Risk equalisation and voluntary health insurance markets: The case of Ireland

Switching insurer in the Irish voluntary health insurance market: determinants, incentives, and risk equalization

“…Furthermore, insurers with a low risk profile may be able to charge lower community-rated premiums than competitors with a higher risk profile and consequently exploit the higher price sensitivity of low risks to further attract favorable risks. In this context, commentators have previously suggested that newer insurers in the Irish market may have engaged in a 'price-shadowing' strategy, setting their price marginally below that of the incumbent, VHI, in order to attract a favorable risk profile [26,27,36].…”

“…Compounding this problem and as a result of legal challenges and controversy over risk equalization, the Irish PHI market evolved largely without the allocation of riskadjusted premium subsidies, making it difficult for the incumbent VHI to compete on price [26]. Strong market segmentation has arisen between the VHI and the newer entrants, undermining the principle of community rating [27]. In 2009, the first risk-adjusted subsidies were introduced, taking the form of age-related tax credits accruing to insurers.…”

Risk equalisation and voluntary health insurance markets: The case of Australia

“…about 7% of total health expenditures 4 [5]. Ireland is the only OECD country with similar figures: 52% of the population holds PHI, but payments by private health insurers represent only 10% of total health expenditures [6]. 5 In both countries, the main reasons people purchase PHI are to avoid tax penalties for higher-income earners who do not buy PHI, to benefit from greater choice of doctors in public hospitals than is available under the public scheme, to 'jump the queue' in the public sector, and to benefit from a perceived higher quality of accommodation and/or medical staff [2,6].…”

“…Ireland is the only OECD country with similar figures: 52% of the population holds PHI, but payments by private health insurers represent only 10% of total health expenditures [6]. 5 In both countries, the main reasons people purchase PHI are to avoid tax penalties for higher-income earners who do not buy PHI, to benefit from greater choice of doctors in public hospitals than is available under the public scheme, to 'jump the queue' in the public sector, and to benefit from a perceived higher quality of accommodation and/or medical staff [2,6]. Although Australia now has one of the highest rates of PHI coverage in the OECD [7,8], PHI coverage declined substantially between 1983 and 1996, following the introduction of Medicare and a subsequent adverse selection "death spiral" [9].…”

“…The result has been an increase in coverage to approximately 45% of the population at the time of writing. 6 Recently, it has also been shown that the decision to purchase health insurance in Australia is positively correlated with income and with age [11]. This has been interpreted as evidence of "favourable selection" in Australian PHI markets, but it has been engineered via a re-regulation of the market.…”