Competition in the Irish Private Health Insurance Market

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condition. 91 There are also waiting periods for moving to a contract with increased benefits and for maternity benefits. 92 6.29 Concerns about waiting periods may have an especially detrimental effect on older cohorts of PHI customers, who are far less likely to switch insurers than younger customers. 93 Statistically, older people have a greater likelihood of claiming on a health insurance policy in any one time period. As a consequence, older people may be less willing to switch as they perceive that they run a greater risk of not being covered by health insurance due to waiting periods. 6.30 It is important for consumer information and awareness of switching that consumers are not under the impression that they are in any way restricted from switching due to the need to serve extra waiting periods. Consumers who have completed their waiting period with one health insurer do not need to serve an additional waiting period on switching to a similar plan with another health insurer. Consumers who decide to switch during their waiting period only have to serve the balance of their waiting period with their new insurer. 94 However, consumers who switch to a plan, either with their current insurer, or another insurer, which provides a greater level of benefits, may have to serve an additional waiting period to account for the extra benefits. Recommendation 9 Pending the implementation of Recommendation 10, PHI companies should send out renewal notices to insured persons one calendar month prior to the renewal date. At a minimum, these renewal notices should give details of current PHI cover and cost of renewal of cover for a further year, at what age the insured can avail of reduced premiums, and information on waiting periods. Action By PHI companies Provision of Information 6.31 Informed consumers make better decisions about the products and services which best suit their needs and desires. Without useful, accessible information, consumers are unable to accurately assess the merits of competing products. The HIA Market Review found that 46% of health insurance consumers positively agreed that there was sufficient information available for consumers to compare plans from different insurers, although, perhaps unsurprisingly, only 21% of nonconsumers of PHI reached the same conclusion. 6.32 Less than half of PHI consumers feel there is sufficient information to allow for useful comparisons of PHI plans. Greater attention therefore needs to be paid to providing actual and potential consumers of PHI with simple, comprehensible and accessible information about PHI plans offered by each of the PHI firms operating in the Irish market. 91 The maximum waiting periods for this category are 5 years for persons under the age of 55, 7 years for persons aged between 55 and 60, and 10 years for persons aged over 60. 92 The maximum waiting periods for moving to a higher contract are 2 years for a person under the age of 65 years and 5 years for a person of or over the age of 65 years. No maternity benefits are payable for the period of 52 weeks following first being named as an insured person. 93 HIA/Insight Market Review, p.37 94 For more information, please see http://www.hia.ie/faq/faqwaiting.html#question7 93
The HIA publishes on its website a consumer guide, Understanding and Comparing Private Health Insurance Products 95 designed to help consumers compare the benefits provided by various PHI schemes. The publication of such data, similar in format to the cost surveys published regularly by the Financial Regulator, needs to be advertised widely. Search Costs 6.33 Search costs, which can be distinguished from switching costs, are defined as follows: “Search costs are the total costs spent by a consumer in identifying and interpreting a firm’s product and price offering, regardless of whether the consumer buys the product from that firm or not. Switching costs are the total costs incurred by a fully informed consumer through deciding to change suppliers that would not have been incurred by remaining with the current supplier.” 96 6.34 Therefore, while switching costs are only incurred upon deciding to switch, search costs may be incurred numerous times, and must be paid regardless of whether a consumer eventually decides to switch. This means that the search activity of consumers will be inhibited more by high search costs, which are an inevitable outcome of searching, than by high switching costs, which only arise following a successful search. Firms can increase search costs through the use of “obfuscation strategies”, for example, deliberately complex tariff structures which consumers find difficult to compare. 6.35 Consumer welfare can be increased by reducing both switching costs and search costs. 97 Indeed, since high search costs may be a more significant factor inhibiting switching, reducing search costs may have a greater impact on competition and consumer welfare than reducing switching costs. This is because consumers have already completed searching and are clearly sufficiently motivated once they reach the switching stage. Search costs are unlikely to deter highly motivated consumers. However, where consumers are not highly-motivated, they may not even go to the bother of examining alternative suppliers if the search costs of doing so are too high. Reducing search costs will facilitate switching by consumers who are not highly-motivated. 6.36 Both search and switching costs can be reduced if consumers have ready access to simple, understandable, high-quality price and product information. Where an industry is unable or unwilling to provide this information, it may fall to an industry regulator or a consumer advocacy agency to do so. 6.37 The Financial Regulator has also been proactive in providing consumers with straightforward information on frequently-complex retail financial products and services through its websites, www.financialregulator.ie and www.itsyourmoney.ie. The cost surveys which the Regulator issues 95 Available online at http://www.hia.ie/docs/pcaci/2006-Comparison-Table-September.pdf 96 Wilson, C. (2006). “Markets with Search and Switching Costs”. Centre for Competition Policy Working Paper 06-10. Available online at http://www.ccp.uea.ac.uk/public_files/workingpapers/CCP06-10.pdf 97 Wilson (2006), p.20 94
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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
Page 43 and 44: 3. DEFINING THE PRIVATE HEALTH INSU
Page 45 and 46: Figure 7: Key features of Related H
Page 47 and 48: price increase unprofitable by a hy
Page 49 and 50: 4.6 Aspects of the exemption from i
Page 51 and 52: and quarterly management accounts t
Page 53 and 54: Table 4: Regulation of PHI Firms 48
Page 55 and 56: 4.31 This is a positive step. Just
Page 57 and 58: obliges Vhi Healthcare to seek appr
Page 59 and 60: 4.41 In the regulatory approval pro
Page 61 and 62: 4.50 However, the Authority is clea
Page 63 and 64: Unfunded Lifetime Community Rating
Page 65 and 66: President of the Society of Actuari
Page 67 and 68: − The main other deterrent at pre
Page 69 and 70: o The former members of the Advisor
Page 71 and 72: materially affected by any seasonal
Page 73 and 74: It may also be noted that the propo
Page 75 and 76: 4.94 There are 37 health insurers i
Page 77 and 78: Interviews with Possible New Entran
Page 79 and 80: 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: 6.24 The provision of renewal notic
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 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
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Australia Ireland Risk equalisation
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1.22 The Irish data is not split at
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Conclusion of normal claim payments
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APPENDIX 3 Consumer Attitudes to Sw
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Survey Respondent factors promoting
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APPENDIX 5 OECD Review of PHI The O
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not-for-profit insurers has posed c
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114. Private insurers have not impl
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APPENDIX 6 List of Submissions The
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Understanding and Comparing Private
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Benefits Outpatient Cover Cover for
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Dobson, P., M. Waterson and A. Chu,
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Vhi Healthcare (2005), Annual Repor
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Competition in the Irish Private Health Insurance Market

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