The Privatisation of Social Insurance

Citizens' Health Initiative (CHI) has been following the media debate on the EPF annuity (investment-linked pension) scheme operated on its behalf by insurance companies. We find this a valuable reminder of the insurance industry's stake in relation to the changing fortunes of the welfare state (and not just confined to healthcare).

The Malaysian government, like many modern states, acts also as a pooler of risk to cope with the catastrophic and burdensome events which occasionally befall its less fortunate members. Socialised resources (taxes and other public revenues) have traditionally financed safety nets in healthcare, in unemployment and social security, and provided relief in instances where neither the individual nor her/his family and social support network could cope with the consequences of catastrophe.

The government, in short, plays a crucial role as an insurer and risk manager in dealing with uncertainty, and those of us still reluctant to enrol with a private medical insurer or managed care scheme, have at the back of our minds the fallback option of government-provided healthcare (long queues and occasional gruff service notwithstanding).

The privatisation of healthcare provision in principle is still compatible with public financing of healthcare (via a tax-supported national health trust fund, national health insurance, or some such arrangement).

The privatisation of risk management however is the lifeblood of the insurance industry, and the industry would look favourably upon the market opportunities emerging from the government's retreat from its role as social insurer. (We should note however a crucial difference between social insurance, which embodies an implicit compact of cross-subsidy in social solidarity, and commercial underwriting, which assigns risk-rated premiums determined by the market's valuation of individual risk. The most objectionable consequence of for-profit risk-rated medical insurance is that those people at highest risk of falling ill and requiring treatment, will be those least able to afford premiums, and therefore treatment).

Sir Alan Walters, a former professor at the London School of Economics was a guest speaker recently at the Socioeconomic & Environmental Research Institute in Penang. While listening to him, it struck me that it was perhaps not coincidental that he went from being Chief Economic Advisor to the doyenne of privatisation, Lady Margaret Thatcher, to his present position as Vice-Chairman of the American Insurance Group International.

Foreign insurers who brought in funds and acquired local equity during the East Asian currency crisis, as a supportive (and profitable?) gesture to help stabilise a volatile financial situation, are reportedly now looking forward to a business-friendly environment to develop markets for healthcare and other insurance products, likely in joint venture with their local partners.

We hope that a publicly-operated national health insurance scheme, recommended fifteen years ago by government-appointed healthcare financing consultants, will not be a casualty in compromises forced upon us by our recent difficulties.