The Competition Authority has today, published its analysis of Competition in the Irish Private Health Insurance Market.
The analysis was undertaken following a request by the Minister for Health and Children in December 2005 to report on “further measures to encourage competition in the health insurance market and the strategy or strategies which might be adopted in order to create greater balance in the share of the market held by competing insurers.”
The Authority has warned that the introduction of risk equalisation, which compensates the VHI for its older customer base, will reduce competition and put up prices.
In its 200 page report on the private health insurance market, which was published today, the Authority says risk equalisation "is likely to strengthen VHI Healthcare's market power and allow it increase its price above competitive levels and sustain those prices for a significant length of time."
Key Findings
The Competition Authority’s analysis finds that competition in private health insurance in Ireland has not evolved in a similar way to other insurance markets, primarily because of a series of long-term public policy choices. As long as the market is underpinned by these choices, competition will be constrained.
Private health insurance in Ireland is a voluntary system that is founded on the concept of Intergenerational Solidarity whereby younger, healthier people subsidise older people who tend to have higher claims. The legislative and regulatory framework designed to support Intergenerational Solidarity is underpinned by the principles of Community Rating, Open Enrolment, Lifetime Cover, Minimum Benefits and Risk Equalisation. This framework, as it currently operates, prevents many of the key features of competition from emerging in private health insurance.
The Competition Authority’s Report does not assess the necessity, proportionality or appropriateness of these guiding principles. Rather, it analyses their effects on competition and identifies measures to promote competition within the existing statutory framework.
A number of other factors tend to distort and dampen competition beyond the restrictions imposed by intergenerational solidarity:
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Vhi Healthcare has a regulatory advantage, namely its exemption under Article 4(c) of the 1973 EU First Non-Life Directive. Without this exemption, Vhi Healthcare would have to be regulated by the Financial Regulator and would be legally required to have reserves far greater than its current levels and to establish subsidiary or sister companies for selling its non-health insurance products. This regulatory advantage allows Vhi Healthcare to compete in ways not available to other health insurers.
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Although the process of switching health insurer is simple and straightforward, some consumers have an incorrect perception that the process is difficult and cumbersome. Certain practices by health insurers also discourage consumers from switching health insurer in response to a more competitive offering, for example tying private health insurance and travel insurance products.
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It is difficult for consumers to compare and contrast private health insurance policies. This makes it difficult for consumers to know which health insurer’s product best meets their needs; it also inhibits competition.
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The Minimum Benefit Regulations, in their current form, hinder innovation in product design and the development of limited cover plans.
Recommendations
The Competition Authority makes 16 recommendations in this Report for promoting competition in the private health insurance market in Ireland, within the limits of Intergenerational Solidarity, including:
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Vhi Healthcare’s exemption from prudential regulation should be ended as soon as possible so that it becomes subject to the legal solvency requirements and corporate structuring rules that apply to other health insurers in Ireland;
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A package of measures should be introduced to provide consumers with useful and timely information to enable them to consider alternative private health insurance products, and to promote consumer awareness of the ease of switching health insurer;
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Vhi Healthcare should discontinue its practice of cancelling its MultiTrip Travel Insurance when its members switch health insurer;
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The Minimum Benefit Regulations should be modernised and the Health Insurance Authority should be allowed to approve limited cover plans, to allow more innovation in the market;
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The Health Insurance Authority should be given wider powers to enforce the Health Insurance Acts and be formally assigned the function of promoting the interests of consumers.
VIVAS welcomes report
VIVAS Health has welcomed the report but has called on the Competition Authority to take legal action against the VHI with regard to its anti-competitive practices.
Speaking today, Oliver Tattan, Chief Executive, VIVAS Health said: “We welcome the Report from the Competition Authority, which reflects all of the points raised by us in our submission to it, and reinforces what we have been saying since we came into the market in 2004. However, we call on the Competition Authority to mount a formal investigation into VHI behaviour with a view to taking legal action on the anti-competitive practices highlighted in the Report.
“The Report confirms that risk equalisation is anti-competitive. VHI already has 75% market share and has the benefit of a wide range of state protections and supports which will give it an unfair advantage in this fight. The range of unfair advantages which the VHI enjoys, including the risk equalisation subsidy, the ability to operate insolvently, exemption from consumer protection regulation and the ability of the VHI to cross-subsidise products in a way no other European insurance company can, are clearly very effective deterrents and are successfully keeping other investors out of the market. The dominance of the VHI and the protectionist supports which it receives must be dealt with if we are to see a competitive health insurance market.
“We are pleased that the Competition Authority Report has recognised and acknowledged the product and price innovation which VIVAS Health brought to the market since our arrival. VIVAS Health is 100% committed to this market however, we need the environment that we are operating in to change in order for us to be able to continue to invest and innovate in this market for the benefit of consumers. We won’t have a truly competitive health insurance sector until the VHI dominance is dealt with and the Competition Authority should now follow through with its Report and take the necessary legal action,” said Tattan.
Response by Vhi Healthcare
Vhi Healthcare is currently reviewing The Competition Authority Report and will make a full response in due course. The document is almost 200 pages and deserves very careful analysis and consideration. We are pleased to note, however, that much of the advance speculation concerning the report is not borne out by the recommendations made by The Competition Authority.
The major issue in Health Insurance remains the Government response to the threat of a 3.5 years exemption on the BUPA book of business following the Quinn Group acquisition. This would effectively mean the end of Community Rating in Irish Health Insurance.
