137 acknowledge, however, that this potential has rarely been borne out in

prac-tice.

From the commercial insurers’ perspective, the provision of cross-border care may not be problematic because they will provide additional cover as long as people are willing to pay for it. However, anecdotal evidence suggests that individuals insured with some commercial insurers will have to cancel their ex-isting contract (in the home member state) and take out a new contract (in the host member state) provided by the same insurer. The new contract may not take into account their previous history of coverage, even though it is with the same insurer.

Even if insurers are prepared to extend coverage to another member state, the extension of coverage is likely to come at an additional cost, and some sub-scribers may find themselves being charged higher premiums for the same lev-el of coverage. As commercial VHI premiums are generally calculated on an actuarial basis, subscribers seeking cover abroad could be required to pay extra charges if the costs of health care in the member state of treatment substantial-ly exceed calculated costs ( PKV, 2001).

There is evidence to suggest that some voluntary health insurers do seek to provide cover for subscribers who regularly travel across national borders (Lu-ginsland, 2001), but this evidence is limited, and as CEA pointed out, the role of VHI in providing coverage for health care provided beyond national bound-aries is, at present, extremely small.

The second question, concerning the extent to which individuals are disad-vantaged when they purchase VHI in another member state (relative to those already covered by VHI there), may be of more concern. As we noted above, empirical observations with respect to this issue are lacking. Nevertheless, as the European Commission notes, VHI benefits are rarely portable without some disadvantage to the subscriber, and it is possible to highlight areas of potential difficulty.

A key issue concerns the non-legal barriers we have already mentioned, such as language, information and familiarity barriers. Although these barri-ers are not specific to VHI, they may be a cause for concern when the inher-ent problems of information in VHI markets are taken into account (see sec-tion 3.2.6), particularly if VHI contracts are written in a language the subscrib-er does not undsubscrib-erstand. This problem may be mitigated to some extent by the use of agents and brokers.

Other areas of potential difficulty revolve around the status of those apply-ing for VHI coverage in host member states. If applicants are treated as new en-trants to the market, without consideration of their previous history of VHI cov-erage, they may be subject to higher premiums, the exclusion of pre- existing conditions and waiting periods. This may disadvantage people of all ages, but it is most likely to be a significant barrier for older people. According to the

Eu-Section 4 Implications for the free movement of people and services

ropean Commission, people moving to another member state up on retirement often find that they are regarded by voluntary health insurers as new and high-risk subscribers due to their age; consequently, they may be required to pay ex-tremely expensive premiums.

The Society of Actuaries in Ireland raised the issue of premium loading as a penalty for late entry in its submission to this study. In 2001 the Irish Health In-surance (Amendment) Act came into force. This Act introduces the concept of lifetime community rating, which allows voluntary health insurers to impose a premium loading on any individual who purchases VHI after the age of 35 (So-ciety of Actuaries in Ireland, 2001 ). The So(So-ciety questions whether such penal-ties should be applied to individuals who have been living in another member state. It is their view that:

if a person can provide evidence of time spent abroad, consideration should be given to requiring this period to be taken into account in calculating the maximum late entry penalty. Depending on the country the person lived in, health insurance may not have been required, affordable, available or nor-mal practice. In this circumstance it would seem unfair to apply a penal-ty to the person for not having had health insurance while abroad. Howev-er, it could also be regarded as unfair that a person who has lived abroad is treated more favourably than a person who has always lived in Ireland, when neither person has had health insurance before (Society of Actuar-ies in Ireland, 2001 ).

The same issue applies to risk-rated premiums. As we showed in Table 11 (see Section 2.3.1), age is used as a variable to rate premiums by many voluntary health insurers in most member states, so where individuals are treated as new risks, they will generally have to pay higher premiums than those of the same age who have been insured for longer.

Treating applicants as new risks will also put them at a disadvantage if existing conditions are excluded. This is likely to be particularly burdensome for older people, who are more likely to have developed conditions over time that their home member state policy would have covered. Mandatory waiting peri-ods may pose a similar disadvantage. For example, voluntary health insurers in Ireland are allowed to impose waiting periods on new subscribers (currently 12 months for any treatment and up to 10 years for pre- existing conditions). The Society of Actuaries in Ireland note that “it is not currently a requirement that time spent living in another EU country is recognised for the purpose of deter-mining whether a person is new to health insurance and therefore whether a waiting period can be applied to them” (Society of Actuaries in Ireland, 2001 ).

