Report Calls for Urgent Action to address issues in the Market: 

• Actively promote competition
• Suspend  Risk Equalisation while  VHI is dominant and has regulation advantages
• Any RE payments to be scaled back based on the level of market concentration (Herfindahl-Hirschman Index)
• Review the rationale for triggering Risk Equalisation payments
• Role of HIA to be reviewed

Goodbody Economic Consultants today published a report entitled, Improving the Regulation of Health Insurance, which provides a comprehensive review of current issues in the private health insurance market and also outlines a series of recommendations for corrective action which the consultants recommend are implemented with immediate effect. 

The report, commissioned by VIVAS Health, has been produced in order to contribute solutions to the range of factors which are creating the dysfunctional private health insurance market that currently exists in Ireland.  

The Goodbody report finds that the market is extremely uncompetitive primarily as a result of VHI’s dominance. It is calling for the suspension of risk equalization payments until the VHI no longer has a position of dominace and is subject to the same regulation as its competitors. In addition any payments should be scaled back to the extent that there is less than full competition in the market.   It is recommended that the Herfindahl-Hirschman Index (HHI), the accepted global measure of market concentration, is used to scale back any payments calculated under the current Risk Equalisation scheme.

In addition, the Goodbody report recommends that the role of the Health Insurance Authority be expanded to that of sector regulator or alternatively that the functions of the HIA be transferred to the Financial Regulator. The regulator should have an explicit mandate to foster competition through measures such as ensuring that equal access to information on current and past health insurance policy holders are available to all in the market. This would remove a significant advantage over new entrants enjoyed by VHI. The report also calls for the correction of omissions and anomalies in the Irish Market, such as the absence of loading for late entry and the treatment of higher price plans.

John Finnegan, the report author, said at the publication of the report: “Our review of the market highlights some critical issues which are creating an unsustainable market and stifling competition. As part of our work we reviewed international health insurance markets. There is no market place that has community rating and risk equalisation and so few competitors.

In New York State, for example, risk equalisation was introduced as a temporary measure when the future of an incumbent was under threat. Australia, for example, has risk equalisation but that is  a market with  26 competitors where it cannot stifle competition. Risk Equalisation in Switzerland is temporary and is applied in a market with 100 insurers. None of these markets is comparable to Ireland which highlights the fact that the implementation of the Risk Equalisation scheme at this point in time is an unusual and extreme step.

“In our view, urgent action is needed to address the issues at play in the market. It is our recommendation that the Risk Equalisation scheme should be amended so that payments are only triggered when VHI is no longer dominant and is regulated in the same way as other insurers. In addition any payments should be scaled back to the extent that there is less than full competition on the market.   The internationally accepted measure of concentration is the HHI index. The Irish health insurance market currently has a HHI of over 7000. The normal threshold level for a market to be considered competitive is approximately 1800.  The Irish market is far from being competitive, and any Risk Equalsiation payments should be scaled back to reflect this."

Speaking at the launch of the report Oliver Tattan, Chief Executive of VIVAS Health said: “There has been a wide ranging debate about the private health insurance market over the last number of months with many policy issues under discussion. At times, the issues under debate have distracted attention from the fundamental problems that exist in the market. It was our intention through the commissioning of this report to isolate some key facts: Is the market competitive? What are the issues that are impacting competitiveness? Is the proposed Risk Equalisation Scheme a solution to current issues?

“The research undertaken by Goodbody Economic Consultants provides some clear answers to these questions and supports the view that we, as a company seeking to compete in this market, have had for some time. It is clear that competition is stifled in the market because of the VHI’s dominance and that current government policy and market regulations are the root cause of these issues. The upcoming VHI bill needs to address the issue of reduction of dominance in the market and there is a need for the proposed structure of the current Risk Equalisation scheme to be fundamentally reviewed.

“We have shared our views on these matters with the Private Health Insurance Advisory Group, chaired by Colm Barrington, and we hope that our concerns and proposed solutions will be given due consideration in the report currently being prepared for submission to the Minister for Health and Children, Mary Harney, T.D. 

“The introduction of a fair and accountable means-test to determine the need for risk equalisation, the Herfindahl-Hirschman Index (HHI) is a globally recognised index employed by the US Department of Justice and the Irish Competition Authority to measure the level of competition in anti-trust and merger cases. We are confident that the adoption of this measure in the market will help to alleviate the current crisis that exists in the private health insurance market in Ireland,” he concluded.