Universal Private Health Insurance: Terms & Conditions will apply
Posted on May 17, 2014 by Tom Healy
Recently the Government in the Republic of Ireland issued a White Paper on Universal Health Insurance. In it, the Government states: ‘it has set out an ambitious plan for the most far-reaching and fundamental reform of our health system since the foundation of the State.’ It describes the proposed reform of the health service as involving an end to the current ‘deeply unfair and highly inefficient’ two-tier health system. It promises a single-tier health system which:
- delivers proactive, integrated care at the lowest level of complexity that is safe; timely, efficient and as close to home as possible;
- provides equal access based on need rather than ability to pay;
- drives the wider ‘whole of Government’ approach to health in all policies, and
- delivers true value for the Irish people.
Nobody could object to these laudable aims. However, it is far from obvious clear that a system of universal health insurance (UHI) modelled on a private competitive model is the only available option to provide for future health needs. Still less obvious is the claimed benefits of UHI compared to alternative approaches in delivering equality of access, value for money and efficiency. More evidence is needed to substantiate such claims and it is not the case that alternative models have been assessed. It should be noted that the Government is committed to introducing a universal private health insurance system in a ‘second term’ of office. So, the entire undertaking is still largely at the drawing board stage.
The system of health insurance used in the Netherlands seems to have inspired the concept of UHI in Ireland. The Dutch model introduced universal private health insurance with managed competition in 2006. In the years following this health spending per capita continued to increase. Unlike the proposed Irish model children are insured for free in the Netherlands.
How does Ireland compared to other EU States under current health funding arrangements?
Health, in most countries of the OECD is funded from public sources. Chart 1 shows, however, that Ireland relies more on private sources than other EU States. In the advanced economies of the OECD, only the USA has a share of public funding below 50% in 2011. In Ireland (Republic) public sources account for 67 cent in every 1 Euro spent. By contract, the norm across EU States is close to 75 cent in every Euro. The difference is made up, in the case of Ireland, by a combination of private health insurance for those who can afford it and ‘out-pocket’ payments. In 2011, an estimated €14.5 billion was spent on health in Ireland. Of this, €2.6 billion was spent by households ‘out-of-pocket’ and a further €1.7 billion was spent on private health insurance (this amount will have increased significantly since 2011 with a sharp rise in premium payments for most users of private insurance.
Private health insurance is a type of risk payment that gives the insured person quicker access to scarce health resources. While there is no evidence to show that the quality of treatment is necessarily better in private hospitals or centres than in public ones, it is clear that payment for private health insurance gives faster access to treatment or consultation especially in routine or non-emergency cases. Private insurance may also give access to greater choice of provider.
Ireland also stands out from other EU States in the extent to which it relies on general taxation and not social insurance to pay for health (Chart 2). France and Germany draw mainly on social insurance funding for over 70% of their total health spending. The OECD report as social insurance funding 78% of total funding in the Netherlands.
In summary there are four sources from which health services are funded:
- General Taxation
- Social health insurance
- Private health insurance
- Out-of-pocket payments by patients or users.
Research evidence would suggest that general taxation is the most progressive followed by social health insurance (see for example work by UCC Health economist Brian Turner here). The current arrangement is, as acknowledged by many commentators including the Government as ‘deeply unfair’. Among other considerations, the two-tier system offers perverse incentives for certain patients to be treated at the expense of others as public and private delivery is overlapped under the same roof.
How would UHI work and how would it differ from the current funding model in place?
Everyone will be obliged to purchase private health insurance (VHI would be kept in public ownership for now). The plan is that the State would pay premiums for those on low income while subsidising those on middle incomes (no data are provided on how many or on what income thresholds). There would be a basic package which would be free for everyone (something like a cable TV package). People could pay a supplementary insurance premium for ‘extras’. No detail is provided on what might be standard and what might be extra. The White Paper says that the State will continue to pay for certain unspecified health services (it mentions long-term residential care but this is an example of failed initiatives in the past such as the now inoperable ‘Fair Deal’ arrangement). (An extraordinary omission in the White Paper is any reference to how dental care will be treated in a unified health service. This area of personal health and long-term investment has been neglected and seriously damaged in the recent changes to public funding support and eligibility under the already very limited public dental system.)
It is not clear who would qualify for exactly what under the proposed UNI. It is possible that current private insurance households could pay as much as, if not more, than what they currently pay. At the same time, households without insurance over (because they cannot afford it) and those above the existing thresholds for medical card eligibility could be liable for a significant payment. We simply do not know on the basis of what has been published in the White Paper.
In addition to cost, one of the most worrying aspects of the proposed scheme is that decisions on the rationing of care will be transferred to private insurance companies as well as VHI. There is a built-in incentive for insurers to select less risky consumers of private insurance. Risk equalisation and community-rated insurance are not proven or established realities at the present time and there is no guarantee that they will be in the future.
From a public finance point of view it is possible that a system of private health insurance will increase the overall health budget compared to what might apply under a publicly funded model. Under a General Taxation model (or social insurance as in some European continental countries) risk is pooled and administrative and collection costs are lower.
The White Paper poses a question:
‘…when considering funding arrangements, two key questions arise: firstly, what will the overall cost of UHI be? Secondly, how much will people pay for insurance premiums? ‘
No answer is given to this question. After six years of unrelenting fiscal austerity and damage to frontline services, community care and staff morale it is puzzling to read the following on page 13 of the White Paper:
A series of further measures will be introduced over the next few years, prior to the introduction of UHI, which will provide demonstrable evidence of lower costs and enhanced productivity and efficiency in both the public and private health systems.
The current fragmented system of health provision linked to regressive tax reliefs for health expenditure and overshadowed by a private health insurance model which has not worked and has reinforced health and wider social inequalities is to be replaced by a model of universal compulsory private health insurance with no clarity on what is to be insured, how it is to be funded and who will benefit. The ultimate realisation of a single-tier system that delivers a fair and efficient health service is best achieved through a publicly funded model subject to appropriate accountability and control in the public interest. It is time to go back to the drawing board on private insurance models. As a public good, health, is vital to community well-being.