Competition in the Irish Private Health Insurance Market

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schemes under this section that taking one year with another the revenue of the Board therefrom together with its other revenues (if any) shall be sufficient, but only sufficient (as nearly as may be), after the Board has made such allowance as it thinks proper for reserves, depreciation and other like purposes, to meet the charges properly chargeable to revenue.” 8.55 Therefore, Vhi Healthcare cannot apply for a price increase that breaches the clauses, “…taking one year with another…” and “…., but only sufficient (as nearly may be) after the Board has made such allowances…”. 8.56 Given the statutory pricing constraint of subsection 2(5) of the 1996 Act as well as the Minister’s price control powers over Vhi Healthcare, the question arises as to whether it is possible for Vhi Healthcare to have market power in the health insurance market. The Effect of Recent Developments 8.57 The commencement of risk equalisation payments will result in the transfer of payments to Vhi Healthcare from its competitors. This will result in a narrowing of the price differential between Vhi Healthcare and its competitors and result in a reduction in the competitive pressure on Vhi Healthcare. It would also be expected to result in a slowdown of the rate of expansion of Vhi Healthcare’s competitors. However, as noted earlier, risk equalisation payments merely reduce an advantage held by insurers with lower risk profiles. For the reasons outlined earlier, insurers with lower risk profiles will continue to retain some measure of advantage over Vhi Healthcare. Therefore, while the competitive pressure on Vhi Healthcare would be significantly reduced, Vhi Healthcare’s competitors will remain in a position to compete with it and the market should still attract interest from potential new entrants. 8.58 If BUPA Ireland were to complete its withdrawal from the market and if no other company were to purchase BUPA Ireland’s business, the competitive position and the market share held by Vhi Healthcare would be strengthened. In these circumstances, it would be expected that Vhi Healthcare would regain a significantly higher market share than it currently has and that it would retain a very high market share into, at least, the medium term. However, if a new entrant were to purchase the BUPA Ireland business, the withdrawal of BUPA Ireland would not be expected to have a significant effect on competition in the market. Also, the effect of the withdrawal of BUPA Ireland from the market would be mitigated if other insurers were to enter the market. Conclusion 8.59 The following factors point towards the fact that Vhi Healthcare has some degree of market power: • Vhi Healthcare has a very high share (75%) of the PHI market ten years after its first competitor entered the market. • There are some barriers to entry into the PHI market; 131
• There is limited buyer power from Vhi Healthcare’s customers. 8.60 Prior to BUPA Ireland commencing its withdrawal from the market, competition in the market from BUPA Ireland and VIVAS Health imposed a strong competitive constraint on Vhi Healthcare. It cannot profitably sustain prices above competitive levels as consumers (individuals and employer-paid group schemes) can switch to alternative providers in response to price changes. As these consumers tend to be young this can make price rises unprofitable. Vhi Healthcare’s 3% price increase in 2004/05 and 12.5% price increase in 2005/06 did not result in profitability as the company’s financial performance in the year ended February 2006 showed, when it made a loss. 163 Vhi Healthcare cannot act independently of its customers or competitors, and is also constrained by law in how much it can increase its prices. 8.61 Therefore we can conclude on the basis of the information available at this time that while Vhi Healthcare has some degree of market power it is not substantial in a non-RE environment. 8.62 However, both the commencement of full risk equalisation payments and the withdrawal of BUPA Ireland from the market will weaken the competitive constraints on Vhi Healthcare, although this effect would be offset by any further new entry into the market. 163 There is a time lag for the full effect of a price increase due to the timing of premium renewals. For example, if someone’s renewal comes up in August, a price increase which is effective from September will not come into effect for that person until 11 months later, and the ‘increased’ full year premium will not be paid until the following August (if payments are made on a monthly basis). 132
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A Report to the Minister for Health
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CONTENTS TABLE OF FIGURES _________
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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
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• 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
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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
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and quarterly management accounts t
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Table 4: Regulation of PHI Firms 48
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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
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materially affected by any seasonal
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It may also be noted that the propo
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4.94 There are 37 health insurers i
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Interviews with Possible New Entran
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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 and 122: gives us some indication of the com
Page 123 and 124: wishes to retain the flexibility to
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: Table 7 Vhi Healthcare Financial Re
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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