Last week Roger Styles, CEO of a health insurers' lobby group (and recent Act Party research director), argued that the only way to maintain access to expensive health care procedures without rationing or requiring contributions beyond the resources of many was to increase the number of people with private health insurance, a move which would inevitably require "some element of compulsion" (NZ Herald 23 Feb).

This week elderly policy holders are complaining about the cost of their premiums (NZ Herald, 27/28 February).

The two stories are part of a single issue. One might have expected an erstwhile Act Party research adviser to favour a market solution, leaving people to choose to insure or not, but Mr Styles's industry faces the 'adverse selection problem', and that is what we are seeing this week.

The young and fit, who would pay their premiums and claim in low numbers, tend not to insure. As a result, the elderly and expensive are disproportionately represented among health insurance policy-holders. It's tough in the unregulated health insurance business; like being a car insurer who cannot bank the premiums of the careful drivers to pay for the yobbos. Without the profitable non-claimers, the industry has no option but to increase the premiums of those who tend to buy their product. Hence Mr Styles's un-Act like enthusiasm for compulsion.


We have seen all of this before. The adverse selection problem led to spiraling premiums and the near collapse of the industry in Australia in the 1990s.

Perhaps it will seem that this week's stories of excessive premiums add weight to Mr Styles's call for compulsory private insurance. Requiring the health equivalent of careful drivers to insure would allow health insurers to offset the cost of insuring riskier policy-holders.

But there are broader issues here. Increased access to private health care funded by insurance does not reduce the need to fund an extensive parallel public system or improve access to health care across the system. The real possibility that insurers and private health care providers won't be able to make ends meet means Governments can't let the public system wither as they hand responsibility to private industry. They have to be in a position to pick up the pieces when private providers decide that this or that area is no longer profitable.

And even in the good times Governments have to maintain capacity to provide basic care and unprofitable and emergency treatment private providers don't want to touch. Private providers do not offer expensive treatment such as transplant surgery, intensive care, specialist surgery, dialysis, radiotherapy, and the like.

Often, private patients transfer to public hospitals when their health deteriorates or the treatment they require becomes more complex. Nor do private systems tend to offer 24-hour emergency or trauma care.

Private providers organize staff and workloads on scheduled routine work that involves predictable demands from fairly healthy patients. Even given an increase in private insurance we will have to maintain a public system with capacity to deal with everyone who does not fall into the groups targeted by the private alternative.

Private providers do not simply take patients from the public system either. They also compete for health care resources (most obviously health care professionals) leaving the public system with fewer resources to meet obligations that it, unlike its private counterpart, cannot simply send away. As a result, private health systems that run alongside public systems normally increase rather than decrease waiting lists.

It is important to see that the problem faced by elderly policy holders is only part of a much wider challenge posed by parallel private and public health systems. We should bear in mind that allowing the private system to grow is unlikely to significantly reduce pressure on public providers, and that the health insurance industry is as likely to be part of the problem as it is to deliver equitable solutions.


* Tim Dare is an associate professor in the Philosophy Department of Auckland University.