Competition in the Irish Private Health Insurance Market

members split as follows: Vhi’s membership has increased by
137,000 members, BUPA’s has increased by 459,000 members
and VIVAS’ increased by 58,000 members.
• Membership numbers in different age groups: Vhi Healthcare
has almost 100% market share in older, unprofitable age groups.
Its market share falls in younger, profitable age groups. Of those
PHI holders aged between 30-39, Vhi has 69%, BUPA’s has 30%
and VIVAS had 2% on 1 st April 2006, which was the latest date at
which such data is available.
8.19 Vhi Healthcare has a very high market share on the basis of total
membership numbers, new sales and membership in different age
groups. Although Vhi Healthcare has a high market share, this does
not in itself confirm that it has market power. As stated earlier market
power is not absolute – it is a matter of degree. When assessing
market power, it is also necessary to consider other factors.
Competition from Existing Competitors
8.20 The most obvious source of competitive constraint on the ability of Vhi
Healthcare to profitably raise its prices for PHI above competitive levels
or reduce the quality of its plans for a significant period of time is the
presence of other firms in the market with the necessary expertise and
industry knowledge, i.e. BUPA Ireland and VIVAS Health.
8.21 This section focuses on the degree to which competition from BUPA
Ireland (while they were active in the market) and VIVAS Health limits
Vhi Healthcare’s ability to exercise market power and whether on the
basis of the evidence we have, Vhi Healthcare acts independently of its
competitors. The following two subsections on price competition and
product/service competition seek to address the question of whether
Vhi can profitably maintain prices above competitive levels or reduce
quality below competitive levels for a significant period of time.
Can Vhi profitably maintain prices above competitive levels for a
significant period of time?
8.22 The price charged for a private health insurance plan is the same for
everyone regardless of their age, health status etc (i.e. community
rating). Most plans have a mix of members from different age groups.
Each plan has a different ratio of premiums to claims costs. When
increasing prices for each of its plans, Vhi Healthcare must be
conscious of the impact it will have on its risk profile and profitability.
8.23 If Vhi attempts to sustain prices above competitive levels, customers
can switch their health insurance to another insurer. The customers
who are most likely to switch in response to a price increase are
younger, healthier people, according to consumer research. These are
the most profitable consumers. A premium increase would generate
greater revenues if all customers stayed with Vhi. However the
consumer research shows that younger people tend to be more price
sensitive and are more likely to switch and younger people are more
profitable in a community rated health insurance market on average.
The actual extent to which young people switch away from Vhi to one
of their competitors in response to price increases will determine the
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