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?
