Aging of Society and New Medical Technology: The Challenge for Health Insurers to Meet the Expectations of Consumers and Governments

Conclusion 1.
In view of the Red Herring hypothesis, demand for medical care in general and medical innovation in particular will not only continue to grow but will increasingly be concentrated during the last years of human life.
If true, Conclusion 1 implies quite a challenge for governments that will spill over to health insurers both social and private. Until rather recently, politicians have been able to win elections by promising ‘Health for All’, the popular slogan of the World Health Organization (WHO). Accordingly, public HCE claimed an increasing share of government expenditure. In France for instance, this share stood at about 13.3 percent in 1970, rose to 15.1 percent in 1980, and attained 19.6 percent by 2000 (Fraser Institute, 2009; Kaiser Family Foundation, 2011). Similarly in the United States, it increased from 6.8 percent in 1970 to 19.6 percent in 2000 ( Over the same time span, government expenditure accounted for an increasing share of GDP. In France, this share rose from an estimated 40.5 percent in 1970 (extrapolated from the change between 1975 and 1980) to 51.6 percent in 2000; in the United States, it rose from 31.0 to 32.6 percent of GDP. The result of these two trends has been a rapid expansion of the public health share in the GDP in both countries (from 5.4 to 10.1 percent in France and from 2.1 to 7.3 in the United States). An expansion of this type has been characteristic of most OECD countries. Small wonder governments have come to realize that the WHO promise ‘Health for All’ is very costly to keep. They are trying to relieve their budgets from HCE by imposing increased copayments on consumers, making them sign up for Managed Care, and having them purchase supplementary coverage from private health insurers. Examples are the introduction of reference prices for pharmaceuticals (beyond which patients have to pay the extra cost out of pocket) and cutbacks on dental coverage in Germany, the outsourcing of Medicaid populations to private contractors by U.S. states, the imposition of gatekeeping physicians in the Netherlands, and most recently, having private U.S. insurers compete for Medicare Advantage business. However, these measures all fail to address the basic challenge which seems likely to become even more acute in the future, viz. the ‘cost explosion just before death’.
When becoming aware of this challenge, governments will become increasingly loath to permit the use of medical care, let alone of latest medical technology, by citizens who will not be alive a few months later. The payoff to such ‘investments in health’ just appears to be too limited to justify the expense. Yet, the analysis of the preceding section suggests that citizens will want to undertake these investments – at least as long as they are exposed to unchanged incentives. This conflict of interest between governments and citizens is likely to spill over into demands for health insurers both public and private to come up with solutions for reigning in the ‘cost explosion just before death’. However, private insurers cannot simply impose new types of policy. Indeed, they have to overcome two difficulties.
(1) Their clients can choose their insurer. If they dislike a new type of policy, they may cancel it and go elsewhere;
(2) Their clients are also used to having an enlarged choice of healthcare providers and often therapies. They will resist restrictions of choice even more strongly than the socially insured.

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