From your reading of Nolan (2006) argue the current inefficiencies and inequitie
ID: 382181 • Letter: F
Question
From your reading of Nolan (2006) argue the current inefficiencies and inequities in the Irish health insurance market and the health system in general. In your answer provide a debate on whether Universal Health Insurance is the potential solution to the issues you have outlined.
The Interaction of Public and Private Health Insurance: Ireland as a Case Study
In Ireland, the public health system has a symbiotic relationship with private health
insurance not seen in other European countries. Everyone has entitlement to public
hospital care from the state, but half the population now payfor private health insurance.
The insured avail of ‘‘private’’ health care, much of it delivered in public hospitals, and the
resulting two-tier system is problematic from both an efficiency and an equity perspective.
This paper uses the Irish case to explore the dynamics of the interaction between public and
private health care and their impact on the demand for health insurance and on equity. It
brings out how a structure designed to take advantage of possible benefits for the public
system of close interaction with private care can be both destabilizing for the public system
and inequitable in terms of access and utilization.
Introduction
While representing onlya small share of total health funding on average in rich
countries, private health insurance covers 30 per cent or more of the population in a
third of OECD members. It plays a varietyof roles, ranging from primaryhealt h
insurance coverage for particular population groups to a supporting role for public
systems. As a recent review of private health insurance in OECD countries brings
out, its function depends cruciallyon the interaction with publiclyfunded systems.1 It
represents the sole form of health coverage for significant population groups in onlya
few countries (notablythe U.S., Netherlands and Germany), but more often provides
something extra that is not covered, or not fullycovered, by the public system. In such
countries as Australia, the U.K., Spain and Ireland that ‘‘something extra’’ is
primarilyaccess to privatelyfinanc ed providers. In such systems, as the OECD study
notes, ‘‘differences in access to care, choice levels and utilisation patterns occur
between individuals with and without private insurance’’ (p. 16).
Ireland is however distinctive. This is first because of the prominence of the role
which private health insurance plays: about half the population now have private
insurance, one of the highest levels of coverage in the OECD – despite the fact that
everyone has entitlement to public hospital care from the state. Secondly, much of the
private care to which the insured gain access is actuallydeliv ered in public hospitals. In
addition, the context in which this complex mix of public and private health care
operates has changed radicallyover the past decade, as the nature of the insurance
market has changed in response to EU regulations. The two-tier hospital system is
now widelyregarde d as problematic from an equity perspective, but there are also
serious efficiencyissue s arising from the incentive structures embedded in this
particularlyclose intertwining of public and private. All this means that (as recognized
bythe OECD) Ireland is a particularlyinterest ing testing ground for both the
advantages put forward byproponen ts of a strong role for competitive private
insurance markets, and the drawbacks in terms of both equityand cost control/
efficiencyidentifi ed bythe other side of this debate.
In brief, the Irish health care system provides everyone with entitlement to acute
hospital care in public hospitals, subject to certain charges unless the familyfalls below
a specified low-income threshold. Those below the threshold (covered bywhat is
known as a ‘‘medical card’’) also get free general practitioner care and prescription
medicines, for which the rest of the population have to pay. Health insurance (at least
until recently) focused on hospital and specialist care, covering most of the cost, with
those covered receiving ‘‘private’’ in-patient care in either private or public hospitals.
The market for health insurance is tightlyregula ted, with all insurers having to apply
open enrollment, communityrating and lifetime cover. Such a two-tier structure need
not necessarilyimplythe presence or emergence of a quality/access difference between
those with and without insurance: if the public system is broadly equivalent to the
private one in terms of qualityand access, insurance might still be purchased by those
who value improved ‘‘hotel’’ aspects of care and choice of specialist. However,
particularlywher e the public and private systems are as intertwined as theyare in the
Irish case, there are real pressures inherent in such a system that can serve to open up a
quality/access gap, and that in turn can fuel the demand for health insurance, as we
shall discuss.
This paper aims to identifythe keyissue s, review what is known about them, and
identifythe major gaps that make it difficult to properlyasses s the impact of private
health insurance. We begin byoutlining in the following section the role private health
insurance plays in Ireland, and the major changes that have been taking place in the
health insurance market in recent years. The next section then examines the factors
underpinning increasing demand for health insurance. The following section focuses
on the debate about equityand the policy response, while the penultimate section deals
with the flow of resources and the incentive effects of the current system. Finally, the
main messages are brought together in the concluding section.
Health insurance in Ireland
As in other countries, the current role of private health insurance in Ireland can only
be understood in terms of its historical evolution.2 (Keyevents in the evolution of the
2 The OECD case-studyof health insurance in Ireland (Colombo and Tapay(2004b)) has a useful
description of the system and discussion of many of the issues highlighted here.
