Last week’s Supreme Court decision on risk equalisation shouldn’t come as any great surprise. However, the issue seems to be with the mechanics of the system Mary Harney introduced rather than against the principal.
Risk equalisation is a legitimate and reasonable proposition within health insurance: the young pay slightly more than they would really need to on a risk basis, the old pay less. Over time, the system balances out.
In a multi-vendor insurance market, the balancing act needs to be achieved through regulatory involvement to ensure that insurers who have age-based distortions in their client base can contribute to an overall balance in the market.
This works best where there is a good variety of providers, with a decent mix of customers. New Zealand is a good example of this. In such markets, there is no need to enforce large cash transfers between insurers as it is unlikely that any are dominated by either the old or the young.
The Irish example doesn’t have this distribution. By sheer inertia of the market, many people are lifelong members of the VHI and are unlikely, unwilling or unable to change providers. The new players, BUPA (now Quinn Healthcare) and Vivas (now part of Hibernian) have used slick marketing to engage younger subscribers. Harney’s plan involved the new operators handing over tens of millions in balancing payments to the VHI in order to offset their aging client base.
This system is anti-competitve, and I’m happy the Supreme Court saw fit to call a halt. But that still leaves the problem of introducing an effective and workable model of risk equalisation.
Perhaps we should look at the VHI itself. We have a very high rate of personal health insurance in Ireland, and for generations this meant being a member of the VHI. When the market was opened up, it meant that pretty much everyone who wanted health insurance already had it, and that new entrants had to try to pick off business from a monolithic competitor. What should really have happened was a randomised break-up of the VHI. In other words, the VHI should have been split into two or three companies with members randomly divided across them. These companies could have been run in parallel initially and then privatised once the market had stabilised. At the same time, the overall deregulation could have taken place.
This would have been a far better initial state for the market, with high levels of participation but a diverse range of providers. Such a system would be more appealing to new entrants while also reducing the chances of the type of age-related distortions we have seen.
Can this be done now? Well considerable effort has been put into turning the VHI into just another provider subject to the same regulatory controls. Perhaps now would be a good time to take the next step and break it up and sell it off.
July 22, 2008 at 4:42 pm
This problem keeps coming back as the Government continue to comply with directives to remove monopolies via the brute force method. Our telecoms market is an equal shambles because of the problem of the government handing a private monopoly the keys to a market.
I think there is a fairly sizeable devil in the detail of splitting VHI, but I agree that some such service would have been very good for the market, which is now utterly depressed.
July 23, 2008 at 1:45 pm
Maybe the issue is more fundamental. Health insurance is sued whn you get sick. There is little or no prevention of illness. Especially due to diet.
The government is in lock step with the NDC and Bord Bia. There is no controversy that a high fat diet makes you sick over the longer term. The refusal to admit this and the barrage of propoganda to the contrary means that we will never have a healthy society.
Risk equalisation is an answer to long term illness caused in the main by diet. Get the diet right and the burdon on the health service will be reduced.
I am afraid this will never happen. Liquid gold and dead animals still rule.