Sunday, 23 June 2013

Two tweaks on one hundred

On marking the first 100 days in office Prime Minister Muscat delivered two tweaks to the allocation of responsibilities among the Cabinet.

He transferred the portfolio of responsibilities related to Justice under the guard of Parliamentary Secretary Dr Owen Bonnici from the Ministry of Internal Security and Home Affairs to the Office of the Prime Minister. This looks like a small change but it shows that like a good manager, Muscat admits that even the best thought out plans need constant evaluation to ensure proper execution and that where changes are necessary these should be made without loss of time to keep the project on track towards meeting its objectives.

A somewhat bigger change was the appointment of PN ex Minister and ex EU Commissioner John Dalli as the Czar to overhaul the operations and management systems of Mater Dei.

Prime Minister Muscat has made efficient operations, including reduced waiting lists, at Mater Dei as one of his battlecries for this legislature, always in the context of a commitment to keep national health services under universal free entitlement.   The absence of clear deliverables showing improvements in the first 100 days and probably the better understanding of the enormity of the task involved has no doubt convinced both the Minister of Health Dr Godfrey Farrugia ( who as a family doctor has no experience or the management skills required to manage a hospital like Mater Dei) and the Prime Minister  that Mater Dei required something different.  It required a dedicated team under the guide of somebody like John Dalli who had already prepared plans for such purpose in the short time he was Minister responsible for health between 2008 and 2009 ( before he was kicked upstairs to Brussels by Lawrence Gonzi and his henchmen) and who has the management skills required to bring the necessary change to deliver on such ardent task.

My views about a long term solution for the challenges to the sustainability of our health service are well recorded.   The latest I wrote on this can be found through the link below:

But as this involves removal f the universal free entitlement which goes against what the government has already committed itself to in this legislature, such ideas can only be implemented if one manages to organise cross party consensus for changes to be implemented in future legislatures.

To deliver improvements here and now one has to move along different tracks which respect the basic rules of economics i.e. that removal of bottlenecks can only be addressed by the joint action of increasing the supply and reducing the demand.

Of course this is easier said than done.   But something can and must be done.

Increasing the supply involves:

  • making better use of the local health centres to ease the pressure on Mater Dei especially on the Emergency and Admittance Departments
  • changing the way things are done at Mater Dei where many consultants merely work the mornings and dedicate afternoons and evenings to private practice to see ( and get paid from) patients, many of whom will eventually be treated at Mater Dei.
  • introducing proper management systems for procurement, especially of medicines, to eliminate the chronic shortages that result regularly from the present system, or may be non-system, as whilst shortages regularly occur it seems that other medicines are over-ordered and go to waste as it expires unconsumed.
Reducing the demand:

Here one has to be careful.   Health service are not consumables that one normally indulges in for pleasure or satisfaction.   Given the political commitment to keep health services universally free, one cannot rely on the price mechanism to restrain demand, even if the demand for health services were perfectly elastic, which obviously it is not.

But there are other ways how to reduce demand and the market is already working on its own steam for this purpose as many people in the middle and higher strata of society have taken measures to procure private health insurance.

If health service is universally free why would people buy private health insurance rather than rely on the free national health service?  For these reasons:

  • they do not like the quality of the free health services ( quality includes not just the medical treatment but the overall services, including admittance procedures, waiting lists, privacy in the hospital wards, quality of food, times for visits by relatives and friends)
  • they do not trust that they will find such health services when they need them.
  • they expect a privileged service which only market mechanisms can deliver.
Being a market based economy we should be thankful that people who can afford are taking such measures. The problems at Mater Dei would be worse if those who rely on private health services through their insurance cover were also to rely on public services.

So one way to reduce the demand on Mater Dei services is to stimulate more taxpayers to choose private health services by offering tax incentives for the premia they pay for private health insurance.   The State already offers such incentives for private education, including cultural activities, so the extension of this principle to private health insurance comes naturally.

But in so doing the government will have to take steps to ensure that those who benefit from tax credit on their private health insurance will no longer be eligible for free services from state hospitals once the bills for such services are claimable under their health insurance.  Currently there is a stupid system that Mater Dei offer such services universally free and insurance companies issue small cash payments to insured  as a thank you gesture for not using private health services.

There would remain an open question.     How can we have a system to motivate more middle class and upper society people, people who can afford to pay for private health insurance, to actually take out such insurance rather than continue to rely on public health services?   Given that private health insurers will probably have to raise their premia to account for the additional claims they would foot from insured being treated in state hospitals, and that the increase in such premia could possibly neutralise some or all of the tax benefit that private health insured would be entitled to,   how are we going to 'push' people who can afford to take private health insurance cover?

There is a very effective system for that.   All insured households will have the value of their saving by being uninsured added to their taxable income as deemed revenue.    To ensure that this does not negatively affect the lower strata of society who truly cannot afford such premia, the 15% tax threshold will be raised by the amount of such deemed revenue.    But those taxpayers whose taxable incomes exceeds the 15% threshold will start paying tax on the deemed revenue of the health insurance premia that they choose not to take out so that they remain a burden of the state even though they can afford not to.    So these taxpayers would quickly come to the conclusion that it is better to take out private health insurance and receive tax credit on the premia they pay rather than be taxed on the deemed income of the premia they choose not to pay.

In this way public health services would remain universally free but sustainable.  The pressure on Mater Dei would ease of as more taxpayers opt out for private services.  And those who really cannot afford private health insurance can get a better services at Mater Dei.   

Winners all round.

Declaration:   I am a director and investor in an insurance company which offers health insurance and might benefit from measures proposed.  I declare however that my views are not in any way conditioned by my directorship and investment in such insurance company.

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