Medical Schemes and Competition D Pearmain BHF June 2007

Questionnaire 6 responses 2 No 4 Yes

Kinds of Competition? Competition for members? Competition for good prices on health care? Competition for cost saving services? Competition for efficient administration?

Is Competition Beneficial? Churn – stagnant risk pool No real advantage for the majority of schemes in bargaining with supply side due to: - CONSOLIDATION OF PRIVATE HOSPITALS - UNDERSUPPLY OF MEDICAL SPECIALISTS - MEDICINES PRICING REGULATIONS - PRESCRIBED MINIMUM BENEFITS

Is Competition Beneficial? Managed care organisations not comparatively evaluated? Administrators not comparatively evaluated by schemes? Information asymmetry: Board of Trustees v expert consultants

Competition vs. regulation of sickness funds Sickness funds risk structure compensation schemes have been developed, step by step, to ensure fair competition. BUT, difficult to assess the effect of competition Sickness funds have not been capable of influencing the decisive parameters for competition such as contribution rates, the services provided and the quality of those services. It is yet to be proven that competition among sickness funds is a successful route to take. (France, Germany, Japan & Netherlands) http://www.issa.int/pdf/initiative/2flash6.pdf

Effects of Competition Sudden influx of new members Effect on scheme reserves Effect on administration capacity Broker fees Effect on benefit management capacity Death spiral?

Competition in Germany     In Germany, under the Gesundheitsstrukturgesetz (Health Structure Law) of 1993, the basic concept of "competition within solidarity" was first introduced into the world of statutory health insurance, and a system of open enrolment and risk structure equalization among sickness funds was introduced. This arrangement functioned well at first, and achieved major successes such as a reduction in the marked disparity in contribution rates between sickness funds, dramatic integration and reorganization of sickness funds, and so on.

Competition In Germany Subsequently, however, the problem of risk selection, seen as the Achilles heel of competition within solidarity, became manifest. Risk selection for healthy, low-risk customers proliferated, as did selective mobility of insured persons. As a result, the federal government amended the Law in 2001, introducing a health-based risk index from the beginning of 2007, together with risk pools and disease management programs.

Competition in Germany Thereafter, the appraised opinion of an expert group on a new risk index model was submitted in 2004. In the last 2-3 years, meanwhile, new small-scale corporate sickness funds, which have acquired insured persons and enjoyed rapid growth thanks to risk selection until now, have suddenly faced worsening financial situations and taken on debts. This has led many of them to raise their contribution rates, and the enthusiasm shown towards risk index reforms a few years ago has cooled.

Competition in Germany The promotion of 'competition within solidarity' in recent years has not merely caused ground upheavals among sickness funds, but has also re-opened the problem of unfairness in competition from substitutional private health insurance. Since employees' substitute funds are now forced to shoulder huge contributions due to risk structure adjustment, they also have no choice but to raise their contribution rates.

Competition in Germany This has made them less competitive than private health insurance, and there is now an ongoing exodus of insured persons from statutory health insurance to private health insurance. Therefore, as well as strictly limiting adverse selection of transferring back from private health insurance to statutory health insurance in old age, regulations have been reinforced (for example, private health insurers are now obliged to provide a standard tariff for guarantees to policyholders in old age), and a phenomenon of convergence between statutory and private insurance has started to occur.

Competition in Germany  Thus, the policy of competition within solidarity has caused doubts over the appropriateness and sustainability of the basic framework of health insurance systems in Germany, both statutory and private, which have maintained a delicate balance for a long time. This upheaval even extends to policies on internal and mutual competition. Consequently, the Social Democrats and the Greens have proposed a system of "national insurance", to which all citizens would be obliged to subscribe.

The Netherlands The latest evaluation of health insurance has led to the conclusion that the tools for competition need to be strengthened in order to get more cost-containment. It has been proposed to eliminate the distinction between private insurers and sickness funds and to create one mandatory insurance, covering the whole population against the risks of acute care.

The Netherlands Discussion is going on about the contribution, laying emphasis on flat rate contributions for the whole population, much higher than the current ones in the sickness fund system, thus enhancing competition based on differences in contribution rate between the insurers. In order to mitigate the income consequences for the lower income groups, a system of compensation is discussed which can be run by the tax offices or by a social insurance agency. (Worldbank 2003) http://www-wds.worldbank.org/servlet/WDSContentServer/IW3P/IB/2004/09/15/000160016_20040915174041/Rendered/INDEX/290080Netherlands0health1insurance1eng.txt

Competition Act An agreement between, or concerted practice by, firms, or a decision by an association of firms, is prohibited if it is between parties in a horizontal relationship and if- (a) it has the effect of substantially preventing, or lessening, competition in a market, unless a party to the agreement, concerted practice, or decision can prove that any technological, efficiency or other pro-competitive gain resulting from it outweighs that effect; or

Competition Act (b) it involves any of the following restrictive horizontal practices: (i) directly or indirectly fixing a purchase or selling price or any other trading condition; (ii) dividing markets by allocating customers, suppliers, territories, or specific types of goods or services; or (iii) collusive tendering.

Competition Act (1) A firm may apply to the Competition Commission to exempt from the application of this Chapter- (a) an agreement or practice, if that agreement or practice meets the requirements of subsection (3); or (b) a category of agreements or practices, if that category of agreements or practices meets the requirements of subsection (3).

Competition Act (3) The Competition Commission may grant an exemption in terms of subsection (2) (a) only if- (a) any restriction imposed on the firms concerned by the agreement or practice concerned, or category of agreements or practices concerned, is required to attain an objective mentioned in paragraph (b); and

Competition Act (b) the agreement or practice concerned, or category of agreements or practices concerned, contributes to any of the following objectives: (i) maintenance or promotion of exports; (ii) promotion of the ability of small businesses, or firms controlled or owned by historically disadvantaged persons, to become competitive; (iii) change in productive capacity necessary to stop decline in an industry; or (iv) the economic stability of any industry designated by the Minister, after consulting the Minister responsible for that industry.

Competition Act (4) A firm may apply to the Competition Commission to exempt from the application of this Chapter an agreement or practice, or category of agreements or practices, that relates to the exercise of intellectual property rights, including a right acquired or protected in terms of the Performers' Protection Act, 1967 (Act 11 of 1967), the Plant Breeders' Rights Act, 1976 (Act 15 of 1976), the Patents Act, 1978 (Act 57 of 1978), the Copyright Act, 1978 (Act 98 of 1978), the Trade Marks Act, 1993 (Act 194 of 1993), and the Designs Act, 1993 (Act 195 of 1993).

Competition Act The Competition Act does not apply to - concerted conduct designed to achieve a non-commercial socio-economic objective or similar purpose.