CAN WE DESIGN A MARKET FOR COMPETITIVE HEALTH INSURANCE?
Insurers are also purchasers of care and as such, they need to be able to set optimal contracts, and
negotiation on price and quality with the providers. Informed purchasers need to be able to monitor
the appropriateness of care, and its quality. This will also require understanding of incentives and the
behavioural response of providers. In response, health care providers must be prepared to compete.
Le Grand has argued that it is difficult for providers to change their behaviour in a context where
effective service provision depends on relationships of co-operation and trust (Le Grand 1999).
Finally, government in its regulatory role must determine the overall structure of the market place.
There are a myriad of details to be determined. Among the important are: preferred contractor
provider arrangements and vertical integration versus anti-competition regulations; the extent of
co-payments; the extent to which re-insurance or co-insurance arrangements are permissible; and
solvency of insurers, whether private insurers will be allowed to go bankrupt, and what happens to
their enrollees if they do. This is last is not a trivial issue, given recent reports of phoney insurers and
insurance bankruptcies in the US leaving millions of dollars of unpaid medical bills and hundreds of
thousands of people with no insurance (Kofman, Lucia et al. 2003). It would be useful if governments
knew something about how the ownership of insurance organisations will affect their behaviour,
particularly as under Scotton’s plan one level of government provides the risk adjusted capitation
while another supports the public budget holder - insurer of last resort. There would also, in an ideal
world, be some type of evaluation framework so that market performance can be monitored, in all of
the aspects already mentioned, plus the additional costs of administrative structures.
A well structured market for private health insurance, then, has to be able to deal with both
these design issues and to result in sufficient behaviour change so that consumers, insurers and
providers act as the design intends. The most crucial issues are: whether adequate risk adjustment
mechanisms exist; the extent to which funds pooling or budget holding will generate improved
care, and as a related issue, the size of the risk pool required; how consumers operate in the face of
choice of health care plans, and how these arrangements affect consumer satisfaction; and whether
Australian health insurers are likely to be able to engender competition among providers, which
requires both the appropriate behavioural response from providers, and a sufficient market size to
allow sufficient numbers of insurers and providers for competition.