they think they are paying for shorter waiting times, better medical advice and nicer rooms in hospitals.
At the mercy of the public system
Some of them are afraid that if they put themselves at the mercy of the public system they will face unconscionable even dangerous delays. They are terrified they will go into hospital sick and come out sicker.
People value their insurance cover. Yet the rapidly escalating price of insurance, driven to unaffordable heights by the level medical cost inflation, is forcing tens of thousands of families out of the private insurance system. In the last four years some 250,000 have dropped out altogether. This figure will accelerate from now on.
That’s partly because the government administered not one but three severe blows to policyholders in recent weeks.
First, Finance Minister Noonan cut the tax relief on premiums yet again. Initially he claimed this would affect the cost of 577,000 policies covering an unspecified number of citizens. But he was quickly told by the insurance companies that the correct figure was €1.1m or 90% of all policies. Bizarrely, it appears that the tax change was not notified to the Health Minister in advance.
Trebling the dose of castor oil
Then the Health Minister Dr Reilly doubled and trebled the dose of castor oil. He approved a 14% hike in the risk equalisation levy that pays for what’s called community rating – the pricing policy which allows everybody to pay the same for cover regardless of their level of risk.
Simultaneously Reilly indicated that there would be higher daily charges for private patients occupying beds in public hospitals.
The net result is that premiums may go up by close to 20% next year, driving yet more people to drop their cover.
Slowly but surely the health insurance system is being brought to the point of collapse. The people who are dropping cover are young, generally healthy, people who cross subsidise the elderly. The centre cannot hold.
As this process continues insurers will have to charge everyone including the elderly more and more for policies that offer less and less cover. What used to be the plain man’s choice – the VHI’s Plan B – is now described as a luxury product.
The problem of paying ‘excesses’
In desperation, the big insurance firms are trying to convince the insured to buy lesser forms of insurance: policies that insure you against a reduced range of medical problems. The next stop will be policies that oblige you to pay the first part of the cost of any claim, and policies that force the insured person to make what are called “co-payments” or contributions towards parts of the total bill.
Community rating, and the related efforts to prop up the VHI via transfers from other insurers, represent an honourable but doomed attempt to protect the health insurance system from collapse. Ideologically, its continuance is an example of social democratic flag waving that distracts from the reality of a health sector that is increasingly reliant on private hospitals and private clinics. But how long can the policy last?
The current muddled health strategy contains other therapeutic attempts to salve the bad conscience of the Labour Party such as the recent introduction of GP-only medical cards for the under-sixes, regardless of their parental income.
Smart readers of this column will by now getting quite annoyed. It’s all very well to lacerate the government, but where is the alternative solution?
They will point out that the government is committed to free-GP care for everybody by 2016, and to a system of universal health insurance within the lifetime of the next Dail.
The ‘jam tomorrow’ school of public policy-making
These promises come straight out of the “jam tomorrow” school of public policy making and have been described as complete fantasy by the medical unions. But even if 4.6m people could be conscripted into a gigantic universal insurance system there is no proof that this would make the delivery of Irish healthcare less problematic or less money-driven than it already is today.
Insurance schemes of the type favoured in OECD countries invariably rely on competitive pricing mechanisms to determine the allocation of scarce resources. Public hospitals not merely compete on price with each other. They compete with private hospitals as well.
Typically hospitals are given fixed monetary amounts for the performance of specific medical tasks. They might be given €10,000, say, for a standard surgical procedure. Financial controllers in each hospital are then mandated by their bosses to deliver such a procedure at a lower cost than the fee that is paid, with the difference accruing to efficient hospital as a form of retained earnings/surplus.
Over time the ruthless application of market forces means that profitable procedures come to be favoured at the expense of those returning a marginal surplus. Other highly expensive treatments, though medically necessary, may be refused altogether because they result in a “loss”.
The insurance companies also have to return a profit, with insured persons – the entire population- “purchasing” cover from the most efficient insurers in yet another example of competitive pricing.
Top-class care; massive financial headache
In the United States both the Medicare and Medicaid systems rely heavily on privately owned for-profit hospitals and private for-profit insurance companies. They deliver a superb standard of healthcare to a majority of citizens. But the system is hugely expensive (more than twice the cost of Britain’s NHS) and many of those who use it face massive residual bills for their treatment. This is because of the application of what we call “excesses” and what Americans call “deductibles” and to the routine insistence that the sick make “co-payments” towards the costs of treatment.
You get top class care but you’re left with a massive financial headache.
A study conducted by the Harvard Business School revealed that by 2007 some 60% of bankruptcies in the US arose due to medical charges incurred by people who in many cases owned expensive forms of health insurance.
In Ireland the sum total of the premia paid for private insurance is less than 10% of the cost of delivering the health service. It’s just a drop in the ocean. But even these contributions can only be sustained because the government offers policyholders tax breaks that cost €500m a year even after recent cutbacks.
Universal insurance schemes across Europe are running into massive problems. France frequently secures very high ratings in European league tables but its system already relies on significant co-payments and its vast social insurance fund is in massive debt.
Irish version of the NHS by end-2016?
Rather than making a series of botched attempts here in Ireland to increase the role of private insurers and private hospitals within a profit-focused system that may ultimately prove unable to yield them a profit we should consider an alternative way forward. We should take a big deep breath and use the three years between now and end-2016 to deliver an Irish version of the NHS.
This system was created by the British as long ago as 1948 and has withstood a decade and a half of Thatcherite economics. Who says Ireland cannot match such a system in 2016?
The NHS is not without its flaws and years of market-oriented managerialism under both Labour and the Conservatives have eroded the vocational character and sense of mission that fired up its creators. But is does deliver a tightly managed universal healthcare system that is comprehensive and free.
A similar system is the minimum we might create here in Ireland using the existing army of 100,000 healthcare workers already employed by the HSE. The creation of such a system, in which healthcare is a “free good”, would naturally require political courage and very strong management skills. But it would be an appropriate achievement to mark the centenary of the 1916 Rising and it could ensure equal treatment for all sick persons.
Are we afraid to think big? The alternative is to continue to patch up a system which already involves increasing “co-payments” for prescription charges, which allows the affluent to skip queues for access to consultants and which will shortly allow people with private insurance to out-bid public patients for access to public beds in public hospitals.