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.