Competition in the Irish Private Health Insurance Market

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Effects of Market Power on Rivalry and Entry 8.11 Firms with market power have the potential to harm consumers and the competitive process by • Raising prices above the level which would exist in a competitive market, • Reducing quality below the level which would exist in a competitive market, • Weakening existing competition, • Raising barriers to entry or • Slowing innovation. What is Dominance? 8.12 Dominance is a legal concept rather than an economic concept. The nearest concept in economics is that of substantial market power. Dominance (a legal concept) is the possession of substantial market power (an economic concept). A firm will not be considered dominant unless it has substantial market power. The European Court of Justice has defined a dominant market position as: “a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of consumers.” 155 Recent Developments in the Health Insurance Market 8.13 In December, 2005 the Minister decided to commence risk equalisation payments from 1 January, 2006. Under the provisions of the Scheme, this would result in half-payments becoming due for 2006 and full payments becoming due for all later periods (except with respect to new entrants). 8.14 BUPA Ireland instigated three sets of proceedings against the Minister, the State, the Health Insurance Authority and the European Commission. In one of these sets of proceedings (a case against the State pertaining to the legality of the risk equalisation scheme), the High Court found against BUPA Ireland in November, 2006. Following this judgement, BUPA Ireland announced that it is commencing its withdrawal from the Irish market. BUPA Ireland ceased to sell new policies and announced that it will not renew contracts from February, 2007. In a statement issued on 10 January, 2007 BUPA stated that “it 155 Case 27/76 United Brands v Commission [1978] ECR 207. This definition has been used in other cases. 121
wishes to retain the flexibility to re-enter the Irish market should the situation change.” 8.15 In January, 2007, it was announced that AXA are in discussions with the Government concerning their possible entry into the Irish market. AXA approached BUPA Ireland in order to discuss the purchase of the BUPA business but BUPA declined to enter into talks with AXA. The Minister also stated that another company had contacted her and said that they would be interested in purchasing the BUPA Ireland business. 8.16 The commencement of full risk equalisation payments, the withdrawal of BUPA Ireland from the market, the entry of AXA or another new entrant into the market or the purchase by AXA or another body of the BUPA Ireland business could each significantly effect market dynamics and there is a significant amount of uncertainty in relation to these issues. In this chapter we will first consider the extent to which Vhi Healthcare may have had market power prior to the announcement by BUPA Ireland that it is commencing its withdrawal from the market and prior to the commencement of full risk equalisation payments. We will then consider how recent developments may affect this situation. Market Concentration 8.17 Vhi Healthcare had 100% of the private health insurance market up until 1997 when it was the sole provider of health insurance. Since the market was opened to competition, two companies have entered, the total market has grown and Vhi’s share of the market has fallen, and continues to fall. 8.18 Market shares in the PHI market can be calculated in a number of ways: • Total membership numbers: Relative market shares based on total membership numbers are changing over time. Vhi Healthcare’s market share is falling but it still has a very high share of the total market (75%). BUPA Ireland has been in the market for ten years and has gradually grown its market share to 22% over this time. VIVAS Health has approximately 3% of the market. Although Vhi’s market share is high, it is not stable. It is falling every year while BUPA and VIVAS’ market shares are growing. Recently BUPA Ireland announced that it is commencing its withdrawal from the market. AXA has indicated that it is interested in purchasing the BUPA Ireland business. • New sales: Vhi Healthcare attracts more new members than either BUPA Ireland or VIVAS Health. The difference in market shares based on new sales is much less pronounced than in total market shares. New sales of PHI in the twelve months to June 2005 amounted to approximately 191,000 members 156 . All three insurers are successfully attracting new members with Vhi Healthcare gaining about 115,000 (60%), BUPA Ireland about 70,000 (37%) and VIVAS Health about 6,000 (3%) 157 . Since 1997 when BUPA entered the market, the overall market has grown by 654,000 156 New sales data are not available for 2006. 157 VIVAS Health was only trading for eight months during this period. 122
Page 1 and 2:
A Report to the Minister for Health
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CONTENTS TABLE OF FIGURES _________
Page 5 and 6:
CONSUMER ATTITUDES TO SWITCHING ___
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EXECUTIVE SUMMARY AND RECOMMENDATIO
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As a result it does not have to sat
