Health insurance report backs risk equalisation

A NEW report on the private health insurance market has strongly backed the implementation of the controversial risk equalisation scheme, which compels health insurers to pay compensation to the VHI.

However, it suggests that Health Minister Mary Harney should extend the phased-in period before VHI’s competitors should have to make payments to the State-owned insurer.

The scheme, which is designed to compensate VHI for having an older customer profile, has consistently been opposed by its rivals, BUPA and VIVAS. Both companies have sought measures to avoid making multi-million euro payments to their main competitor.

Under the existing scheme, a new entrant does not have to make risk equalisation payments for three years, and 50% payments in the fourth year, before full payments thereafter. However, the new report by the Health Insurance Authority recommends that full payments should only take effect after seven years.

Although the HIA report acknowledged that risk equalisation could act as a deterrent to new entrants to the market, it stressed that the absence of payments under the scheme gave an unfair advantage to VHI’s competitors.

“The risk equalisation scheme is designed to reduce but not eliminate this regulatory advantage and insurers with lower risk profiles will continue to have a significant advantage, even with risk equalisation payments,” it states.

The HIA’s assessment of the effects of risk equalisation contrasts significantly with one of the main conclusions of a similar report published by the Competition Authority earlier this week. Both studies were commissioned by Ms Harney for the purpose of improving competition.

The Competition Authority report was less enthusiastic about the benefits of risk equalisation, claiming its implementation would substantially strengthen VHI’s position and raise the overall cost of health insurance. The HIA report makes 14 recommendations to ensure greater and more level competition in the market. It does not propose a break-up of the VHI, despite its finding that the Irish market is highly concentrated, although it does recommend a further detailed study on the issue.

The State-owned health insurer holds an estimated 75% of the market, compared to BUPA (whose business was recently sold to the Quinn group for €150m) with 22% and VIVAS with 3%. However, since competition was first introduced in 1997, VHI’s share of the market has fallen on average by around 2.5% each year.

Other HIA recommendations include:

* The removal of restrictions to allow insurers offer limited cover products.

* The removal of the requirement for customers to have private insurance with VHI before buying the company’s Multi-Trip travel insurance.

* VHI should come under the regulatory control of the Financial Regulator, like its rivals.

The report also questioned the need for the minister to retain control for approving price increases sought by the VHI.

Ms Harney is unlikely to announce her plans for risk equalisation until the completion of a third report next month by an expert group, which is examining the profitability of the Irish health insurance market.