Funding of health system and insurance - III

Acute or short-term curable illnessesIn the first two articles of this series, I have proposed different forms of risk transfer mechanisms to cover medical costs following accidents and those arising from critical illness. In my third and final piece, I will propose a further conceptual solution to cover medical costs involved in the treatment of acute or short-term curable illnesses which are probably the more common occurrences creating a demand on our healthcare system.

From an insurance perspective, there is no doubt that the form of policy to cover such expenses is the health insurance policy as it is commonly known. Therefore, in order to further reduce the burden of funding the state healthcare system, the government must find a way to shift part of this burden onto health insurance policies, against the payment of a premium, to cover short-term illnesses capable of being insured.

The problem here lies in the simple fact that health insurance is relatively expensive and a large proportion of our population cannot afford it. Therefore, this strategy can only be on an 'incentive' basis such as tax relief on the premium unless a completely different approach is devised to the way in which our healthcare system is funded.

In my first contribution I referred briefly to the issuance of a plastic debit card by the social security department which would be presented by a user of our medical services to 'settle' the bill issued by public hospitals and health centres. This would necessitate that the healthcare system is changed from the current method of funding by providing funds to pay directly for the running costs of medical facilities, to one where medical facilities are run on a 'billing' system where they actually bill the users for their service in the same way as any other service provider.

The state would then provide a direct subsidy to the users through the use of plastic swipe cards, or even smart cards, which can only be used to pay for such services.

This subsidy would be income based and would start from 100 per cent to all whose income level falls below a certain threshold, pensioners, unemployed persons and welfare cases. The discount, or subsidy, would then be gradually decreased on a scale from 100 per cent to say 50 per cent as income of the user grows. This subsidy would be reviewed annually, based on the income tax return submitted by the user.

Once the state has introduced the obligation on a user to pay part of the bill for the service depending on his income, health insurance would then become a necessity for those users who are exposed to this risk.

Insurers must, however, respond by providing different levels of premium depending on the exposure of the insured. Policies could be specifically tailored around the system to ensure that policyholders, who, for example, are exposed to paying 10 per cent of medical costs, pay a far cheaper premium than policy holders who are exposed to paying for 50 per cent of such costs. In this way the cost of insurance is also, indirectly, based on the income of the insured.

As with the solutions proposed in my previous two articles, there will be those persons who are in high risk groups and others who are uninsurable risks and in such cases the state must provide a remedy itself. This could take various forms such as returning such cases to 100 per cent subsidy, or providing a subsidy on the premium directly or, by allowing tax relief on the premium incurred.

Furthermore, insurance policies will carry a monetary limit on cover, and once such limits are exhausted the state must return the policyholder on a full subsidy to avoid hardship and ensure equity.

The conceptual solution I am proposing here is perhaps the most radical to implement and could also be a political hot potato for the government changing the current 'free for all' service to one based on the user's income. However, if thought out properly and financials are correctly projected, insurance premiums on such policies should decrease sharply and become more affordable and many new policyholders would be introduced into the health insurance market without undue hardship.

In concluding my series of articles, I would like to reiterate the objectives of the framework solutions I have proposed.

In the first place, while seeking to reduce the burden of funding the healthcare system, the state must ensure that it continues to be accessible to every citizen. Second, a state healthcare system can never be fully funded from sources outside the tax base, but the state can reduce a large proportion of the burden through the best known and established risk transfer mechanism - insurance.

Thirdly, our insurance market, which is sufficiently professional and proactive to meet market demands, must collaborate with the state to provide the necessary risk transfer mechanisms in the form of tailored policies, but the burden cannot be shifted onto insurers without due consideration for the risks involved because they are not there to provide a social service.

Fourthly, reality dictates that each citizen, depending on his lifestyle, income and role in our society, must pay a small premium in one form or another to transfer part of the risk of incurring medical expenses from the state onto private insurers.

Fifth, our hospitals and health centres must be run on normal accounting practices of income and expenses, thus ensuring stricter accountability in their management.

Finally, the state should directly subsidise the user of the service depending on his or her means and in the process obtaining better information on who is using the service, how it is being used and to guard against abuse and waste.

Private medical service providers also have a role to play in this framework solution. With part of the funding transferred to insurance mechanisms and the state providing a subsidy directly to the citizen, they should be able to pitch their prices and service with those of the state and actually compete for business in certain areas, thus relieving the state of the burgeoning demand for its services.

The conceptual proposals which I have expounded could form a framework to achieve these objectives. They are neither complete nor perfect, and indeed, some may be unworkable. However, old and complex problems must be addressed not by traditional methods but by innovation and collaboration and I hope that I have instigated some ideas towards this end.