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Recommendation 7 The Minister for H
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indicates that consumers of PHI hav
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Recommendation 13 The Minister for
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is quite unclear, so far as the Aut
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1.4 For the next number of months t
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other insurers were to enter the ma
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2.6 Private health insurance (PHI)
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2.17 Open enrolment and lifetime co
Page 27 and 28:
• 2001: The Health Insurance Auth
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Figure 2: Annual Change in PHI memb
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of medical inflation and the higher
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VIVAS Health is rising steadily. In
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• Table 1 below shows the annual
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Figure 6: PHI Products BUPA Ireland
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• Work-based group schemes where
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from year to year and also during t
Page 43 and 44:
3. DEFINING THE PRIVATE HEALTH INSU
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Figure 7: Key features of Related H
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price increase unprofitable by a hy
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4.6 Aspects of the exemption from i
Page 51 and 52:
and quarterly management accounts t
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Table 4: Regulation of PHI Firms 48
Page 55 and 56:
4.31 This is a positive step. Just
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obliges Vhi Healthcare to seek appr
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4.41 In the regulatory approval pro
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4.50 However, the Authority is clea
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Unfunded Lifetime Community Rating
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President of the Society of Actuari
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− The main other deterrent at pre
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o The former members of the Advisor
Page 71 and 72: materially affected by any seasonal
Page 73 and 74: It may also be noted that the propo
Page 75 and 76: 4.94 There are 37 health insurers i
Page 77 and 78: Interviews with Possible New Entran
Page 79 and 80: have shown that new sales and switc
Page 81 and 82: not binding on incumbents and no in
Page 83 and 84: 5.33 In this context Vhi Healthcare
Page 85 and 86: 5.44 As the former incumbent monopo
Page 87 and 88: 5.52 Vhi Healthcare’s first mover
Page 89 and 90: • Psychological costs 6.5 Transac
Page 91 and 92: 18-24 9% 13% 25-34 34% 19% 35-44 31
Page 93 and 94: 6.24 The provision of renewal notic
Page 95 and 96: The HIA publishes on its website a
Page 97 and 98: Recommendation 10 Following consult
Page 99 and 100: Recommendation 11 The insurance com
Page 101 and 102: Regulations were established to aff
Page 103 and 104: transferred and the amounts require
Page 105 and 106: Buyer Power and Concentrated Market
Page 107 and 108: The Supply of Private Medical Facil
Page 109 and 110: VIVAS Health claims that Vhi Health
Page 111 and 112: approval on coverage of facilities
Page 113 and 114: Supplier-Induced Demand 7.36 The Vh
Page 115 and 116: Questions Relevant evidence Irish P
Page 117 and 118: to restrict individual choice of pr
Page 119 and 120: 8. CONCENTRATION AND MARKET POWER I
Page 121: gives us some indication of the com
Page 125 and 126: largest price increase that is prof
Page 127 and 128: scheme. Employees may be under the
Page 129 and 130: elevant regulatory requirements, ex
Page 131 and 132: Table 7 Vhi Healthcare Financial Re
Page 133 and 134: • There is limited buyer power fr
Page 135 and 136: Breaking up Vhi Healthcare would di
Page 137 and 138: expertise and other staff resources
Page 139 and 140: APPENDIX 1 Other forms of health re
Page 141 and 142: APPENDIX 2 Report of UK Government
Page 143 and 144: Australia Ireland Public hospital U
Page 145 and 146: Australia Ireland Risk equalisation
Page 147 and 148: 1.22 The Irish data is not split at
Page 149 and 150: Conclusion of normal claim payments
Page 151 and 152: APPENDIX 3 Consumer Attitudes to Sw
Page 153 and 154: Survey Respondent factors promoting
Page 155 and 156: APPENDIX 5 OECD Review of PHI The O
Page 157 and 158: not-for-profit insurers has posed c
Page 159 and 160: 114. Private insurers have not impl
Page 161 and 162: APPENDIX 6 List of Submissions The
Page 163 and 164: Understanding and Comparing Private
Page 165 and 166: Benefits Outpatient Cover Cover for
Page 167 and 168: Dobson, P., M. Waterson and A. Chu,
Page 169: Vhi Healthcare (2005), Annual Repor
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Competition in the Irish Private Health Insurance Market

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