Paying for health
The insurance hike has helped to prompt a fundamental rethink about Ireland’s health system.
VHI’s market dominance is its main weakness. At the new year, the VHI had more than 200,000 customers aged over 60, including 129,000 customers over 70. While holding a share of around 60 per cent of customers aged over 60, it funds 82 per cent of privately insured care. Over half of its spending goes on older customers, who tend to be in poorer health.
The February hike in VHI premiums was widely seen as an attempt to get these customers off its books, pressing them to move to other insurers. Increases ranged from 15 per cent for the Parents and Kids plan, to 25 per cent (up €444) for Plan B Options.
Chief Executive Jimmy Tolan regretted “having to implement this very difficult pricing decision” but said costs had to rise to provide the necessary health cover. Tolan claimed that as tax credits did not cover VHI’s losses, it had to “increase its prices much more than it wishes to, or than VHI thinks is fair to any of its customers.”
Around 12,000 customers moved to Aviva within 10 days; the company lost 120,000 customers in 2009 and a continued downward trend is expected when the 2010 figures are published.
VHI was founded in 1957 and enjoyed a monopoly until 1994. Community rating makes younger and healthier customers more profitable for insurers, many of whom switched after liberalisation. Under risk equalisation, these newer companies were required to subsidise VHI but this was never fully implemented due to BUPA’s legal challenge.
The special health insurance levy, brought in as an alternative, stands at €205 for each adult policy and €66 for each child policy. This reduced VHI’s losses from customers over 70, to an estimated €147 million for 2010, but cannot close the financial gap.
The hike and the announced closure of the private Cork Medical Centre in March have restarted the debate over how Irish healthcare is funded and provided.
Breaking up VHI into two or three entities is a major priority for new Health Minister James Reilly. One of these new insurers would become a state-owned option in the new universal health insurance system, and the end result should be a market of at least five or six providers.
Reilly plans to take an “aggressive” approach, in his own words, and blames VHI dominance for the Cork Medical Centre’s difficulties.
Former Health Minister Mary Harney announced plans to sell VHI last May, which would have involved a substantial capital injection (up to €100 million) from government to improve its solvency. Harney expected to make a return on this investment and said a sale would emphasise the state’s impartiality in risk equalisation.
The Milliman report, commissioned by Harney, said that VHI must be authorised and regulated by the Central Bank alongside other insurers. It acknowledges VHI’s success in reducing private hospital charges and medical consultant fees, but also calls for ‘utilisation management’ i.e. a process of ensuring that members receive the right treatment, at the right time and in the right facility. The final report is partially redacted for commercial reasons.
Under the Programme for Government’s proposals, everyone must have health insurance with payments related to pay. People on low incomes will pay nothing, as the state will cover their costs through the proposed ‘hospital insurance fund’; this would also subsidise those on middle incomes.
That fund would directly pay for services not covered by insurance e.g. emergency departments and ambulance services, and match payments for treatments delivered by hospitals.
Community rating and risk equalisation will be “strong and reformed” under the new system. Insurers will be “obliged to offer the same package of services for all”, with this package being subject to a regular review.
Patients cannot expect instant change. The Minister will firstly seek external finance advice. A white paper would then review pricing and funding mechanisms and be followed later by a Universal Health Insurance Act, preparing the way for the new system.