The Geneva Papers on Risk and Insurance — Issues and Practice
634
Irish health care system and the health insurance market are set out in Table 1 for
reference.) Entitlement to care from the public health system was made available first
to those on lower incomes, not to the better-off. Efforts to extend entitlement up the
income distribution then faced the resistance of providers who were reluctant to lose
their income from private patients.3 In the late 1950s, a monopolystate -backed notfor-
profit health insurer – the VoluntaryHeal th Insurance (VHI) Board – was
established to cater for the top 15 per cent or so of the income distribution, who did
not then have entitlement to public hospital care from the state. This state-backed
insurer operated communityrating, and income tax relief was available at one’s
marginal rate on premia paid. This structure was designed, inter alia, to ensure that the
entire population had access to hospital care while satisfying the demands of medical
consultants that their private practice not be undermined. Those towards the top of
the distribution were in effect encouraged to take out ‘‘private’’ insurance, while the
Table 1 Evolution of health care system and private health insurance in Ireland
Date Health care structures Private health insurance
1957 All but top 15 per cent of earners have public
entitlement to free care in public hospitals
VHI Board established to cater for top 15
per cent of earners
1970 GMS established, those below income threshold
entitled to free GP and prescription medicines
1979 Universal eligibilityfor free public hospital care
enacted
1980 Percentage insured reaches 25 per cent
1987 Statutorycharges for hospital care introduced for
those above income threshold
1991 Universal eligibilityfor specialist services (subject
to charges)
1992 EU Third Non-Life Insurance Directive
1994 Health Insurance Act opens up health
insurance market to competition
Health Insurance Regulations provide for
risk equalization, lifetime cover, minimum
benefits
1997 BUPA (Ireland) enters market
1999 White Paper on Private Health Insurance
2001 Publication of Qualityand Fairness Health
Strategy
Establishment of Health Insurance
Authority
2004 Vivas enters market
2005 Health Insurance Authorityrecomm ends
risk equalization payments begin (June);
Minister accepts recommendation
(December)
2006 Legal challenge to risk equalization by
BUPA; percentage insured c. 50 per cent
3 Barrington (1987); Wren (2003).
cost of in-patient care for the rest of the population – provided in public hospitals –
was fullycovered bythe state.
To complicate the picture – and it is a crucial difference between Ireland and many
other countries – not onlywas ‘‘private’’ insurance provided for manyy ears bywhat
was to all intents and purposes an arm of the State, much of the ‘‘private’’ care it
covers was and is delivered in public hospitals. Medical consultants retained the
right to treat their private patients in public hospitals, and about half of all private
hospital care is in fact delivered in those hospitals. Most patient receiving private care
– in a public or private hospital – have insurance, and the insurer reimburses both
medical consultant and hospital. However, for manyy ears public hospitals only
charged for the ‘‘hotel’’ facilities associated with being in a private room. In addition,
most medical consultants are contracted to care for public patients in public hospitals
on a salaried basis, while maintaining the scope to treat private patients on a feefor-
service basis. So the public and private systems in Ireland, rather than being
distinct, have what has accuratelybeen described as a symbiotic relationship.4
From the 1950s to the late 1970s or early19 80s, this public–private mix supported
by‘‘privat e’’ health insurance functioned in roughlythe wayit was initiallydesigne d to
do, with a monopolyinsure r covering private care for the well off and in effect
‘‘topping off’’ the public system. There have been fundamental changes in the health
insurance landscape since then. The first is the dramatic rise in the percentage of the
population buying health insurance. This jumped up from about 20 per cent to 30 per
cent in the late 1970s, jumped once again in 1987 – 35 per cent – rose steadilythrough
the 1990s and bynow has reached half the population. This occurred despite the fact
that full entitlement to public hospital care (subject to some charges levied on all those
above a low-income threshold) was extended to the top part of the income distribution
in the early1990s.
Another major change is that there are now competing insurers. In response to the
EU’s 1992 Third Non-Life Insurance Directive, designed to stimulate competition in
insurance, the Irish government enacted new legislation opening up the health
insurance market. As a result a second significant insurer, BUPA Ireland (a subsidiary
of the British insurer), commenced operation in 1997, while a third, Vivas, commenced
operation in 2004. However, the waythe market operates is tightly regulated: Ireland
obtained approval from the EU to continue to require all insurers to applyope n
enrollment, communityratin g and lifetime cover, as enshrined in the 1994 Health
Insurance Act and the 1996 Health Insurance Regulations. In 2001 a Health Insurance
Authoritywas set up to oversee and regulate the market. Among its responsibilities is
implementation of a risk equalization scheme in order to support communityrating.
This has proved particularlycontrove rsial and no transfer of funds across insurers has
yet taken place, as we discuss shortly. The VHI continues to dominate the market, and
although its status has been debated it remains a not-for-profit bodywhose board is
appointed bythe Minister for Health, requiring official approval for changes in
premium levels. Nonetheless, the entryof BUPA and Vivas, and the potential entry of
further insurers, is a fundamental change in the Irish health insurance market and has
The Geneva Papers on Risk and Insurance — Issues and Practice
clearlyalrea dyaffe cted behaviour, most obviouslyin the range of new insurance
products that continue to appear and the efforts to market them. Despite price
competition, however, the cost of insurance has continued to rise substantiallyabove
the general level of consumer price inflation.
