Competition in the Irish Private Health Insurance Market

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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 135
expertise and other staff resources be distributed between the companies? • There will be a number of European issues that would need to be resolved. It is not likely that the Vhi Healthcare derogation to the Third Non Life Insurance Directive could be carried through to successor companies. • Significant issues would arise in addressing the court and regulatory matters associated with breaking up an insurer – see paragraph 9.9. • Each of the new insurers would need to have authorisation from the Financial Regulator and issues may arise in relation to this process. 9.11 Breaking up the Vhi Healthcare involves the break-up of an insurer that insures 40% of the Irish population. These customers actively chose to have insurance with Vhi Healthcare and the rights of these customers must be addressed in any break-up. 9.12 In this context, the issue of whether or Vhi Healthcare should be broken up is too complex for a study of this kind to reach a definitive conclusion. Any decision to implement such structural change would have a significant and wide ranging impact on the provision of health insurance and health services in Ireland. As such, any such decision should only be taken after a full impact analysis, addressing the specific proposal, is undertaken. The analysis, which would consider the many issues referred to above would address the following principles: • Necessity: Is structural change necessary to achieve the required objectives? • Proportionality: Are we satisfied that the gains that will result from the structural change outweigh the costs and the risks associated with implementing the change? Can the interests of consumers be better addressed in another way? • Effectiveness: How confident are we that our objectives will be achieved by implementing the change? What are the risks associated with implementing the change? • Transparency: Have all relevant stakeholders been consulted? In particular, have consumers been consulted? Are we satisfied that the process of consideration and the reasons for the proposed structural change are clear and accessible to all? • Consistency: Is the proposed change consistent with other policies and regulations? In addressing these questions, the analysis would involve the following steps: • A clear statement of the objectives policy context and options. The objectives would be specific, measurable, accepted, realistic and time-dependent. 136
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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
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not binding on incumbents and no in
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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 and 132: Table 7 Vhi Healthcare Financial Re
Page 133 and 134: • There is limited buyer power fr
Page 135: Breaking up Vhi Healthcare would di
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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