As in other countries, the current role of private health insurance in Ireland can only be understood in terms of its historical evolution.Footnote 2 (Key events in the evolution of the 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.Footnote 3 In the late 1950s, a monopoly state-backed not-for-profit health insurer – the Voluntary Health 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 community rating, 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 cost of in-patient care for the rest of the population – provided in public hospitals – was fully covered by the state.
To complicate the picture – and it is a crucial difference between Ireland and many other countries – not only was “private” insurance provided for many years by what 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 many years 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 fee-for-service basis. So the public and private systems in Ireland, rather than being distinct, have what has accurately been described as a symbiotic relationship.Footnote 4
From the 1950s to the late 1970s or early 1980s, this public–private mix supported by “private” health insurance functioned in roughly the way it was initially designed to do, with a monopoly insurer 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 steadily through the 1990s and by now 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 early 1990s.
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 way the market operates is tightly regulated: Ireland obtained approval from the EU to continue to require all insurers to apply open enrollment, community rating and lifetime cover, as enshrined in the 1994 Health Insurance Act and the 1996 Health Insurance Regulations. In 2001 a Health Insurance Authority was set up to oversee and regulate the market. Among its responsibilities is implementation of a risk equalization scheme in order to support community rating. This has proved particularly controversial 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 body whose board is appointed by the Minister for Health, requiring official approval for changes in premium levels. Nonetheless, the entry of BUPA and Vivas, and the potential entry of further insurers, is a fundamental change in the Irish health insurance market and has clearly already affected behaviour, most obviously in 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 substantially above the general level of consumer price inflation.
The highly regulated nature of the private health insurance market in Ireland remains distinctive. Open enrollment, community rating and lifetime cover are enshrined as core principles, reflecting the role which public policy has traditionally assigned to insurance in the health care system.Footnote 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 clearly undermines insurers with an older and more risky membership profile – in the Irish case, the former monopoly VHI – and ultimately makes community rating unsustainable. Risk Equalization Regulations were introduced in 1996, and subsequently analysed by an Advisory Group which recommended that a Health Insurance Authority be established. This was accepted in the 1999 White Paper on Health Insurance, and the Health Insurance Authority was established in 2001, with a key function being to advise the Minister for Health and Children in relation to risk equalization. The Risk Equalization Scheme came into legal effect from July 2003, 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 Authority has carried out several analyses and commissioned research such as the survey of consumer behaviour and attitudes towards health insurance mentioned above.Footnote 6 The Authority recommended in 2005 that risk equalization payments commence – which in practical terms would mean substantial transfers (of perhaps €30 million per year) from BUPA to the VHI. The Minister did not initially accept 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 by BUPA 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 statutory body. There has been a lengthy debate about options for the VHI's corporate status, options including privatization or conversion into a mutual society owned 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 way health 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 unhappy about the extent of “balance billing” – where some specialists charged amounts in excess of what was covered by insurance. The Authority's aim is to promote competition among providers, but this assumes a potential for meaningful price competition that may not 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 many years, now covers half the population. Why has 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 clearly made 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 remarkably resilient 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 quantify the impact of trends in income and the price of insurance, going back to the late 1950s.Footnote 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 by the 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 buy health insurance to be a major influence on demand for that insurance. Evidence presented in Besley et al.Footnote 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.Footnote 9 Data on waiting lists for hospital treatment exist only for very recent 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 hospitalsFootnote 10 were tested in the models estimated in Harmon et al.Footnote 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 NolanFootnote 12 present the results of a probit model estimated with 1994 household survey data, showing that income, education, age, gender, marital status and family composition all influence the probability of choosing private insurance. Higher levels of income and of educational attainment increased the probability of being insured, women and married people were more likely to be insured, and older persons had a lower probability. Self-reported health status variables were also highly significant, with poor health lowering the probability of choosing private insurance.
While this type of analysis helps to show what type of people buy health insurance, it does not tell us why they do so; it is also important to explore what people think they are buying when they buy insurance, and the alternative they face or believe they face without it. Attitudinal surveysFootnote 13 suggest that concern about waiting times for public hospital care is uppermost in people's minds, that quality of 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 widely perceived 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 quickly when 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 by most of the insured. These results suggest that while access to hospital has remained a key reason for having health insurance, issues relating to quality of 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 quality of public versus private care are key drivers underpinning demand for health insurance in Ireland. The role of media coverage in influencing such perceptions merits examination, but there certainly have 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 recently had a lengthy wait for public hospital treatment – so it appears they were not simply influenced by media reports.