The highlyregula ted nature of the private health insurance market in Ireland
remains distinctive. Open enrollment, communityrating and lifetime cover are
enshrined as core principles, reflecting the role which public policyhas traditionally
assigned to insurance in the health care system.5 To underpin this structure, it was
recognised from the outset that a system of risk equalization across insurers was
essential – otherwise new entrants could cherry-pick good risks, by targeting younger
people for example. Such cream-skimming clearlyundermi nes insurers with an older
and more riskymember ship profile – in the Irish case, the former monopolyVHI –
and ultimatelymakes communityrating unsustainable. Risk Equalization Regulations
were introduced in 1996, and subsequentlyanaly sed by an Advisory Group which
recommended that a Health Insurance Authoritybe established. This was accepted in
the 1999 White Paper on Health Insurance, and the Health Insurance Authoritywas
established in 2001, with a keyfunction being to advise the Minister for Health and
Children in relation to risk equalization. The Risk Equalization Scheme came into
legal effect from July2003, with the Authority’s role being to recommend to the
Minister whether or not risk equalization payments should be commenced.
There has been a running debate between the insurers as to the justification for such
a scheme and the need for a transfer, and the Health Insurance Authorityhas carried
out several analyses and commissioned research such as the survey of consumer
behaviour and attitudes towards health insurance mentioned above.6 The Authority
recommended in 2005 that risk equalization payments commence – which in practical
terms would mean substantial transfers (of perhaps h30 million per year) from BUPA
to the VHI. The Minister did not initiallya ccept that recommendation, but did so 6
months later when the Authority’s analysis came to the same conclusion. However,
this is subject to legal challenge byBU PA and no transfers have taken place as of yet.
The Minister linked her initial reluctance to accept the Authority’s recommendation
to the status of the VHI. The VHI does not at present have to meet the
same requirements in terms of financial reserves as the commercial insurers, because it
was established as a statutorybody . There has been a lengthy debate about options
for the VHI’s corporate status, options including privatization or conversion into a
mutual societyowned by its members. The Minister has announced that she favours
assigning the VHI the status of commercial semi-state body, which will take some time
to bring about.
Finally, it is worth noting that the Competition Authority has recently made a
significant ruling about the wayhealth insurers operate. The Authority has ruled that
health insurers cannot continue to agree common price schedules with medical
specialists, as has been the practice since the late 1990s. Ironically, that practice in fact
seems to have emerged due to pressure from consumers who were unhappyabout the
5 See Department of Health and Children (1999a, b); Health Insurance Authority(2002).
6 See BUPA Ireland (2000); Health Insurance Authority(2003).
Brian Nolan
Interaction of Public and Private Health Insurance
637
extent of ‘‘balance billing’’ – where some specialists charged amounts in excess of what
was covered byinsura nce. The Authority’s aim is to promote competition among
providers, but this assumes a potential for meaningful price competition that maynot
in fact emerge.
Understanding the growth in numbers insured
As we have seen, health insurance in Ireland, having been the preserve of the better-off
for manyy ears, now covers half the population. Whyhas this increase in the numbers
buying health insurance occurred? The scale of economic growth and increasing real
household incomes in Ireland from the mid-1990s – the years of the ‘‘Celtic Tiger’’ –
have clearlymade it affordable for more people, but this does not explain why they
want or feel the need to have health insurance cover. The upward trend in numbers
insured has also proved remarkablyresilient in the face of significant annual premium
increases and a diminution in income tax relief as tax rates fell and relief was scaled
back to the standard rather than marginal tax rate. Econometric time-series analysis
has sought to quantifythe impact of trends in income and the price of insurance, going
back to the late 1950s.7 The results show an upward trend in numbers insured from 1
year to the next, arising from factors not successfully identified in the model, but
damped down somewhat bythe negative effects of increases in price.
As well as income and price, in the Irish context one would expect perceptions of the
public health services available to those who do not buyhealt h insurance to be a major
influence on demand for that insurance. Evidence presented in Besley et al.8 for the
U.K., where not buying insurance similarly means relying on the public system,
suggests that the length of waiting lists facing public patients affects the demand for
private insurance. This was based on a cross-sectional comparison across people on
different income levels and living in different areas, and it is difficult to capture these
effects in a time-series model given available data.9 Data on waiting lists for hospital
treatment exist onlyfor veryrecent years in the Irish case, and so cannot be used
directly. Public health expenditure (both current and capital) and the number of beds
in public acute hospitals10 were tested in the models estimated in Harmon et al.11 but
no significant effects on demand for health insurance were found. Their results
suggested nonetheless that the evolution of income and price still leave much of the
increase in demand to be explained.
Cross-sectional analysis of demand for health insurance based on household surveys
helps illuminate its relationship to various household characteristics. Harmon and
Nolan12 present the results of a probit model estimated with 1994 household survey
7 See Harmon et al. (1999).
8 Besley et al. (1999).
9 The U.K. evidence has also been further analysed and debated, notably in Propper et al. (2001); King
and Mossialos (2005).
10 Given recent trends towards shorter lengths of stayand more treatment on a daycase basis, number of
beds is an imperfect measure of capacity.
11 Harmon et al. (1999).
12 Harmon and Nolan (2001).
The Geneva Papers on Risk and Insurance — Issues and Practice
638
data, showing that income, education, age, gender, marital status and family
composition all influence the probabilityof choosing private insurance. Higher levels
of income and of educational attainment increased the probabilityof being insured,
women and married people were more likelyto be insured, and older persons had a
lower probability. Self-reported health status variables were also highly significant,
with poor health lowering the probabilityof choosing private insurance.
