This is an unedited version of my Sunday Times article from April 13, 2014.
According to Ambrose Bierce’s Devil’s Dictionary, “revolution is an abrupt change in the form of misgovernment”. From this point of view, Irish health system reforms proposals, published by the Government earlier this month are revolutionary in nature.
To prove the above conjecture, one needs to establish two facts. First, that the existent system is a misgoverned one, as opposed to being simply erroneous by accident. Second, that the changes to Irish healthcare being proposed are likely to result in a newly misgoverned system.
The systemic failings of Irish healthcare system are well documented and require no proof. But the fact that these failings are an outcome of the policy choices made by our public office holders and senior civil servants is less obvious. Until, that is, one considers the specific policies of the recent past.
Take our State’s approach to funding healthcare. Under the so-called two-tier system, Irish taxpayers pay four times for the same service: twice for services provision to themselves and then again for the services provided to non-taxpayers. Payments for both services take place via purchases of private insurance, with funds used by hospitals to underwrite their non-fee paying customers, capital stock and employment of staff, and via general taxation, which co-underwrites the same.
Thus, far from being subsidised by the public purse, private insurance holders in Ireland are subsidising public services. In exchange for paying more for healthcare, majority of insurance holders do not necessarily get any better quality or greater quantity of services. Sometimes, they get to jump a queue for some services ahead of public patients. Sometimes, they get better rooms to stay in. But they are not guaranteed such access in all cases. In fact, majority of insured patients in Ireland purchase insurance to achieve some security in being diagnosed and treated should the need for an assessment or a treatment arise.
It is that simple – faced with mismanaged, politicised and state-controlled healthcare, people pay over the odds to get necessary treatments and still bear uncertainty of whether they can secure such treatments.
In terms of economics and simple logic, it is not possible to subsidise someone who pays for the same service twice. Let alone someone who pays for that service for themselves and for someone else. Instead, the entire claim of a subsidy made by a myriad of our public officials, analysts and politicians is based solely on the armchair socialism belief in the existence of the proverbial free lunch.
Under normal conditions, any Government running healthcare with limited resources and under constraints of public finances in peril should treasure those residents who diligently pay for services that others get for free. But in a misgoverned service system, things are different from the norm.
In Budget 2014, Irish Government put forward expenditure adjustment measures relating to health amounting to the full year ‘savings’ of EUR666 million. Just over a half of these measures relate to shifting costs from public purse to the patients. While both public and private patients are being hit, majority of these costs hikes befall private insurance holders.
In the last three Budgets health related revenue and expenditure measures increased the cost of services provision by around EUR670 per insured person. Thanks to the State policies, a family of four on a health insurance plan is now some EUR4,000 poorer in terms of their pre-tax income. This amount represents some 6 percent cut to annual average earnings for a family with two working adults.
Irish families did not get any new or better services in exchange for this loss. But they certainly got plenty of abuse. The latest policy documents from the Department of Health charge the insurance holders with obtaining a state subsidy, and taking away resources from and undercutting access to healthcare for those in need. One gets an impression that private and semi-private patients in Ireland are attending spas co-located with public hospitals, not seeking basic health services.
Thus, few in the Government decry the fact that, based on CSO data, since the end of 2010, Irish health insurance costs rose 56.5 percent, against the overall inflation of just 3.9 percent. This trend compounded already significant cost hikes sustained by consumers under the previous Government. Set against December 2008, February 2014 prices across the entire economy were flat. Over the same period, health services costs rose 8%, hospital services are up 25.5 percent and health insurance costs more than doubled. Since the onset of the crisis, health insurance inflation has outstripped increases in the cost of home and motor insurance by a factor of 6 and 7, respectively.
Undeterred by the absurdity of the state policies toward those purchasing health cover, back in early 2012, the Minister for Health established the Consultative Forum on Health Insurance "with a view to generating ideas which would help address health insurance costs". The forum deliberates while the Government continues to pile up new and higher charges and costs to the already hefty burden of paying for healthcare. Not surprisingly, two years into its existence, the trend for health insurance prices is still up, undeterred by the wise men and women populating the Forum.
The end-game: since 2008, some 245,000 people have dropped their insurance cover, with total numbers covered by insurance down to 2,052,000 in December 2013, according to the Health Insurance Authority. And the above numbers are expected to get worse, not better, over the next nine months.
In short, there is little but misgovernment that is evident in our current public policies on health.
This misgovernment is now being counterpoised by the promise of the new reforms. Per the Department of Health’s latest white paper on introduction of the Universal Health Insurance (UHI), published earlier this month, Ireland is to move toward a cut-and-paste carbon copy of the Dutch system. The reform promises a free healthcare with uniform access for all.
