Community rating is a system whereby each person pays the same premium for health insurance irrespective of risk, ie, age, health status, etc.
Where there is more than one health insurer in the market, it is essential that the risks be shared among all insurers. Otherwise there will be cherry-picking of members with the lowest risk and the potential of enormous profits being taken out of the market.
Risk equalisation is the mechanism that facilitates this sharing of risks.
Those who oppose risk equalisation wish to retain the excess premiums paid by younger and healthier people for their own profit rather than contribute to the cost of the community risk pool.
The Bupa experience is a clear example of what can happen in a community rated market without risk equalisation. Bupa left the Irish market with the benefit of €100 million in super normal profits acquired at the expense of the Irish private health consumers over a 10-year period.
Over this period, Bupa had a profit margin here that was three to four times greater than it had in Britain.
When Bupa said it could not continue in the market post risk equalisation and was withdrawing from it, a number of parties expressed an interest in buying Bupa (Axa and the Quinn Group are two).
Under the risk equalisation mechanism that existed at that time, there was a three-and-a-half year exemption from risk equalisation payments to encourage new entrants to the market.
Clearly, the Bupa business would have been more valuable had this exemption been available to the purchaser.
However, the spirit of the legislation was that the exemption was available only to new entrants trying to build up their business and not to someone purchasing a business that already had 20% of the market.
The Government closed off this loophole in late February this year and in March the Quinn Group was still prepared to pay approximately €50 million for the business plus a deferred cash consideration presumably based on future profits.
Vhi Healthcare supports competition in the market and is happy to compete with existing and new entrants so long as they are committed to the public policy of community rating and recognise that this must be supported by risk equalisation.
Head of Corporate
Lr Abbey Street