While this type of analysis helps to show what type of people buy health insurance,
it does not tell us whytheydo so; it is also important to explore what people think they
are buying when theybuyinsura nce, and the alternative they face or believe theyface
without it. Attitudinal surveys13 suggest that concern about waiting times for public
hospital care is uppermost in people’s minds, that qualityof care has also come to be
seen as a significant issue and that having a private room or other ‘‘hotel’’ aspects are
not seen (or at least not presented) as an important reason for buying private
insurance. Waiting times for public hospitals are widelypercei ved to be long, both by
those with and without insurance. Almost everyone with insurance in these surveys
responds that such factors as ‘‘being sure of getting into hospital’’ and ‘‘fear of large
medical or hospital bill’’ are important reasons for having insurance. However, being
sure of getting good treatment in hospital and being sure of getting consultant care
were also advanced as important reasons in the more recent surveys, in contrast to an
earlier one carried out in 1991 where ‘‘being sure of getting into hospital quicklywhen
you need treatment’’ dominated. Being able to have a private or semi-private room
and being able to get into private hospitals are not advanced as important bymo st of
the insured. These results suggest that while access to hospital has remained a key
reason for having health insurance, issues relating to qualityof care have become
somewhat more important over the 1990s in attitudes towards insurance.
It seems plausible then that perceptions of access to public hospitals combined with
perceptions of the qualityof public versus private care are keydrivers underpinning
demand for health insurance in Ireland. The role of media coverage in influencing such
perceptions merits examination, but there certainlyhave been long waits for certain
types of public hospital treatment in recent years (that policy has been seeking to
address as we discuss below) which are by-passed by those with insurance. In one of
the attitudinal surveys, for example, almost half the respondents said they personally
knew someone who recentlyhad a lengthywait for public hospital treatment – so it
appears theywer e not simplyinflue nced bymedia reports.
Equity in access and utilization
The fact that Irish acute hospital care is an increasingly‘‘two-ti er’’ system is widely
regarded as problematic from an equitype rspective. Indeed, the issue of equityof
access to hospital care for public versus private patients has become a veryhigh-pr ofile
one politically, and equity as a goal has been highlighted in the official health strategy
produced after lengthyconsult ation in 2001. A number of different layers to the
13 See Nolan (1992); Harmon and Nolan (2001); Watson and Williams (2001); Health Insurance Authority
(2003).
Brian Nolan
Interaction of Public and Private Health Insurance
639
argument maybe usefullydistinguis hed in assessing the fairness of the current system.
Where separate and distinct public and private health care systems operate side-byside
and private health insurance provides cover for the latter, then a likelyout come is
that those with insurance – who are most often on higher incomes – will have more
rapid access to health care. Views may, and do, differ about whether this is equitable,
both within and across societies. The role of the state in subsidizing health insurance
or private health care, directlyor indirectly, adds a further dimension: some who see
differential access as fair if the full cost is being paid bythose ‘‘going privately’’ might
question its fairness if the taxpayer is in effect covering part of the cost. However a
further, and even more complex, dimension arises when – as in the Irish case – much
of the private care to which those with insurance gain access is actuallybeing delivered
in public hospitals. In that situation, the two-tier nature of access bytho se with versus
without insurance is more obvious and in all likelihood more likelyto be seen as
objectionable.
So what is most striking about the Irish case is that the public hospital system has
come to be seen verywid ely as a two-tier one, offering the better-off more rapid access.
The fact that theyare in effect subsidized bythe taxpayer in doing so is less widely
debated. This raises several important empirical issues. The first relates to how the
two-tier system actually operates in practice, in terms of access and utilization. How
much more rapidlydo those with insurance obtain hospital care? And how much more
rapidlydo theyobtain access to care in public hospitals? To what extent is the two-tier
nature of the Irish hospital system associated with significant inequity in utilization
across the income distribution, taking differences in ‘‘need’’ for care into account? The
evidence is patchy and there are different ways of trying to capture how access and
utilization relate to ‘‘need’’, but we can usefullylook at what is known about waiting
times and about actual use of services.
Waiting lists and waiting times
Having patients waiting lengthyperiods for elective treatment is often taken to
indicate that access is a problem, and the numbers on waiting lists have certainly
played a major role in the debate about two-tier access in Ireland. As concern about
waiting times grew in the early1990s, the National Waiting List Initiative was
launched in 1993 and as part of that process the Department of Health sought to
establish a national database of information on waiting lists. This was compiled from
quarterlystatist ical returns from hospitals, and related to the number of patients who
had alreadybeen seen bya consultant and were listed for treatment (on an overnight
or daycase basis) as a public patient in a public hospital. Onlytho se waiting for 3
months or more were included, and although some hospitals returned data on private
patients these were not included in the statistics produced everyqua rter. The published
figures showed a rapid drop shortlyafte r the series was started in 1993, due to
improved validation, and subsequentlygeneral ly trended upwards until 1998–1999
before declining in 2000 and 2001 to about the level recorded in late 1993. The
National Treatment Purchase Fund (NTPF) was set up in 2002 to arrange treatment
for ‘‘long waiters’’ in hospitals in Ireland, Northern Ireland and the U.K. It has
The Geneva Papers on Risk and Insurance — Issues and Practice
640
registered some success in reducing long waits, with the percentage of patients shown
as waiting over 12 months down to 20 per cent byend-2003 . Nonetheless, at that date
a total of 16,000 were waiting for in-patient treatment and 11,000 were waiting for
treatment on a daycase basis.
