A European perspective on the internationalization of private health insurance

1. A European perspective on the internationalization of private health insurance Francesco Paolucci Research Fellow (ACERH, ANU) Friday, February 22, 2008 ACERH Policy Forum Brisbane, Queensland

2. Agenda Towards the internationalization of private health insurance (PHI) in the European Union (EU); Analyzing the relevant EU legal framework for health insurance; Policy implications for EU-countries.

3. Part 1. Towards the internationalization of PHI in EU

4. Common goals Over the past decades, the main health policy goals for most EU (and also OECD) countries have been: Achieving universal access to health care services (i.e. affordability); Improving the efficiency in the organization and delivery of health care. Cost containment.

5. Trends Since 1960 the medical care expenditures have more than doubled worldwide as a share of GDP; Governments’ budget deficits have been growing due to increasing expenditures for public goods such as environment, defence and security etc. Led to increasing pressures on the sustainability of publicly financed health care schemes

6. Developments in the last 20 years Several countries have made health insurance markets more competitive, by: Enlarging the consumer choice of insurers; De-mutualizing and increasing the financial responsibility of insurers. The rationale is to stimulate insurers to improve efficiency in health care production and to respond to consumers’ preferences.

7. Regulated competition Most EU-countries’ competitive health insurance markets are regulated: Universal mandatory coverage; Mandatory subsidies: Premium rate restrictions e.g. community rating with open enrollment; Premium-compensation schemes; Excess-loss compensation schemes; Risk-compensation (i.e. risk-equalization) schemes.

8. Competitive health insurance market Australia, Belgium, Chile, Colombia, Czech Republic, Germany, Ireland, Israel, Latvia,Netherlands, Russia, Slovakia, Slovenia, South Africa, Switzerland, United States of America,…

9. Competitive health insurance market From the mid-1990s citizens in Belgium, Czech-Republic, Germany, Ireland, Latvia, the Netherlands, Slovakia and Slovenia have a guaranteed periodic choice among (risk-bearing) health insurers, who are responsible for purchasing their care or providing them with medical care.

10. Common European Market Opening sectors (including social security) to competition may imply that EU-law is applicable. Member States (regulations) have to comply with the fundamental principles of the EU-Treaties and secondary regulations (per sector), whose main objective is the creation of a single & common European market.  What are the consequences of internationalization of health insurance for EU-countries’ national regulations?

11. Part 2. Analyzing the relevant European legal framework for health insurance

12. The relevant EU legal framework Competition law: Articles 81, 86; State Aid Articles 82(2), 87(1), 88(2-3). Freedom of movement of goods and of establishment to provide services: Articles 43, 49; Non-life Insurance Directives (ID).

13. 1. Competition law If applicable they may forbidnational measures and/or agreements between undertakings: ‘which may affect tradebetween Member States (MS) and which have as their object or effect the prevention, restriction or distortion of competition’ (Article 81). Are Competition rules applicable to health insurers?

14. Are health insurers undertakings? Definition: “Every entity engaged in an economic activity, irrespective of the legal status and the way it is financed.” An entity is (not) considered an undertaking if the Solidarity Principle is dominated by (dominates) the Capitalization Principle. (Cases: Hofner &Elser; Poucet & Pistre; FFSA)

15. The solidarity principle Social purpose; Not-for-profit status; State supervision; Compulsory contributions; Benefits identical for all members; Income-solidarity; Risk-solidarity. (Cases: Cisal, Freskot, AOK)

16. The capitalization principle Entitlements depend on the amount of contributions paid by the recipients (premiums); Premiums are set in relation to the degree of risk; Entitlements and premiums depend on the financial results of the investments made by the managing organization rather than on a redistributive basis. If elements of the capitalization principle are added to solidarity-based health insurance schemes the nature of the scheme becomes more private. (Cases: FFSA; Albany, Drijvende Bokken and Brentjens; Pavlov)

17. State Aid Articles 82(2), 87(1), 88(2-3): “…any aid granted by a Member State… which distorts or threatens to distort competition by favoring certain undertakings … shall, in so far as it affects trade between Member States, be incompatible with the common market.”

18. Health insurers entrusted with operation of SGEI? Article 86 provides an exclusion from the Competition rules for certain undertakings that operate a service in the general economic interest (SGEI), where the application of Competition rules ‘obstruct the performance’ of their assigned tasks (Glockner case). The state aid or the restrictions of competition in health insurance markets are justified if necessary and proportional to ensure the performance (economic feasibility and financial stability) of tasks of the general economic interest.

19. 2. Free movement of services Article 49 EC-Treaty: ‘Services’ are ‘normally for remuneration’. Restrictions on the freedom to establish and provide (insurance) services across borders within the EU shall be prohibited.

20. The Insurance Directives Introduce a single system for the authorization and financial supervision of insurance undertakings by the MS in which they have their head office. Allow individuals and companies to buy insurance in another MS. Abolish regulations on premiums and tariffs in order to stimulate the constitution of a single EU market for life and non-life insurance.

21. Is the ID applicable? Private health insurance falls within the ID. Article 2(1) excludes from the ID’s scope social security schemes. If the schemes operate a social security scheme at their own risk or performs an economic activity, the Article 2(1) exception does not apply (‘Belgium case’).

22. ID’s Article 54 exception Article 54 justifies legal restrictions such as: Open enrollment; Community-rating; Standardized benefits packages; in combination with loss compensation schemes. As long as the measures are objectively necessary and proportionate to the achievement of the general good.

23. Part 3. Policy Implications for EU-countries

24. Germany AOK case, the solidarity principle prevailed the capitalization principle, ie. German insurers are not undertakings:  EU Competition rules and the ID do not apply.  EU-based insurers have to comply with national law: Risk-equalization scheme; Income-related contributions. Similar conclusion for Belgian and Czech, Latvian,Slovakian,Slovenian insurers: Income- & risk-solidarity; Compulsory membership; Not-for-profit status….

25. Ireland Insurers features: Private competing undertakings; Own financial risk; Voluntary membership.  EU Competition rules and the ID apply. National regulations or state aids must be necessary and proportionate for providing SGEI: Risk-equalization scheme? Community-rating with open enrolment?

26. Bupa Ireland vs. Commission Judgment of the Court of First Instance in Case T-289/03 (12-02-2008), Bupa Ireland vs. Commission: “risk equalisation is necessary … in order to ensure the cross-subsidy of premiums between the generations and to permit every PMI insurer to bear only the burdens linked with the average market risk profile.”

27. The Netherlands NMa (2000) considered Dutch-insurers as undertakings: Not-for-profit (2006: for-profit); Mandatory membership; Own risk (53% financial risk).  EU Competition rules and the ID apply. National regulations or state aids must be necessary and proportionate for providing SGEI: Risk-equalization scheme. Community-rating with open enrolment? Premium-compensation scheme?