Competition in the Irish Private Health Insurance Market

Firstly, breaking up Vhi Healthcare would be expected to impact on the
cost of private health insurance in a number of different ways. As
noted above the expected increased level of competition would be
expected to lead to increased allocative and dynamic efficiencies,
although the extent of such efficiency gains is unclear and needs to be
assessed. Breaking up Vhi Healthcare could also give rise to a number
of costs, which could cause the cost of private health insurance to
increase, for the following reasons:
• Economies of scale in the industry would be reduced, as a number
of different functions would be replicated in each of the new
insurers.
• The buying power of insurers would be reduced relative to the
market power of healthcare providers. The bargaining position of
insurers would be weakened in their dealings with hospitals and
consultants and consequently the costs of healthcare services may
increase.
• Vhi Healthcare operates on a not-for-profit basis. The new insurers
might not operate on such a basis and this may have consequent
effects on the cost of health insurance.
• There would be transitional costs associated with the break-up of
Vhi Healthcare and the establishment of the new insurers.
• If the Vhi Healthcare brand was to be extinguished, this could
represent a direct loss to consumers, mainly because the new
successor Vhi companies would have to spend significant amounts
on advertising to create and build up new corporate identities.
9.9 Secondly, there are a number of risks and uncertainties associated
with breaking up Vhi Healthcare. In particular, risk equalisation
continues to be the subject of court challenge. If these challenges
were to succeed, the viability of the new insurers would be in grave
doubt. Indeed, in such circumstances they may not be in a position to
receive authorisation from the financial regulator. Furthermore,
possible impacts on other related areas of Government health strategy
would need to be assessed.
9.10 Thirdly, a number of practical feasibility issues would need to be
considered, including the following:
• How would Vhi Healthcare be broken up? Into how many
companies would it be broken up? How would the assets and
memberships be split? Issues arise in relation to the ownership
and control of the new insurers. How would the assets of Vhi
Healthcare and its memberships be split?
• Where would the new insurers receive their financial capital? Is it
available in the financial markets and if so at what cost? How
would the cost of remunerating this capital affect the cost of health
insurance?
• How would systems be distributed between the new companies? Is
there sufficient expertise available to establish run and maintain
these systems in each of the new companies? How would this
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