The limitations of waiting lists as a statistical source are well known, and relate both
to conceptual and practical problems. Conceptually, the number on a waiting list is an
inadequate measure of the distribution of waiting times for treatment, which is the
underlying focus of interest. Further, in the Irish case only those who have already
seen a specialist can be listed for hospital treatment and thus appear on the waiting list
– so lengthywai ts to see the specialist in the first place do not feature. From an
administrative point of view, a range of problems has been identified with the waythe
figures were compiled, and the NTPF is now setting up a Patient Treatment Register,
an online database of patients waiting for treatment. The NTPF has also argued that
the previous waiting list series overstated the number of patients actuallywaitin g and
available for treatment. Despite this, and the impact of the NTPF itself, it is clear that
public patients have had to face significant waits for hospital treatment and that this
has become embedded in the perception of the public hospital system.
Since no corresponding information has been available for private patients, it has
not been possible to quantifydifferent ial access preciselyover time, but it was
generallyunderst ood that waiting times were short for much of the period. Research
bythe VHI quoted in NESF14 showed that nearly80 per cent of its members were
hospitalized within 5 weeks of seeking an admission. Responses to the attitudinal
surveycarri ed out by the ESRI in 1999 showed that those without insurance were
much more likelyto report that theywere waiting for in-patient treatment, and to be
on the waiting list for a lengthype riod, than those with insurance.15 Similarly, in the
special module on health included with the QuarterlyNati onal Household Survey
carried out bythe CSO in 2001, long waits were much less common for those with
insurance for out-patient care, in-patient treatment and daycase procedures.16 So the
evidence suggests that although those with insurance maynot now always be able to
access hospital care as quicklyas in the past, those without insurance wait
substantiallylonger. In terms of access, this is compounded bydifferences in time
spent waiting to see a medical specialist initially, without which one does not feature
on a waiting list.
Utilization and ‘‘needs’’
As well as waiting times, it is obviouslyrelevant to compare actual levels of health
service utilization bythose with and without private health insurance – although
teasing out the implications of the results is not straightforward. Information on
14 NESF (2002).
15 Nolan and Wiley(2000).
16 See CSO (2002), Tables 3–5. To give an example, only12 per cent of those with private insurance on an
in-patient hospital waiting list were waiting a year or more, compared with one-quarter of those with a
medical card giving means-tested entitlement to free primarycare and 38 per cent of those with neither
private insurance or a medical card.
Brian Nolan
Interaction of Public and Private Health Insurance
641
utilization has been obtained in some household surveys, which also allow respondents
to be distinguished byhe alth insurance status and other relevant characteristics (such
as age, gender and income), notablyin the Living in Ireland Surveys carried out bythe
ESRI from 1994 to 2001. Harmon and Nolan17 used data from the 1994 surveyto
studyfact ors influencing the probabilityof having had a hospital in-patient stayin the
past year. The econometric approach adopted involved estimating jointly a
simultaneous linear probabilitymodel where the first-stage models the demand for
insurance and allows for correction for endogeneityin the second stage equation
modelling utilization. The results suggested that those with insurance had a higher
probabilityof an in-patient staythan those without, controlling for available measures
of ‘‘need’’, including age, gender, income and self-reported health status – the
estimated probabilityof having had a hospital stay being 6 per cent higher for those
with health insurance. While this could reflect differences in health status between
those with and without insurance not adequatelycontrol led for bythe measures of
health available in the survey, at least in terms of those measures there did not seem to
be evidence of adverse selection into private insurance.
Using essentiallythe same data, one can also measure equityin the overall pattern
of utilization across the income distribution in Ireland using the methods developed in
the cross-countrycollabo rative ECuityresear ch programme.18 This takes as point of
departure the notion that horizontal equityin utilization means that those in equal
need ought to be treated equally, and seeks to test whether there is any systematic
deviation from this principle byincome level. Testing involves comparing reported
utilization in household surveys by those at different points in the income distribution,
controlling or standardizing for ‘‘need’’ as reflected in age, gender and self-reported
health status, and perhaps other characteristics such as education and labour force
status. The degree of horizontal inequityfound is summarized bythe concentration
index of needs-standardized use: when this is positive it indicates pro-rich inequityand
when it is negative it indicates pro-poor inequity.
Results from a studyfor the OECD applying this method to 21 countries with
data from the European CommunityHousehol d Panel Survey(ECHP ) and
national surveys for around 2000 are presented in Van Doorslaer, Masseria et al.19
The results for Ireland show no significant inequityin the use of hospital in-patient
care, and this was also the case for a majorityof the countries covered. The
authors speculate that this maybe due at least in part to the fact that onlyabout one in
10 respondents spends time in hospital in a year and sample sizes are often quite
small, so the confidence intervals around the concentration indices are high.
Interestingly, though, the index for specialist visits displayed significant pro-rich
inequityin most countries, and Ireland was among those with the most pronounced
inequityin that regard. This is particularlyimpor tant given the role which
private insurance plays in covering (most of) the cost of such visits in Ireland, and
17 Harmon and Nolan (2001).
18 See Wagstaff and Van Doorslaer (2000); Van Doorslaer et al. (1993, 2000); Van Doorslaer et al.
(2004).
