Bupa Ireland confirms profits of €20m for 2004

Bupa Ireland made profits after tax of €20 million last year, the company confirmed yesterday.

Bupa Ireland chief executive Martin O'Rourke also forecast that the private health insurance company would generate profits of around €17 million in the current year.

Company finance director Niall Devereux told the Oireachtas Committee on Health and Children that Bupa Ireland had generated accumulated profits of around €70 million during its eight years in operation.

He said that €55 million had been set aside to meet solvency requirements and that only €15 million had been "free profit".

Bupa Ireland, which has threatened to pull out of Ireland if a controversial risk-equalisation scheme is introduced, told the committee that the measure was unwarranted and against the consumer interest.

Risk equalisation is in essence an intra-industry compensation system under which companies with older subscriber profiles would receive financial transfers, via the regulator, from rivals with younger members who claim less frequently.

The Government believes that risk equalisation is essential if community rating, where everyone pays the same regardless of age, is to be maintained.

O'Rourke estimated that under risk equalisation Bupa Ireland could be forced to pay around €220 million to its main rival, VHI, over four years.

"We cannot be asked to do something that no other company on earth can do.

"We can't earn €17 million and then be asked to hand over €34 million to VHI," O'Rourke said.

He said that Bupa Ireland had never threatened the Government that it would withdraw from Ireland if risk equalisation was introduced.

He said that the company had told the industry regulator, the Health Insurance Authority, that "if no-one else in the world could run a viable business under risk equalisation then neither could we".

Questioned by Labour Party health spokeswoman Liz McManus on its views on the Health Insurance Authority, which has recommended the introduction of risk equalisation, Mr O'Rourke said that the the regulator was independent of both it and Vivas, the other health insurance company in the market.

However, he said that the Authority reported to the same Department as the VHI and that the same Government that appointed the board of the Authority also appointed the VHI board.

O'Rourke asserted that the VHI's higher level plans, C, D, E and F were being cross-subsidised by its lower level schemes.

He said that BUPA would be willing to take over the VHI higher plans if the State-owned company did not want to continue in this sector.

The chairman of Vivas Health, Cecil Hayes, said that the implementation of risk equalisation at a time when VHI had approximately 80 per cent of the market did not recognise the negative effects that this would have on smaller players and on consumers.

"The primary beneficiary of risk equalisation would be the VHI and the cost of this subsidy would be borne by the smaller market competitors," he said.

Mr Hayes said that VHI prices would continue to rise even after the introduction of risk equalisation and the simple conclusion was that all consumers would pay more if the measure was put in place.

Meanwhile, in a report commissioned by VHI, economic consultants DKM said that risk equalisation was essential to create conditions of competitive equality between market participants.

The report said that a market with community rating and open enrolment but without risk equalisation would be "unsustainable".

It said that in such a case large players such as VHI would likely become progressively unable to compete and would ultimately go bust.