Doctors are prohibited from working in both the private and the public sec-tor in Belgium, Greece (except, until recently, university docsec-tors), Luxembourg and Sweden. Doctors work in both sectors in Austria, Denmark (to a limited degree), Finland, France, Germany, Ireland, the Netherlands , Portugal, Spain and the United Kingdom. Doctors in Italy must choose to be employed in one sector or the other, but public doctors may engage in a limited amount of pri-vate practice.
Discrepancies between the way in which doctors are paid by the statuto-ry health care systems and voluntastatuto-ry health insurers may create incentives for doctors to treat VHI patients differently from public patients. In Spain, for ex-ample, doctors have a clear incentive to pay more attention to VHI patients be-cause insurers pay them on a fee-for-service basis, while the state pays them a salary (Rodríguez, 2001). There is anecdotal evidence to suggest that doctors treat VHI patients more favourably in Austria, Finland, France, Spain and Por-tugal, spending more time with them and providing them with a larger amount of tests and examinations etc (Hofmarcher, 2001; Mikkola, 2001; Sandier, Ul-mann, 2001; Rodríguez, 2001; Oliveira, 2001), but there is no evidence to sug-gest that this happens in Denmark, Germany, Greece, Italy or Sweden.
Doctors in some member states may have incentives to treat VHI patients before public patients, so that VHI patients may have shorter waiting times than public patients. This is the case in Austria, Ireland, Italy, Portugal, Spain, Sweden and the United Kingdom (Hofmarcher, 2001; Murray, 2001a; Gian-noni-Mazzi, 2001; Oliveira, 2001; Rodríguez, 2001; Skoglund, 2001; Hockley, 2001).
The equity and efficiency implications of voluntary health insurers’ relation-ship with providers in different member states are issues that concern public policy rather than insurers themselves.
Section 2 The market for VHI in the European Union
2.4 Subscribers’ costs
2.4.1 The price of premiums
The price of premiums within a member state may vary according to the meth-od used to set premiums (that is, community, group or risk rating). Employees will generally have better access to lower premiums than self-employed people or people without employment (students, unemployed people, those in retire-ment), as they may benefit from group policies, which are usually group-rated and often offered at reduced prices. In the United Kingdom, for example, group VHI policies are not only much cheaper than individual policies, but their an-nual price increases have also been much smaller (Papworth, 2000). Group VHI policies in Ireland also benefit from discounts of up to 10%, the maximum al-lowable discount by law, and those with higher employment status are more likely to benefit from employer-paid group policies ( Vhi Healthcare, 2001c; De-partment of Health and Children, 2001b). The price of VHI premiums will also vary according to the variables used in risk rating, with generally higher pre-miums for older people, women, people with poorer health etc.
The level of variation among VHI policies in different member states makes it difficult to compare average premium prices across member states. Further-more, there is substantial variation in the price of VHI premiums within mem-ber states (for the reasons given above). However, there is evidence to suggest that the price of VHI premiums in many member states has not been stable. On the contrary, VHI subscribers in some member states have been subject to pre-mium increases above the rate of inflation in the health sector as a whole. Ta-ble 15 shows the real compound annual growth rate of VHI premiums during the 1990s in each member state for which we were able to obtain data, and compares this increase to the average annual growth rate of total expenditure on health care (TEH) deflated by the GDP deflator. The price of VHI premiums in these member states appears to have risen much faster than total health care expenditure. While the compound annual growth rate of VHI premiums ranged from 2.3% to 12%, the average annual growth rate of total expenditure on health care was between –1.1% and 2.7%.
Commercial voluntary health insurers in Italy argue that premiums rose above inflation due to increases in their administrative costs and rises in the fees paid to health care providers (Giannoni-Mazzi, 2001). The premiums of complementary and supplementary VHI in the Netherlands have also risen over the last few years; in 1999 they rose by 10% (Vektis, 2000).
The Portuguese consumer association DECO (Associação Portuguesa para a Defesa do Consumidor or DECO) notes that the costs of private health care and the price of VHI premiums in Portugal have risen well above the rate of infla-tion in the last five to seven years, making VHI seem unacceptably expensive to consumers (DECO, 2001). DECO argue that the only reason more VHI is
be-89
ing purchased in Portugal is because employers are increasingly purchasing it as a fringe benefit for their employees (DECO, 2001).
The proportion of spending on VHI in Spain increased from 23.7% of private expenditure in 1986 to 30% in 1995 (Lopez i Casasnovas, 1999). The number of insured people has increased relatively slowly in the last ten years; in 2000 VHI covered only 25% more people than in 1990 (Rodríguez, 2001). In contrast, VHI premiums have experienced a sharp rise, with the average premium per insured person increasing by 250% during the same period (Rodríguez, 2001). The sharp rise in the price of premiums has probably contributed to slow growth in the number of people subscribing to VHI in Spain.
VHI premiums have also risen sharply in Ireland in recent years. The cost of premiums increased by more than double the rate of inflation between 1993 and 1998 (Consumer Choice, 1998). Vhi Healthcare’s premiums have risen by 72% in total over the last ten years and by 15% in 2001 (Move To Ireland, 2001). According to Vhi Healthcare, its premium rises have been caused by the high cost of new treatments, the ageing of the population and the Irish govern-ment’s delay in activating the risk equalization scheme (RES) (see section 3.2.4) (Move To Ireland, 2001).15 The price of BUPA Ireland’s VHI premiums usually rise in line with those of Vhi Healthcare (Murray, 2001a).