Equity in access and utilization
The fact that Irish acute hospital care is an increasingly “two-tier” system is widely regarded as problematic from an equity perspective. Indeed, the issue of equity of access to hospital care for public versus private patients has become a very high-profile one politically, and equity as a goal has been highlighted in the official health strategy produced after lengthy consultation in 2001. A number of different layers to the argument may be usefully distinguished in assessing the fairness of the current system. Where separate and distinct public and private health care systems operate side-by-side and private health insurance provides cover for the latter, then a likely outcome 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, directly or indirectly, adds a further dimension: some who see differential access as fair if the full cost is being paid by those “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 actually being delivered in public hospitals. In that situation, the two-tier nature of access by those with versus without insurance is more obvious and in all likelihood more likely to be seen as objectionable.
So what is most striking about the Irish case is that the public hospital system has come to be seen very widely as a two-tier one, offering the better-off more rapid access. The fact that they are in effect subsidized by the 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 rapidly do those with insurance obtain hospital care? And how much more rapidly do they obtain 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 usefully look at what is known about waiting times and about actual use of services.
Waiting lists and waiting times
Having patients waiting lengthy periods 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 early 1990s, 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 quarterly statistical returns from hospitals, and related to the number of patients who had already been seen by a consultant and were listed for treatment (on an overnight or day case basis) as a public patient in a public hospital. Only those 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 every quarter. The published figures showed a rapid drop shortly after the series was started in 1993, due to improved validation, and subsequently generally 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 registered some success in reducing long waits, with the percentage of patients shown as waiting over 12 months down to 20 per cent by end-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 day case 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 lengthy waits 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 way the 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 actually waiting 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 quantify differential access precisely over time, but it was generally understood that waiting times were short for much of the period. Research by the VHI quoted in NESFFootnote 14 showed that nearly 80 per cent of its members were hospitalized within 5 weeks of seeking an admission. Responses to the attitudinal survey carried out by the ESRI in 1999 showed that those without insurance were much more likely to report that they were waiting for in-patient treatment, and to be on the waiting list for a lengthy period, than those with insurance.Footnote 15 Similarly, in the special module on health included with the Quarterly National Household Survey carried out by the CSO in 2001, long waits were much less common for those with insurance for out-patient care, in-patient treatment and day case procedures.Footnote 16 So the evidence suggests that although those with insurance may not now always be able to access hospital care as quickly as in the past, those without insurance wait substantially longer. In terms of access, this is compounded by differences 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 obviously relevant to compare actual levels of health service utilization by those with and without private health insurance – although teasing out the implications of the results is not straightforward. Information on utilization has been obtained in some household surveys, which also allow respondents to be distinguished by health insurance status and other relevant characteristics (such as age, gender and income), notably in the Living in Ireland Surveys carried out by the ESRI from 1994 to 2001. Harmon and NolanFootnote 17 used data from the 1994 survey to study factors influencing the probability of having had a hospital in-patient stay in the past year. The econometric approach adopted involved estimating jointly a simultaneous linear probability model where the first-stage models the demand for insurance and allows for correction for endogeneity in the second stage equation modelling utilization. The results suggested that those with insurance had a higher probability of an in-patient stay than those without, controlling for available measures of “need”, including age, gender, income and self-reported health status – the estimated probability of 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 adequately controlled for by the 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 essentially the same data, one can also measure equity in the overall pattern of utilization across the income distribution in Ireland using the methods developed in the cross-country collaborative ECuity research programme.Footnote 18 This takes as point of departure the notion that horizontal equity in 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 by income 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 inequity found is summarized by the concentration index of needs-standardized use: when this is positive it indicates pro-rich inequity and when it is negative it indicates pro-poor inequity.
Results from a study for the OECD applying this method to 21 countries with data from the European Community Household Panel Survey (ECHP) and national surveys for around 2000 are presented in Van Doorslaer, Masseria et al.Footnote 19 The results for Ireland show no significant inequity in the use of hospital in-patient care, and this was also the case for a majority of the countries covered. The authors speculate that this may be due at least in part to the fact that only about 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 inequity in most countries, and Ireland was among those with the most pronounced inequity in that regard. This is particularly important given the role which private insurance plays in covering (most of) the cost of such visits in Ireland, and difficulties those without insurance may often face in terms of lengthy waits to see a specialist.
Layte and NolanFootnote 20 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 inequity in 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 statistically different 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 country studies where more health status information was available suggest that any bias is likely to be in the direction of under-stating the needs of those on lower incomes and thus under-stating any inequality. LayteFootnote 21 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 noteworthy that while pro-rich inequity in in-patient care was found in only a few countries in the OECD study, those where it was seen to actually be pro-poor 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, namely number 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 (HIPE), whereby hospitals report on their activity levels, were employed by Nolan and WileyFootnote 22 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 day in hospital was higher for those without medical cards due to differences in the case-mix involved, even if one assumes that within each specialty the 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 explicitly designated 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 day beds are public and one-third private. Nolan and WileyFootnote 23 used administrative data to examine the extent to which private patients were in fact treated in public beds and vice versa. They found 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 by them to result primarily from admission through accident and emergency of patients who opted for private status but for whom no private bed was available.