Lesson In Economics

Health insurance is costly, no matter what country you're in. And it's the old people on the enrollment lists that are driving up costs for us young and healthy types. For an insurance company, the fewer sick oldsters, the better, since the last thing that an insurance company wants to do is pay out on a claim.

Ireland's national health insurer, VHI, has run up against this very problem. They have far too many geriatrics and not enough youngsters paying in to the system. What to do? Why, they're the government. They can do what they like, make the rules suit them. Now, if they had consulted an economist or two...surely there's a few at UCD or Trinity that were available for a sit-down.

The only competition for health insurance coverage was BUPA Ireland, a company based in England. They were writing policies, but most of their clients were healthy and there was not too much income going out. And there was VHI, with more than its fair share of expensive clients getting sick and going to doctors and filing claims. To even things out, VHI declared that BUPA would have to pay them to compensate for the imbalance. It's not unlike extortion, but when you're the one writing the laws, well...you call it risk equalization.

And so BUPA Ireland gladly handed over their excess profits and the insurance industry lived happily ever after. Or so the directors of VHI expected. In reality, two weeks before Christmas, BUPA is pulling out of Ireland and three hundred people are about to get the sack. Merry Christmas from your friends at VHI.

Rather then become more competitive, VHI tried to legislate its way to profitability, but that's not how the real world of capitalism works. Now VHI has a monopoly on Irish health insurance, and it is expected that prices will rise. It has been suggested that VHI will be broken up into smaller companies, or the behemoth with three-quarters of the market might scare off potential competitors. Competition is what's needed to drive down prices, but a company has to be efficient to reduce costs to get prices down. And no for-profit corporation is going to work hard to make money, just to hand it over to its competitor who's too bloated and inefficient to get up off the couch and make an effort.

What are the chances of VHI, a state-owned company, becoming more efficient? About the same as anyone figuring out that a risk equalization scheme doesn't work in a free-market economy.