Unhealthy outlook for Hong Kong insurance proposal

Blinded by ‘free enterprise’, officials are set to repeat the mistakes of the Mandatory Provident Fund with voluntary health care scheme

PUBLISHED : Friday, 06 July, 2018, 4:25am
UPDATED : Friday, 06 July, 2018, 4:25am

Having light or hands-off regulation does not equate to market efficiency. Often, in the absence of a well regulated regime, the social and economic costs subsequently incurred become much greater and the mess created more difficult to clean up.

Cartels and powerful vested interests often form, thereby undermining market efficiency, and encouraging rent-seeking and even anti-competitive behaviour. In a word, there is little to guard against market failure.

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That has been the case with the Mandatory Provident Fund (MPF) for retirement, the real estate and rental markets, private and international school education, and private health care and insurance services. Alas, the post-1997 government never learns.

A new study by the Legislative Council’s research unit is essentially sounding the same warning against an upcoming scheme to encourage people to buy private medical insurance with subsidies, tax breaks and other incentives. I hope the government will listen, but somehow I doubt it.

Everyone knows the heavily subsidised public health care system is highly congested, having to handle more than eight out of 10 inpatients.

The proposed voluntary health insurance scheme aims to bring relief to the system by offloading more patients to the private medical sector. Its target is to cover 1.5 million people under the scheme in three years. But the study makes a bold prediction: it’s unlikely to work.

The key issue, as pointed out by the study, is the light regulation offered and the voluntary nature of the scheme. Those policies that voluntarily fall under the scheme will have to meet minimum standards, such as insuring a patient up to 100 years old. There are set premiums and a proposed tax break of up to HK$8,000. There will also be an “office” to administer the scheme, but not an authority.

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However, insurers may continue to run their own policies outside the scheme. These will, on average, be cheaper because they don’t need to meet the minimal requirements. Crucially, though, the scheme does not require the acceptance of clients deemed “high risk”, so these, unless they are wealthy, will continue to use the public system.

And there are no restrictions on administration costs, meaning they can be passed on to consumers. Didn’t we already have this problem with the MPF?

The criticisms are nothing new to officials. But blinded by “free enterprise”, untrained in regulation and beholden to the industry concerned, they probably won’t be bothered.