In truth, the system is not free. Setting aside Minister for Health guesstimates of the final cost of the Government proposals, the Dutch UHI system costs more on per capita basis than our existent system. And the Dutch healthcare costs inflation is higher than here, once we strip out ‘austerity’ measures imposed on public and private health. Since 2008, Dutch UHI costs rose by some 40 percent, while the patients faced a reduction in the basic package contents.
But UHI is not the only cost relating to health services in the Netherlands. Dutch families purchasing the UHI also face significant costs under the Exceptional Medical Expenses Act (EMEA). The EMEA covers care for disabled and elderly, partial cover for psychiatric care and other similar expenses. On top of that, under the Dutch model, access to a range of services and treatments falls outside the UHI cover. These include, amongst other, such necessities as ulcer drugs, tranquillisers and anti-depressants.
2011 assessment of the system, by the Dutch Association for Elderly Care Physicians puts total annual cost of healthcare provision in the Netherlands at EUR7,400 for a family of two adults with two children on a combined family of EUR60,000. Pair this cost with a likely loss of tax deductibility under the UHI, Dutch pricing of UHI applied to Ireland can lead to the annual costs of EUR8,800-9,000 per average household.
We can delude ourselves into dreaming up schemes that can beat Dutch efficiency, but in our hearts we know that the HSE in its current form is unlikely to become a benchmark for healthcare management in Europe. We can further imagine that the Dutch model’s successes are down to the introduction of the UHI, but that too would be a stretch of imagination.
For example, the Dutch are one of the top performers in the OECD in reduction in mortality from heart disease. Yet much of this improvement took place well before the introduction of the UHI. On the other hand, in recent years, the Dutch posted 7th highest rate of mortality from cancer in the OECD. In this area, Ireland actually outperforms the Netherlands. Slower rates of improvement in cancer treatments in the Netherlands have been associated with more recent years, under the UHI cover, as opposed to earlier years, prior to the UHI coming into force.
As per access, based on 2013 OECD review of healthcare systems around the world, Dutch system delivers relatively mediocre performance when it comes to the patients perceptions of equitability of health outcomes based on individual income.
Quality of care is also a concern in the case of a UHI model. In 2010, Dutch Healthcare Performance Report found that absent price-differentiation under the UHI, hospitals tend to compete for patients on the basis of quantity, not quality of services provision. This reduces times spent on hospital beds, but increases re-admissions to hospitals. Cost containment measures are also often resulting in reduced compliance with treatment plans, which is increasing the risks for patients with chronic diseases and long-term conditions.
In the case of GPs access, flat fees, combined with cuts to capitation spending, UHI can result in shorter consultations and fewer conditions being addressed during each consultation.
The main advantage of the UHI system is that it separates provider of services, such as hospitals and medical practitioners, from payer for services, e.g. the state and insurance companies. In Irish context, this means drastically reducing HSE’s power in managing the health system. Thus, absent a deep, structural reform of the HSE, current insurance holders can simply expect to pay more for even lesser services of lower quality under the UHI.
All of this clearly suggests that latest plans propose a new form of misgovernment being introduced into the already misgoverned system of public health. A Biercean revolution in policy formation.
box-out:
IMF's latest Fiscal Monitor released this week makes for an uncomfortable reading for anyone concerned with public finances in Ireland. The Fund sets out an exercise of estimating the fiscal efforts needed to drive down Government debt across the advanced economies to their target levels by 2030. In the case of Ireland, this envisages a reduction in debt from 123.7 percent of GDP forecast for 2014 to a 2030 target of 64.8 percent. To achieve this, the IMF estimates that Ireland will need to deliver average annual surpluses net of interest costs on public debt of 6.3 percent of GDP over the next 17 years. This is slightly below Spain's, but well ahead of Portugal's and Italy's. Iceland, hit by a crisis as severe as ours, will require only 1.1 percent average surpluses to deliver on a debt reduction from 91.7 percent of GDP in 2014 to 43 percent of GDP in 2030. One of the drivers for this bleak outlook for Ireland is the Fund estimation that we will run second highest level of average fiscal deficits in 2014-2030 in the euro area. Another reason is that by IMF analysis, Irish economy has been a relative laggard in the group of crises-hit advanced economies. IMF reports a Cyclically Adjusted Primary Balance (CAPB) - a measure of public deficit stripping out the temporary effects of the recession on public finances and interest payments on Government debt. This year Ireland will reach a cyclically adjusted primary surplus for the first time since the onset of the crisis. Iceland has done the same two years ago, as did Greece. Portugal recorded its first CAPB surplus in 2013. Italy has posted surpluses in every year since 2006. Only Spain is expected to under perform Ireland on CAPB basis. For all the talk about tax cuts in 2015, it looks like the IMF might have some tough questions for the Government before the Budget Day.