Finally, older people can be even further disadvantaged if they are unable to obtain any VHI coverage at all because they have passed the age limit for

cov-139 erage. Table 12 (in section 2.3.1) shows that the majority of insurers in most

member states restrict the purchase of VHI to those younger than 60, 65 or 70.

Some of these problems could be avoided if voluntary health insurers of-fered open enrolment and lifetime cover, or at least made reciprocal arrange-ments for migrant workers and people retiring abroad. However, some insurers might argue that this would undermine actuarial fairness, and within the cur-rent EU framework for the regulation of VHI markets, insurers may not have much incentive to facilitate the free movement of people in this way.

Once complaints made to the European Commission have been made public, these issues may be studied further. Although they are unlikely to present major barriers to the free movement of people, they should be subject to greater scruti-ny. In its 2000 resolution on supplementary health insurance, the European Par-liament justifies Community action in the area of health insurance on the grounds that the differences between health insurance systems (both statutory and volun-tary) may create serious obstacles to the free movement of people ( European Par-liament, 2001). The European Parliament therefore emphasizes the need to ensure that individuals can retain their VHI benefits when staying or living in another member state. It also urges voluntary health insurers to be more flexible in their approach to reimbursing health care provided in other member states.

4.3 VHI and potential barriers to the free movement of services

Since the third non-life insurance directive put in place the framework for a sin-gle market for VHI, there are no significant barriers (in theory) to the free move-ment of voluntary health insurers within the European Union. The principle of home-country control specifically aims to prevent national regulators from erecting barriers to the entry of insurers from other member states (Rees, Gra-velle, Wambach, 1999), but in practice, a number of difficulties remain. Com-monly cited problems relating to the proper functioning of a single market for VHI include:

• differences in the design and availability of VHI caused by differences in statutory entitlements to health care;

• the high cost of technical investments;

• lack of harmonization in certain areas (particularly differential tax treat-ment); and

• bureaucratic procedures.

In their submissions to this study, several insurers and insurers’ associations considered that the most significant barrier to the free movement of services in the European Union is the differences among statutory health care systems, rather than anything specific to the market for VHI. For example, a VHI prod-uct marketed in one member state will typically be designed to complement its

Section 4 Implications for the free movement of people and services

existing gaps in statutory coverage, whether those gaps involve co-payments, long waiting times for treatment or the exclusion of certain groups from statu-tory coverage. It will also be designed to fit in with national structures of health care provision. What this means in practice is that a VHI product marketed in one member state may be unsuitable for sale in another member state. This is clearly the case where substitutive VHI is concerned, but it also applies to com-plementary VHI and, to a lesser extent, supcom-plementary VHI.

At the same time, some insurers have claimed that VHI is “well placed to guar-antee [the] freedoms” set out in the EC Treaty ( PKV, 2001), and their propensity to develop new products for the home market suggests that they would not find it impossible to develop products for other markets. However, the cost of these de-velopments and the technical investments required may be a significant barrier to entering new markets, as the European Commission has noted ( European Com-mission, 1997). In order to rate premiums according to individual risk, voluntary health insurers planning to undertake business in member states other than their own need to invest in technical, commercial and actuarial studies; this invest-ment may prove too expensive for an insurer to justify selling insurance policies outside its home market.

To date, cross-border VHI has been limited, as the Groupe Consultatif Actu-ariel Européen noted in its submission to this study. The few insurers that do sell VHI in several member states do so from distinct host member state op-erations and very rarely on a home member state freedom-to-provide-servic-es basis (Groupe Consultatif Actuariel Européen, 2001). Most market expansion across borders has therefore occurred through cross-border mergers and ac-quisitions rather than through increases in cross-border sales or the establish-ment of branches in other countries. Although there have been some notable cross-border mergers and acquisitions in the market for VHI, it seems that in-surers have been reluctant to sell VHI products across national borders without a branch presence in another member state, and individuals have been reluc-tant to purchase VHI products in countries other than their own.

While the growth of Internet-based insurance may promote cross-border sales in future, the lack of harmonization in certain areas could pose prob-lems for market expansion across borders. The Group Consultatif Actuariel Eu-ropéen commented that both inbound and outbound cross-border trading is difficult in member states whose VHI markets do not harmonize with all as-pects of the third non-life insurance directive (Groupe Consultatif Actuariel Eu-ropéen, 2001). According to insurers’ submissions to this study, difficulties are most likely to arise in two areas: risk equalization and the differential tax treat-ment of non-profit and for-profit insurers.

The issue of risk equalization specifically relates to the situation in Ireland, where the government has put in place a risk equalization scheme (RES) to sup-port community rating in its market for VHI (see section 3.2.4 for details).

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