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Health insurance takes a turn for the worse

The Irish government has this week succeeded in their plans to help restore a monopoly in health insurance, as the main private insurer was yesterday forced to withdraw from business, leaving the state behemoth with only one tiny rival left to prevent it from controlling the market. Risk equalisation payments which cost them a million €uro every week left BUPA with no choice but to leave.

For those unacquainted with the health insurance market, risk equalisation is a device designed to underpin community rating: a regulation of health insurance whereby the level of risk a consumer poses to an insurer must not affect the premium paid; i.e. everyone must be offered the same products at the same price regardless of their age, gender, or personal health characteristics. A sceptical observer might wonder why a healthy young person should have to pay the same as a sick geriatric, or in what sense this is really insurance at all. Well, the justification given is that, without this scheme, and the associated regulations of lifetime cover and open enrolment, no-one would be willing to offer sick or old people a health plan they could afford. Therefore, the argument goes, it is acceptable that young people are overcharged in order to prevent this. Community rating is designed to produce inter-generational subsidies, and is a clear example of cradle-to-grave statism.

However, community rating alone does not fully prevent competition – it is possible for more than one insurance company to offer community-rated products simultaneously, as indeed was the case in Ireland for the last ten years. It’s a heavily regulated market (imagine if car insurers were not allowed to discriminate according to the risk profile and vehicles of their customers, or house insurance had to ignore the likelihood of flooding or earthquakes in any particular area), but we proved that it can exist sustainably.

So, to really cut out competition, there are several other things you have to do. The first thing that the Irish government did for the last number of years was to give its dominant state provider preferential treatment with respect to the requirements of its solvency reserves. While that did hurt the private operators, it did not totally force them out of business. So our supposedly pro-market government decided to trigger risk equalisation: a device which is theoretically meant to correct discrepancies between customer bases by forcing insurers with younger customers to subsidise their rivals with older, costlier, riskier members. In our case, what it actually did was threaten the main private insurer with having to subsidise its wealthy state rival with nearly three times its operating profits, for little discernible reason and despite clear, logical protests from professional economists in Ireland’s major universities (for example listen to this file).

The result of all of this: BUPA is forced to quit, leaving increased power to the state company. According to leaked documents, this company is preparing to increase its premiums by 15% each year over the next three years, clearly exploiting its position of power to the fullest. The public has been duped, and has absolutely no clue.

What’s more, no-one is going to stand up for them. An Taoiseach (Prime Minister) Bertie Ahern revealed his lack of understanding of the issues by launching an ignorant attack against BUPA. The powerful trade union controlling the state monopoly then announced that it would fight against any efforts to break up this company into competing units. And the mainly left-wing opposition has, predictably, come up short in its handling of this issue.

My question is this: what would you call a private business that was able to intimidate and then forcefully eliminate anyone who dared to compete with it? That’s right, you would call it a highly organised criminal outfit. So why is the government any different?

16 comments to Health insurance takes a turn for the worse

  • Mary Ayn Rand

    Deleted: COMPLETELY off-topic. Troll elsewhere.

  • Caroline Maguire

    So why is the government any different?

    It’s no different, except criminal gangs are usually much less sanctimonious about what they do.

  • Amazed American

    Astonishing. The state makes it harder for people to buy the medical services by rigging the market and they get away with this? Actually I wish more companies would publicly tell governments to go fuck themselves and just pull out of entire countries and invest their money elsewhere. BUPA is to be commended. Why do Irish people put up with this crap? Clearly this is vested interest being pandered to at the expense of people who want to take control of their medical provision.

  • Patrick B

    We are much more efficient in Canada, we simply make it illegal to purchase insurance for medically necessary services. And we harrass private service providers mercilessly (unless they offer services in Quebec to Liberal Prime Ministers).

    The Canada Health Act is the most wonderful piece of elastic legislation. Almost anything can be deemed to be in contravention of it.

  • Pádrig Flynn

    It’s a classic example of how governments so often do the complete opposite of what they claim to be doing. The Irish government claims to be fostering competition: and how do they do this? By driving the main competitor with the state out of business.

    Outsiders rarely realise just how corrupt Irish politics is. Dublin is Lagos-on-the-Liffey in many respects. He have the trappings of a First World country with some of the mindset of the Third World. I’ve often said that the Irish do so well in UN peacekeeping forces because we really do understand the lunatic mindset of the guys-with-guns in the world’s various nightmare-pits. We “bond” with them easy. It’s a marvel and testament to Irish entrepreneurship that we do so well at home in spite of our State and our nasty, toxic political culture. Of course vast chunks of other people’s EU money helps too.

  • kulibar tree

    a very apt quote from the late robert sheckley –

    ‘that which you call a crime when one man does it, you call a government when many men do it’
    (from ‘mindswap’)


  • Paul Marks

    There are many regulations in American States hitting both insurance enterprises and H.M.O.s

    Americans ask “why are insurance payments so high?”, but seem to have no idea of the vast web of regulations (against various forms of “discrimination”, which is just another word for free judgement – to discrimate, to choose).

    If one can not freely decide to charge one person one price and another person another price for health cover (based on ones judgement of the risks) there is no real market in health cover (period).

    Of course this is not the only reason why American health costs tend to be high. Here are three other reasons:

    Doctor licensing – a scam pushed through by the A.M.A. (the doctors labor union) in State after State in the early 20th century. That this scam was nothing to do with protecting the sick and everything to do with pushing up prices was exposed by Milton Friedman about 60 years ago (but the con carries on). If the A.M.A. was concerned about sick people it could advertise saying “only go for treatment from members of the A.M.A.” not “send any competition to jail”. It had State governments close down some medical school – not for reasons of quality, but because these particular schools would not cooperate. And it “adjusted” the number of medical graduates in the 1930’s to ensure that the influx of doctors from Europe (fleeing the Nazis) would not reduce medical incomes).