Between 1991 and 1996, the real price of VHI premiums in the Unit-ed Kingdom rose at an average rate of nearly 5% per year (after inflation) Table 15. Annual increases in the average price of VHI premiums in select
member states, mid-late 1990s
Germany 7.6% (1994–1998) 2.7% (1994–1998)
Greece 6.8–10.4% (1997–2000) -1.1% (1997–1998)
Italy 6.5% (1994–1998) 1.6% (1994–1998)
Spain 10.5% (1993–1997) 2.3% (1993–1997)
United
Sources: Datamonitor, 2000a; OECD, 2001a; Hofmarcher, 2001; Economou, 2001.
* We have used the average annual growth rate of total expenditure on health care because the OECD database does not provide an index of health or consumer prices. ** We have de-flated annual total expenditure on health care (TEH) using the GDP deflator, as the health deflator was not available for these years; inflation in the health sector is likely to be high-er than inflation in GDP.
15 Because Vhi Healthcare has a larger proportion of older subscribers than BUPA Ireland, under the RES it would be compensated by BUPA Ireland.
Section 2 The market for VHI in the European Union
(Couchman, 1999), with the average annual premium per subscriber ris-ing from £323 (€513) in 1989 (or £373 (€592) for individual subscribers) to
£582 (€924) (£746 (€1 185) for individual subscribers) in 1998 (Laing, Buis-son, 2000). In 1988 the average individual premium was 15.5% higher than the average group premium, but by 1998 it was 28.2% more expensive (La-ing, Buisson, 2000). Not only are individual premiums much more expensive than group premiums, but their annual increases have also been higher, typ-ically more than 10% (Papworth, 2000). Because VHI premiums in the United Kingdom have risen by significantly more than inflation, the OFT’s 1998 re-port on VHI recommended that subscribers be given a comprehensive warn-ing about the likely increase in VHI premiums supported by reliable data on average increases over the last five years (OFT, 1998b). Although the rec-ommendation was initially deemed infeasible by the industry, it eventually agreed to include a warning of premium increases (Davey, 1999). However, by July 2000 insurers had failed to take any action with regard to providing consumers with statistics on their average premium increases in the previous five years (OFT, 2000b).
The data we have collected suggest that poor growth in the VHI market in some member states may be attributed to expensive premiums and annual premi-um increases above the rate of inflation. Where there has been market growth, it may be largely due to steep increases in the price of premiums and not as a result of greater take-up of VHI (see Table 15). A recent market research report predict-ed that any future growth forecast in some VHI markets was more likely to come through increases in price than increases in coverage (Datamonitor, 2000a).
2.4.2 Tax incentives
National tax laws can influence the behaviour of individuals and firms by pro-viding them with incentives or disincentives to purchase VHI. Tax incentives usu-ally operate in the form of tax relief, which allows individuals and firms to deduct all or some of the cost of VHI premiums from income tax (individuals) or corpo-rate tax (firms). Disincentives usually opecorpo-rate in the form of a tax on VHI premi-ums: either insurance premium tax to be paid by the firm selling insurance or a tax on benefits in kind to be paid by the individual receiving employer-paid VHI as a benefit in kind and/or the firm providing VHI as a benefit in kind.
The extent to which tax laws succeed in encouraging or discouraging the purchase of VHI appears to depend on whether they target firms or individuals (and which specific groups of individuals, such as employees or elderly people), and whether they are applied in conjunction with other incentives (or disincen-tives) that might enhance or diminish their effect.
Tax incentives are sometimes suggested as a means of encouraging more people to purchase VHI or rewarding those who have already purchased VHI.
It is argued that providing tax incentives for VHI is in the public interest
be-91 cause increasing the demand for VHI reduces the demand for statutory health services, thereby relieving upward pressure on public expenditure. This argu-ment is based on the assumptions that tax incentives are successful in encour-aging more people to purchase VHI (rather than simply rewarding existing VHI subscribers) and that increased take-up of VHI reduces the demand for statuto-ry health services. Tax incentives that aim to compensate individuals with VHI (either for the additional amount they spend on their own health care or for the reduced amount of statutory health care they consume) do not take into ac-count the fact that these individuals may be paying for better amenities, such as a single room in hospital, and may still be using statutory health services.
It is also possible to argue against tax incentives on other grounds (Davies ,1999):
• tax relief distorts price signals;
• tax relief is administratively complex and therefore generates additional transaction costs;
• tax relief is a type of government subsidy, and because VHI in the Euro-pean Union is largely purchased by people in higher income brackets (see section 1.3.2), tax relief for VHI acts as a government subsidy to wealthi-er people;
• tax relief can be regressive in terms of funding health care if it is applied at the marginal rate of tax, as the relief will then be greater for those who have a higher marginal tax rate; and
• it may create opportunities for tax avoidance or evasion.
Tax incentives (and disincentives) to purchase VHI do feature in the European Union (see Tables 16 and 17), although the last fifteen years have seen efforts to reduce or remove tax incentives in many member states. Currently, there are no tax incentives for individuals to purchase any type of VHI in Denmark, Finland, Spain or the United Kingdom, and there are no tax incentives for firms to pur-chase VHI on behalf of their employees in Finland, France, Germany, Greece, Italy, Luxembourg, the Netherlands , Sweden or the United Kingdom. Tax relief for individually purchased VHI policies in Germany, Italy, Luxembourg and the Netherlands does not operate as an incentive to purchase VHI because the relief applies jointly to different types of insurance and is limited by a ceiling.