19 Van Doorslaer et al. (2004).
The Geneva Papers on Risk and Insurance — Issues and Practice
642
difficulties those without insurance mayoften face in terms of lengthy waits to
see a specialist.
Layte and Nolan20 applied the same methods to an in-depth investigation of Ireland
also using data for 2000. Once again when the available information was used to
control for differences in ‘‘needs’’, the results suggested no significant inequityin the
use of hospital in-patient care across the income distribution. The standardized
coefficient for specialist visits was positive, consistent with some pro-rich inequity, but
this time was not statisticallydiff erent from zero. More generally, given the two-tier
nature of access to hospital in Ireland and the differences in waiting times between
public and private patients, it is surprising at first glance that the actual distribution of
hospital utilization does not show up as inequitable. The crude nature of the measures
of health status available to control for differences in needs has to be emphasized, and
countrystudi es where more health status information was available suggest that any
bias is likelyto be in the direction of under-stating the needs of those on lower incomes
and thus under-stating anyinequal ity. Layte21 combines the self-reported health
measures into a single health index estimated on the basis of principal components
analysis and finds some significant pro-rich inequity in the use of hospital resources in
Ireland. It is also noteworthythat while pro-rich inequity in in-patient care was found
in onlya few countries in the OECD study, those where it was seen to actuallybe propoor
included the U.S., not what one would have predicted given the role of private
health insurance there.
The measure of in-patient utilization employed in these studies is also a crude one,
namelynumber of nights spent in hospital in the past year. There is enormous
variation across patients in the care given and the resources used in providing that
care. Data from the regular Hospital In-Patient Enquiry(HI PE), wherebyhospitals
report on their activitylevels, were employed byNolan and Wiley22 to compare the
resources devoted to different categories of patient in Irish hospitals based on
the numbers treated for different conditions categorized in terms of Diagnosis
Related Groups (DRGs). Those with private health insurance were not distinguished
in the database at the time, so a comparison was made between those with and
without medical card cover which served as a rough proxy. The results showed
that the resource cost per dayin hospital was higher for those without medical
cards due to differences in the case-mix involved, even if one assumes that within
each specialtythe same costs applied to both. On this basis, it was tentatively
estimated that while about one in five patients in public hospitals received private care,
about one-quarter of the direct costs of providing care were attributable to those
patients.
The HIPE database is also informative about bed use in public hospitals. From
1991, most beds in public acute hospitals have been explicitlydesigna ted as public or
private, with about 80 per cent of in-patient beds being public and 20 per cent private,
while about two-thirds of daybeds are public and one-third private. Nolan and
20 Layte and Nolan (2004).
21 Layte (2006).
22 Nolan and Wiley(2000).
Brian Nolan
Interaction of Public and Private Health Insurance
643
Wiley23 used administrative data to examine the extent to which private patients were
in fact treated in public beds and vice versa. Theyfound that almost one-quarter of all
in-patient bed-days spent by private patients in public hospitals were in beds
designated as public. There was also some cross-over in the other direction, with public
patients being treated in beds designated as private. A substantial proportion of this
cross-over was in a small number of hospitals, and was said bythem to result primarily
from admission through accident and emergencyof patients who opted for private
status but for whom no private bed was available.
Resources and incentives
One of the keyration ales often advanced for encouraging private health insurance, in
Ireland and elsewhere, is that it generates additional resources for health care and/or
reduces the burden on the public purse. The extent to which resources raised via
private insurance are in fact ‘‘additional’’ is often difficult to assess, in that it may
simplyreplac e rather than add to public spending. The counterfactual, what would
happen were there no (increase in) private insurance, is not a given but rather is open
to debate. As far as shifting the burden from public spending is concerned, this is
difficult to assess even when private health insurance and health care are completely
independent of the state and self-supporting. It is more complicated when one has to
take into account direct and indirect subsidization of private insurance and private
care, as occurs in Ireland in ways that are often difficult to quantify. Finally, when a
substantial proportion of private care is delivered in public hospitals and those
hospitals receive revenue in return – but the full costs incurred in providing that care
are much less clear – the financial flows underpinning the system are more difficult to
disentangle. So another set of empirical questions relates to tracking those flows and
understanding the extent to which private care is actuallysubsidiz ed and the net
impact of private insurance on both the Exchequer and the overall resources available
for health.
Subsidization of private insurance takes various forms, notablythrough tax breaks
on insurance premia, the below-cost charges levied for private care in public hospitals
and through the staff training provided bythe public system. Tax relief is now
available at the standard rate of income tax rather than the individual’s marginal rate,
but the standard rate is still 24 per cent, so the relief is substantial. The revenue loss
implied bytax relief on health insurance is estimated by the Revenue Commissioners
at about h86 million in 2000–2001. To put this in context, the revenue raised bypublic
hospitals from charges for private and semi-private accommodation amounted to h117
million in 2001.
