Thomas Molloy: Paradox of private health is that it pushes up costs for everyone
The lack of incentives to cut costs often leaves the State to pick up the tab, says Tom Molloy, Group Business Editor
Published 05/01/2014 | 02:30
ONE of the big myths that our health insurance companies like to peddle is that people are leaving the system in their droves.
In fact, a remarkable number of people are sticking with their health insurers at almost all costs. The problem is not people leaving the system, it is that the health insurers face formidable healthcare inflation.
Almost all of the 250,000 people who have given up private health insurance since 2008 have done so because of the massive emigration this country has experienced since the economy collapsed. The age profile of those leaving the private system, mostly those in their 20s and 30s, reflects almost exactly the age profile of those leaving our shores to seek work elsewhere. As these people no longer live here, they can hardly be expected to have insurance. So there is no real crisis in the system and no mystery to the relatively small decline in those with health insurance. Five years into the crisis, the health insurers are doing well when it comes to retaining membership but doing badly when it comes to making profits.
Those who have private health insurance often believe that their hefty contributions are helping the State's finances by reducing the cost of treating patients. They are also inclined to believe that the private sector offers better and more innovative care. That seems logical but the international evidence suggests it is wrong.
Research shows again and again that private healthcare encourages government doctors and nurses to spend less time with public patients and more time on lucrative private patients -- which adds to the overall cost of healthcare. Anybody familiar with the system here in Ireland will know this is a reality here even leaving aside the fraud and malpractice mentioned in last week's independent report on the private health insurance market by former HSE deputy chief executive Pat McLoughlin.
Another problem that is common overseas and at home is that private insurance leads to higher public spending on health overall. This is a paradox.
Governments used to believe that private insurance would lead to cost control in the sector because the private sector usually tends to be much better at tackling costs and promoting efficiency.
The main explanation seems to be the lack of incentives to cut costs found in most healthcare systems. It simply isn't a normal market. Once VHI or Laya pays the bill, patients have every reason to consume too much healthcare. After all, they don't pick up the bill. That's nice for the individual but adds substantially to the cost of premiums.
This problem is compounded by the lack of transparent pricing in the system. Hospitals and doctors decide on what services a patient gets and when they get them. The hospitals and doctors then dictate the price. The reality is that competition on price and quality is rare because consumers have no information about success rates and are often not in a position to shop around because they are ill. This applies here as much as anywhere else. Here in Ireland, no private hospital publishes details about the success rates for operations, the skills of individual doctors, the quality of different hospitals or the cost of procedures.
This lack of transparency applies to health insurers as well as individuals. In reality, there are so few hospitals in most areas that there is no proper competition. This means that insurers are often forced to negotiate fees with a cartel of local hospitals. Research shows this is a particular problem in countries where the market is small because hospitals outside the cities are effectively monopolies. Elsewhere, they operate like oligopolies.
Perhaps this is why the Organisation for Economic Cooperation and Development concluded in a lengthy report some years ago that so far "private health insurance has had only a minimal impact on the quality of care" in most countries.
As individuals, it may be pleasant to skip the queue and get three-course meals while in hospital, but the reality is private health insurance often does little more than push up prices in both sectors rather than improve the quality of service.