Competition in the Irish Private Health Insurance Market

to restrict individual choice of provider. Consumers expect that PHI
firms will provide widespread coverage. This may mean that PHI
providers face limited incentives to provide limited coverage options,
as consumers may perceive PPNs to be inferior products, compared to
general-coverage plans. However, the emergence of Preferred Provider
Networks will facilitate competition and consumer welfare by
encouraging private hospitals to compete vigorously with each other,
by promoting innovation in the delivery of medical services, and by
allowing consumers a greater degree of choice in the PHI packages
they wish to subscribe to, consistent with community rating. However,
in order for PPNs to contribute to consumer welfare,
• More private hospitals need to be constructed, and
• More PHI firms need to enter the market.
7.49 While the first requirement is currently being addressed, the second
requirement is not so easily facilitated. New firms would be more likely
to enter the market once barriers to entry and barriers to rivalry are
reduced. For this reason, the emergence of PPNs may be more likely to
emerge in the medium-term rather than the short-term. However,
once this dynamic process occurs, PHI firms and their customers will
benefit from competition to provide services between private hospitals.
7.50 Preferred Provider Networks may be a more efficient way of obtaining
medical consultants’ services and avoiding balance billing 152 by nonparticipating
consultants. Such networks could lower entry costs into
the PHI market and promote competition among consultants and
private health insurers and lead to a reduction in PHI costs and
premiums, and the provision of more insurance plans. 153
Conclusion
7.51 The evidence indicates that Vhi Healthcare has buyer power. In
particular, Vhi Heathcare is by far the largest purchaser of private
hospital and consultant services in Ireland. The main issues to be
considered are then;
• What implications does Vhi Healthcare’s buyer power have for
competition in the health insurance market?
• Does the buyer power of Vhi Healthcare benefit or harm
consumers?
7.52 If Vhi Healthcare’s buyer power results in the prevention of new
hospital construction and investment in private medical facilities, then
this may be harming consumers if any benefits in lowering premiums
were likely to be counterbalanced by the effects of restricted supply of
hospital beds and restricted choice of medical facilities. However, the
extent to which Vhi Healthcare’s buyer power is restricting competition
between private hospitals is unclear. New entry is occurring (a number
152 Balance billing occurs when a consultant charges a patient a fee greater than that agreed between
the consultant and the patient’s private health insurer under the Schedule of Benefits
153 This argument is more fully developed in the Competition Authority’s January 2006 Consultation on
Guidance in respect of Collective Negotiations relating to the Setting of Medical Fees, available online
at http://www.tca.ie/professions/medical_fees_consultation.pdf
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