Irish
Irish Health Insurance Authority says split of VHI should be considered to promote competition but recommends retaining risk equalisation
By Finfacts Team
Feb 17, 2007, 15:48

Sean Quinn (right), founder and chairman of the Quinn Group; pictured with Ian Pearson, Northern Ireland Minister for Enterprise; and Viola McBride, call centre agent, at a Group call centre in Enniskillen. The Quinn Group and UK health insurer BUPA announced on Jan 31, 2007 that agreement had been reached for the purchase of BUPA Ireland Ltd. by the Quinn Group. This agreement will give the Quinn Group the expertise, systems and personnel to enter the health insurance market. It will facilitate existing BUPA Ireland members in getting the same quality service from the team in Fermoy, County Cork, to which they are accustomed. The Quinn Group also announced that there will be no price increase during 2007.

The Irish Health Insurance Authority (HIA) published a report on the health insurance market on Friday and said that the recommendations in the report are made in the context of effective risk equalisation payments being made and, in the absence of such payments, many of the recommendations would not be feasible.

The HIA says that in the light of recent developments in relation to BUPA Ireland’s business, the Authority has advised Mary Harney TD, the Minister for Health and Children that, in its view, the frustration of her decision to implement risk equalisation with effect from 1 January 2006 would involve significant risks for the current community rated health insurance framework and would not be in the interests of health insurance customers generally.

The HIA called on the Minister to commission an independent study into the feasibility of splitting up VHI, examining the costs and benefits of such a move.

The HIA said a split would increase competition and consumer choice in the health insurance market, which, it said, would remain limited if no new companies entered the market.

However, the Authority said it was "quite unclear" whether the possible benefit of better value health insurance policies for consumers would outweigh the costs and risks involved in splitting the company.

It said the views of VHI's 1.5 million members should be considered.

Under the existing risk equalisation scheme a new health insurance company does not have to make payments for three years. In the fourth year it must pay 50 per cent of the full amount, with full payments from the fifth year.

However, the HIA recommends in its report that the phase-in period should be extended so that new entrants only pay 25 per cent of the full amount in the fourth year, rising to 50 per cent in year five, 75 per cent in year six and only reaching the full amount of the risk equalisation payment in the seventh year.

The report says that people who take out insurance after the age of 35 should have to pay more.

The HIA said that it worked closely with the Competition Authority in the preparation of their respective reports and many of the conclusions and recommendations in the Health Insurance Authority’s Report’s are similar to those in a corresponding report issued earlier this week by the Competition Authority.

The Competition Authority warned in its report that the introduction of risk equalisation, which compensates the VHI for its older customer base, will reduce competition and put up prices.

The Minister for Health and Children requested the Health Insurance Authority and the Competition Authority to report on "further measures to encourage competition in the private 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." Terms of Reference were agreed in March 2006 and a public consultation process was conducted in April 2006.

The HIA says that the Irish private health insurance market is community rated. The community rating system is supported by regulations concerning lifetime cover, open enrolment, minimum benefit and risk equalisation. These regulations are necessary for the maintenance of a community rated market. While the regulations also impact on competition, the impact is fair and proportionate and the regulations facilitate competition between insurers. Nevertheless, the Irish market is highly concentrated and there are a number of measures recommended in the Report that should be taken in order to benefit consumers by encouraging greater competition in the market.

A primary objective of the Report’s recommendations is to bring about a situation as soon as possible that all health insurers operate under the same regulatory framework. To this end, a number of recommendations are made with the aim of Vhi Healthcare becoming an authorised insurer, regulated by the Financial Regulator and required to achieve solvency levels specified in insurance legislation.

The HIA says that the absence of risk equalisation in a community rated market gives a regulatory advantage to insurers with lower risk profiles. The Risk Equalisation Scheme is designed to reduce but not eliminate this advantage and insurers with lower risk profiles will continue to have a significant advantage, even with risk equalisation payments.