These charges for private care in public hospitals are traditionallyaime d at covering
onlythe ‘‘hotel’’ aspects of a private stay, but policyhas more recently shifted sharply
so that the aim is to move these charges up to the point where theyco ver the full
economic cost involved. That cost is not easyto identify unambiguously, for both
23 Ibid.
The Geneva Papers on Risk and Insurance — Issues and Practice
644
conceptual and empirical reasons, but charges have certainlybeen raised very
substantiallyover the past decade or more. Nolan and Wiley24 used cost and activity
data to estimate the average cost of care to private patients in public hospitals in 1997,
and found that, given the level of charges, there was a substantial implicit subsidyto
private care at the time – with perhaps onlyhalf the cost of provision being covered by
the revenue raised bypubl ic hospitals from private patients. Charges for private care
in public hospitals have been raised substantiallysince then, but costs have also
increased rapidly, so it is difficult to assess how much of that gap has been closed
without an in-depth study. The other areas of indirect subsidization are even more
difficult to quantify. It remains the case that private care in public hospitals costs
insurers considerablyless than private care delivered in private hospitals, suggesting
that the mix of direct and indirect subsidies to the former are still significant.
The broader role of private insurance in raising resources for health care is
presented bypolicy -makers as a keyratio nale for the place private health insurance
occupies in the Irish system. The 2001 Health Strategy, for example, stated that
‘‘Private health insurance is a long-established feature of the system of acute care
provision and will continue to playa vital part in the overall resourcing of health care
in this country’’.25 However, while the proportion of the population with private
health insurance is veryhigh compared with other OECD countries, this is not
reflected in an above-average share of resources for health coming from that source.
The share of total health care spending coming from private health insurance in
Ireland, at about 7 per cent, is in fact onlymargin allyabove the OECD average of 6
per cent. It is also worth noting that the proportion of total health expenditure coming
from private health insurance has actuallyfallen recently, having been about 9 per cent
in the first half of the 1990s and 8 per cent in the second half. So the resources
generated for health byprivate insurance in Ireland are not commensurate with the
leverage those with insurance have in the health care system – a case of ‘‘the tail
wagging the dog’’? – and that has become more rather than less pronounced as the
numbers with insurance have risen sharply.
As well as generating resources, the other argument advanced for the retention of
private care in public hospitals in the Irish case is that this actuallyimpr oves the care
provided for public patients. The 1999 White Paper on Health Insurance, for example,
pointed to the public/private mix helping to attract and retain consultants of the
highest calibre in the public system, promoting more efficient use of consultants’ time
byhaving public and private patients on the same site and facilitating active linkages
between the two systems in terms of research and best practice. It also drew attention
to potential drawbacks, however, pointing to the incentive for consultants to spend
more time with private patients, and ‘‘the perception that’’ public patients tend to
receive more of their care from medical staff other than consultants.
Most medical consultants employed to treat public patients, and paid a salary for
doing so, also have private patients for whom theya re paid on a fee-per-service basis.
While consultants are committed to a specified number of hours per week caring for
24 Ibid.
25 Department of Health and Children (2001).
Brian Nolan
Interaction of Public and Private Health Insurance
645
public patients, this does not appear to be effectivelymo nitored, and the incentive they
face to concentrate more of their attention on private patients – even if it is byworki ng
verylong hours over and above their public commitment – maybe to the detriment of
public patients. Public hospitals managers also face an incentive to maximize revenue
from private patients in anygiven year, since this is one of the few sources of
additional revenue available to them. So efficiencyas well as equityissue s loom large
in assessing the interaction between private and public in Ireland, and yet empirical
information is at a premium.
The 2001 Health Strategy Quality and Fairness is particularlyinterest ing in that
regard in that it asserts once again that the public–private mix has significant
advantages for qualityof care, but now frames this together with the problem of
equityof access and the contrast between public and private patients:
The private sector makes an important contribution to services needs which must
be harnessed to best effect for patients. One of the keycon cerns of the strategyis
to promote fair access to services, based on objectivelyassessed need, rather than
on anyother factor such as whether the patient is attending on a public or a
private basis. This is of particular concern in the area of acute hospitals. The
current mix of private beds in public hospitals is intended to ensure that the
public and private sectors can share resources, clinical knowledge, skills and
technology. This mix raises serious challenges, which must be addressed in the
context of equityof access for public patients.26
The strategyadvan ced in Quality and Fairness in this respect focused on making access
to health services more equitable –‘‘the perceived two-tier aspect of health care to be
eliminated’’.27 This was to be done in effect byimproving access for public patients
without altering the fundamentals of the public/private mix. The keyaim was specified
in terms of reducing public patient waiting lists. This was to be done byincrea sing the
number of acute hospital beds and designating these as for public patients; by
exploiting the capacityof the private hospital sector; bymore active management
of waiting lists; bythe establishment of the National Treatment Purchase Fund;
byclarify ing and fullyimplement ing the bed designation arrangements; and by
suspending admission of private patients for elective treatment if public patient
waiting lists are above a target level. Implementation of all but the last of these has
been under way, and the impact so far seems to bear out the conclusion advanced at
the time the NESF28 that such measures could bring about a real improvement in the
position of public patients. However, as the NESF also pointed out, this did not deal
with the problem of lengthywaits for first consultant appointment after referral bya
GP, and it did not put in place a system whereby access to public hospitals were
prioritized in accordance with medical need not abilityto pay.