    Medicare and Medicaid – they started with a buget (both togther) of five billion Dollars in 1965 and now the cost HUNDREDS OF BILLIONS OF DOLLARS. These government subsides push up costs in the private sector (just as government subidies for university edcuation pushes up costs for everyone – tutition cost inflation and medical cost inflation are directly linked to subsides).

    Malpractice insurance costs (for Doctors and hospitals) – this is a classic example of “he who lives by the sword dies by the sword”. Lawyers noticed the high incomes that medical people were getting due to Doctor licensing and (ignoring the fact that high layer incomes are due to the government backed restrictive practices of their own labor union) decided to hit them (and hospitals and insurance companies and ……) on the “deep pockets” idea.

    Instead of having to prove negligence, modern American tort law starts with the “principle” that if something is very bad someone must be to “blame” and must pay. Lawyers love this (for obvious reasons) – but it pushes up costs for everyone.

    Indeed in some parts of the United States one can not get a doctor to deal with such things as child birth at all – because of the fear of getting sued if things go wrong (in some parts of rural America there are not enough people for any doctor to be able to get in enough money to pay for the sort of malpractice insurance he would have to get).

    However, John Edwards type people (malpractice lawyers) are still treated as heros by many Americans (who are brought up on Hollywood films and television shows were the poor person suing is always the hero and the lawyer is the guardian of the common man against evil corporations).

  • John K

    I think that one difference between government and organised crime is that you can sometimes cut a deal with OC; government tends to be less flexible. Furthermore, as a private sector operation, OC tends to carry fewer passengers. How many diversity co-ordinators does Tony Soprano employ?

  • jmc

    I’m afraid you are all wrong.

    As outsiders you all make the same mistake in treating the ROI as typical northern European state. It is not. Its politics and social attitudes are pure South America. The last pure Integralist state with a 1930’s christian fascist style constitution and a Peronist populist ruling party.

    My guess is that the whole BUPA fiasco is the result of the combination of two situations.

    The VHI being the one of corner stones of the ‘jobs for the boys’ crony capitalism that lines the pockets of the ruling class. Attack any of the semi-states and you attack the financial prosperity of the Irish political ruling class.

    But the main reason for BUPA’s failure is that those straight laced BUPA boys from the UK did not pay off enough Fianna Fail politicians. Every FF’er politician has their price (a few E10K’s is the going price) and if you want to get anything important done in the ROI you have to buy enough politicians before anything happens. If BUPA had been smart enough to spread a couple of E100K’s among Berties ‘friends’ all of this unpleasantness could have be avoided.

  • Pádrig Flynn

    jmc is correct and my guess is that for all you folks bitch about the UK political scene, Irish political culture is far more corrupt (though Blair’s lot seem to be making a fair old fist of “catching up”) and the BUPA lads didn’t really grasp what a corrupt snakepit they were walking into. We look like a First World country but it is only skin-deep.

    But “Amazed American” is also right. I am sorry to see BUPA go but I am also glad they did as it is only when the subsidy-monkeys that we have in such abundance are faced with companies voting with their feet (and taking their employment and tax money with them) that the reality of our rancid culture has any chance of being faced and reformed.

  • Stephen Daedalus

    As the author of the piece (and an Irishman) I’d like to agree with the sentiments above. The level of corruption here is hard to fathom – our political culture is all about looking after the status quo. There is a deeply rooted populism which lets the Taoiseach get away with bashing BUPA like he did yesterday, and indeed which lets a stalinist Department of Health & Children and Health Services Executive run our health services into the ground. The pejorative words “private” and “profit” are all that is needed to win any argument in this country. It’s an amazing thing that we’ve managed to grow in prosperity the way we have, but I should try to deal with that in another article.

    Thanks for the feedback everyone, it’s nice to be here.

  • It’s an amazing thing that we’ve managed to grow in prosperity the way we have, but I should try to deal with that in another article.

    So that will be tomorrow then? 🙂

  • Stephen Daedalus

    LOL… all in good time.

  • Pádrig Flynn

    I have always liked this blog but it would be grand to see Irish issues covered more… hint, hint. Whatever happened to Frank McGahon? His stuff was good. And Dale should write a bit more about Ulster.

  • jb

    I view paying the same amount at 60 as at 20 as a way of spreading the costs. I’ve paid about $60,000 in medical insurance so far and received nothing. I don’t see why I should suddenly start paying more sometime just because I have aged, they will have had hundreds of thousands off me for nothing by then.

    Maybe a discount for each year of good health would be better

  • I don’t see why I should suddenly start paying more sometime just because I have aged, they will have had hundreds of thousands off me for nothing by then

    Then you do not understand what it is you are buying. You are insuring against risk. If you insure your car against theft and you live in a low crime rural community, you would expect to pay less than someone in a high crime inner city. If you move from a low crime to a high crime area, expect to pay more… if you are a low risk healthy young person, you are less at risk of incurring expensive medical problems than when you are older… it is all about managing risk.

    Now there is nothing wrong with the idea of having an medical insurance product that increases payment early on in life in order to avoid ‘end loading’ (by using actuarial tables on life expectancy), but the basic principle behind insurance is that the premiums reflect the risk, so to say you have not received anything at all from your insurance policy is simply not correct… you have received managed risk.

    Had you been hit by a bus 10 years ago, you would have been covered. The fact you were not hit by a bus does not mean the insurance company did not provide you with something for your money.