Competition in the Irish Private Health Insurance Market

Breaking up Vhi Healthcare would diminish the market power of the
broken-up incumbent and result in a market where firms upstream and
downstream may compete more vigorously for custom, through lower
prices and improved service. A further offsetting factor would result
from efficiency gains due to dynamic factors. A competitive market
drives firms to seek cost saving efficiencies and innovations in the
productive and administrative process.
9.4 Splitting Vhi Healthcare into separate entities involves a number of
regulatory issues. If market entry alone is relied on to create a more
competitive health insurance market, it may be years before the
market evolves to the extent that the full benefits of effective
competition are realised. Addressing the position of Vhi Healthcare in
a structural fashion, by breaking it up, would be more likely to deliver
the benefits of competition to consumers than relying on market entry,
notwithstanding the potential difficulties and timescale, which may be
encountered in practice with the “break-up” course of action. The
argument in favour of breaking up Vhi Healthcare is strengthened by
the supposition that the VHI successor companies would begin to
compete both against each other and against other firms in the market
more or less immediately after the split is effected, whereas other
solutions may take much longer to deliver the benefits of competition.
9.5 The successor companies would require authorisation from the
Financial Regulator before they started trading. This requires that
these companies hold the necessary level of solvency reserves at the
time that they are applying for an insurance license. The issue of
financial capital must therefore be addressed before a splitting of Vhi
Healthcare can be implemented.
9.6 The splitting of Vhi Healthcare requires a specific Act of the Oireachtas.
If this legislation were drafted with the same rights for policyholders as
those applying to insurance companies it would. require an application
to the High Court by the directors of Vhi Healthcare under Section 13
of the Assurance Companies Act 1909. Policyholders would have to be
written to informing them of the proposed transfer and why it is in
their interests that the transfer be approved. Policyholders would have
a right to be heard by the Court before the transfer is sanctioned.
Customers of Vhi Healthcare have actively chosen to place their health
insurance with Vhi Healthcare. The Court would have to decide
between the individual citizen’s right to choose insurer and the State’s
right to decide what was in the best interest of all citizens. Customers
could circumvent the impact of the split if they actively decided after
the transfer to rejoin one of the entities.
9.7 The issue of who owns the successor companies is important. If the
State owns the various companies there remains the issue of a
potential conflict of interest of owning the various companies whilst
also regulating the health insurance market and setting the price of
private beds in public hospitals. Alternatively if the successor
companies were privatized, the companies could decide to remerge
unless there was legislation in place preventing this occurring.
However, such a putative merger would be subject to competition law
concerning mergers.
9.8 Breaking up Vhi Healthcare would also give rise to a number of costs
and risks and these must be weighed against the anticipated benefits.
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