‘Managed competition’ health has undesirable side-effects
The system envisaged by Health Minister James Reilly will also mean dispensing with our tax-based system and bringing market forces to bear on how the service is funded and run.
Competition, often prescribed as an efficiency-enhancing tonic for ailing healthcare systems, will be a key factor. Independent hospital trusts will be competing with each other for business and the same will go for health insurers.
It all sounds a bit like The X Factor, with providers and purchasers of health services all trying to please the punter. But will it work, and will it mean more value for money? That is the matter up for discussion at a forum hosted by the Health Economics Group at University College Cork today.
The forum will likely have more questions than answers — but at least those attending will be asking them.
According to Dr Brian Turner of UCC’s Economics Department, while we need proper consideration of what kind of health service we want in Ireland, so far there has been precious little debate about it.
In any event, Dr Reilly does not seem to be listening to counter-arguments and is pressing on regardless with a service based on the reformed Dutch healthcare system. That means more revolution than evolution.
“Minister Reilly wants the new system up and running in six years, but it took the Dutch 25 years to bring theirs in and it is still a work in progress there,” says Dr Turner.
The Dutch spent those 25 years researching, evaluating, implementing and refining their chosen system, with more tweaking likely in the next decade and beyond.
Increased competition is one of the foundations of the Government’s health reform proposals. The plans envisage competition between providers to offer value to purchasers and competition between purchasers to offer value to consumers. That is the kind of dynamic that any retailer or commercial service provider will appreciate, but should providing healthcare be different?
Dr Turner thinks so. “Competition works well in other markets but it is not so straightforward in health.
“Differing levels of information between citizens, purchasers, and providers could potentially lead to market failures. That is why careful regulation of the market must be a prerequisite for competition to be of benefit to consumers.”
It hasn’t all been plain sailing in The Netherlands since the introduction there of managed competition. Reaction has been mixed, with consumers broadly happy with the health system but spending on health increasing sharply.
The Netherlands became the first nation to inaugurate a system of universal health insurance based on regulated competition in the private sector. Their programme, adopted in Jan 2006, draws extensively on a plan first proposed in 1978 by Alain Enthoven of Stanford Graduate School of Business, who coined the term “managed competition”.
Prof Enthoven’s vision was to reform the appalling health service in the US — a tall order, as many US presidents have discovered. In his book, Prof Enthoven describes managed competition as “a purchasing strategy to obtain maximum value for consumers and employers, using rules for competition derived from micro-economic principles”.
The new Dutch system adheres closely to Prof Enthoven’s original vision. Each citizen must buy individual health insurance from an insurance company and pays a flat rate premium to the insurer at a minimum of about €1,200 a year. Each citizen also pays an additional income-related tax contribution to subsidise the premiums for low-income groups so that everyone can afford health insurance. The system keeps risk and costs spread evenly amongst various insurance plans so that their premiums can stay competitive.
That’s the plan, but the reality may be somewhat different. The per capita cost of the Dutch system has risen by 46% since its introduction. Something similar happened in the US when Prof Enthoven put his system to the test on home ground and Stanford University introduced his model.
Under the system, Stanford pays the cost of the cheapest plan and employees are responsible for premium differences between this plan and more expensive ones. Stanford risk-adjusts the premiums based on age and gender. Each employee gets what he or she is willing to pay for and everyone has low-cost access to health insurance.
That sounds ideal. However, in the five years from 1999 to 2004, premiums rose sharply in line with the cost of medical care generally. While Prof Enthoven’s system did not outpace cost rises elsewhere, neither did it manage to contain them, which is what Dr Reilly hopes it will do here.
* The UCC forum will take place today from 2pm to 6pm in the university’s Western Gateway Building. For details, contact the Health Economics Group at heg@ucc.ie.
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