26 Ibid., p. 43.
27 Ibid., p. 57.
28 NESF (2002).
The Geneva Papers on Risk and Insurance — Issues and Practice
646
What is striking is that there has been no attempt whatsoever to assess the scale of
the purported qualityben efits to the public system associated with the inter-mingling
of public and private care in the Irish system, nor whether these benefits are
outweighed bythe distortionaryimpact of the incentive structure. Neither part is easy
to assess, of course. Information about how medical specialists spend their time –
critical to assessing both the benefits and the costs – is jealouslyguarded, although
efforts to increase the scope for effective monitoring continue in the context of
negotiating the ‘‘Common Contract’’ which govern consultants’ relationship with the
public hospital system. It is clear however that many public patients – unlike private
ones – will be treated byjunior doctors rather than consultants (and as noted earlier
awareness that this is the case seems one of the factors influencing demand for private
health insurance). It is hard to see the current structure of incentives as conducive to
efficient use of resources, but that impact is verydiff icult to assess empirically. Recent
studies demonstrate that there is a good deal of variation across acute hospitals in
efficiencylevels, 29 but have not as yet been able to explore whether this is associated
with the public/private mix and the incentive structure. Indeed, since that mix prevails
to a greater or lesser extent across the major acute hospitals in the country, it may well
not be possible to identifyits effects by internal comparisons across Irish hospitals –
although that is worth investigation. Making comparisons in efficiencylevels between
hospitals in Ireland and elsewhere seems the next step, but it maywell be difficult to do
satisfactorily, and assigning responsibility for any differences detected to specific
factors such as the public/private mix will in all likelihood be even more difficult.
The argument advanced for the positive impact of the present distinctive public/
private mix on the qualityof care available to public patients rests on an assumption
that if the public and private systems were separate rather than intertwined, the result
might well be a high-qualityprivate system for the well-off and a poor-qualitypublic
system for the poor. This is particularly interesting in the light of the recent
commitment to substantiallyincrea se the number of consultant positions in the public
hospital system, but that those employed would have to commit to being full time in
the public system. This goes together with encouraging private investment in building
new hospitals – either as stand-alone private facilities or as separate elements
alongside public ones – and the aim of transferring private beds in public hospitals to
these new private facilities, freeing up capacityfor public patients. Delivering on these
goals will depend inter alia on being able to negotiate an appropriate contractual
arrangement with medical consultants. If achieved it will mark a fundamental change
in the public–private mix in Ireland, and one whose consequences for public patients
and for overall resources for health are difficult to predict.
Conclusions
Private health insurance plays a distinctive role in the Irish health care system, with
about half the population now having such insurance despite the fact that everyone
29 Gannon (2005).
Brian Nolan
Interaction of Public and Private Health Insurance
647
has entitlement to public hospital care, and much of the insured’s private care is
delivered in public hospitals. While health has become an extremelyhigh-pr ofile and
politicallysensitiv e topic, health insurance has not come centre-stage in that debate –
which has instead focused on waiting times for public hospital care and the location of
those hospitals. The two-tier hospital system is now widely regarded as problematic
from an equityperspect ive, but there are also serious efficiencyissue s to be faced
because of the incentive structures embedded in this particularlyclose intertwining of
public and private.
The introduction of competition in the health insurance market, in a tightly
regulated setting, has led to a wider range of insurance products but does not address
these fundamental problems. The fact that risk equalization payments across insurers
have not been implemented casts some doubt on the stabilityof the insurance market
itself as it is currentlystruc tured. The prioritization of promotion of competition in
that market and the encouragement of the development of privatelyfinanc ed hospital
facilities appear to go together as elements of a more market-based approach, but with
the stated aim of also moving awayfrom having private patients in public hospitals.
This paper has highlighted a range of empirical questions that need to be answered if
the efficiencyand equityaspects of the current public–private mix are to be properly
assessed; this is all the more urgent if such an approach and the alternatives are to be
evaluated.
The Irish experience shows that a structure designed to take advantage of possible
benefits for the public system of close interaction with private care can create perverse
incentives, be inequitable in terms of access and utilization, and undermine that public
system. It also demonstrates that, in a system where private insurance has a substantial
role and affords preferential access to care, the political economyof reform can be
highlyproblem atic. Those with insurance maywell be reluctant to give up preferential
access and what is perceived to be better-qualitycare, and where theycon stitute as
manyas half the population – and theyare primarilythe better-off – their political
power is not to be underestimated. Together with the difficulties in negotiating
satisfactorycontrac tual arrangements with medical consultants and other health
service providers, this means that there are major obstacles to structural reform that
seeks to increase both equityand efficiency.
Explanation / Answer
The current inefficiencies and inequities in the Irish health system are:
Universal Health Insurance
One of the solutions to address the inequities and inefficiencies in a two tier system is to implement an Universal health insurance system, where everyone is covered for insurance irrespective of age or income. Such a system will require the government to use public funds to pay insurance premium for those that are uninsured. The argument in favour of the universal health insurance issue that it is fair and equatable. There would be no discrimination in access and utilisation of health care services and facilities. The arguments against the universal health insurance are that this would increase the budget deficits and result in higher national debt. Universal health insurance will only encourage private insurance companies, pharma companies and care providers to increase their prices and thereby profiteer from it. There is no guarantee for improvement in quality of health services by moving to the universal insurance system.
While UHI may give a sense of equity, it only results in further complexity and costs, and does not address the inefficiencies. Instead, Ireland could retain their two tier system, remove the indirect subsidies and encourage more private hospitals to be built to address the issue of access.
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