Critical illnesses

In yesterday's contribution I introduced the first area for possible collaboration and partnership between the state and private insurance companies to use insurance as a risk transfer mec-hanism to alleviate the burden on the taxpayer of funding our healthcare system.

I highlighted the fact that most accidents, be they at work, on our roads or during our private activities are or should be covered by insurance and the state should have a right to be reimbursed for medical expenses incurred in treating the victim or victims.

The approach I suggested to tackle such a huge problem as that of funding of our healthcare system was to break down the problem into different compartments and apply different solutions to each compartment.

In today's contribution I would like to address the funding of treatment for patients who, unfortunately, suffer critical illnesses such as cancer and heart disease.

Most people who have private health insurance are aware that the policy is a 12-month contract and as such an insurer is not obliged to renew the policy and pay for medical expenses on a long-term basis and once the policy is expired the patient will probably not find cover for his disease.

The logical reason for this is that insurance is about uncertainty and once a disease such as cancer is contracted it is a certainty that medical expenses will be incurred by the insured and is not therefore the realm of short-term insurance.

In such a situation, even if the patient is covered by a health insurance policy and the state was relieved of the initial costs of treatment when the disease was discovered, once the policy lapses the state must provide the patient with 'free' care.

I use the word 'free' in the sense that it is free to the patient and not the state. Although I am not privy to financial statistics of the healthcare system, I can safely assume that the cost, to the state, of treating patients who suffer such illnesses must represent a large proportion of the allocated budget. Treatment of such diseases is expensive in nature as well as being long term.

While this risk is not covered by short-term insurance, it does however fall within the ambit of long-term or life assurance. Life insurers provide cover, normally as an option on their polices, for the payment of a pre-agreed lump sum to the assured upon diagnosis of a critical illness. Illnesses which are normally covered include heart attack, cancer, stroke, Alzheimer's disease, major organ transplant, kidney failure and similar life threatening diseases.

The concept, I am proposing, to assist the state to partly finance such treatment, is to introduce a system whereby each person will, from the age of 21, carry this form of insurance throughout his or her working life.

The state may require a minimum cover of say Lm5,000. Once the insured is diagnosed with a covered illness, the money would be made available to the state in some form of trust fund for treatment of his or her condition.

In the same manner as I proposed in my first article, the state can then 'bill' the treatment to the fund. If the fund is exhausted, the state will continue the treatment without charge. If the patient dies before the fund is exhausted, the state dissolves the fund and the balance is paid to his or her estate.

In this solution there is also the added benefit that the policies will provide life assurance cover in the eventual death of the patient and this will also alleviate the financial burden of such death on the patient's dependants and perhaps on our welfare system.

Naturally, this risk transfer mechanism is more complex than that for treatment following accidents and there are many issues that would need to be addressed. The first will probably be the cost to the insured for such cover.

At present, such cover is available in Malta and a 21-year-old would expect to pay between Lm40 to Lm50 per annum for a sum of Lm5,000. To address this, the state may provide partial tax credits against such premiums for lower income earners

A further difficulty would be that older persons and persons who are considered as 'high risk' will attract a higher premium. Some persons will be 'uninsurable' or their premium too high. To cover such cases, the system must be introduced gradually and persons falling within such categories should have their premium subsidised.

Clearly there will be uninsurable situations where the state would have to continue to finance such persons but it stands to make huge savings by transferring the risk of a vast majority of citizens potentially requiring treatment for critical illnesses.

Insurers cannot be asked to carry the burden of our healthcare system without due consideration but the insurance market can provide such a risk transfer mechanism professionally and fairly. Insurers will therefore benefit from the influx of new business and this will enable them to provide the required products at lower premia.

As in my previous contribution, I am only providing here a conceptual solution and it is simply part of a framework upon which the state and insurers can collaborate to build a comprehensive solution to the problem of funding our healthcare system.

Tomorrow: Part 3 - Curable illnesses