Insurance giants running for cover

With the Government hanging by a thread, the only certainty is that of change in the near future

THE PRIVATE health insurance market has been in flux since the advent of competition 15 years ago, and there are no signs of this turmoil ending any time soon.

On the one hand, the Government is committed to major structural reforms which would see moves to reintroduce a controversial risk equalisation scheme in the market and to privatise – and possibly break up – the largest player, VHI. The surprise decision last week by VHI to substantially increase the price of policies predominantly held by older subscribers – a move which could trigger sizeable membership shifts between companies in the market – has added a new dynamic to this situation.

On the other hand, with only weeks to go before a general election, the prospect of a new government emerging, with very different healthcare priorities, is looming large. Both Fine Gael and Labour are backing the concept of a universal health insurance regime, a plan which could have significant implications for the existing market.

Much of the argument in the health insurance market since the arrival of Bupa in Ireland in 1996 has centred on the introduction of a risk equalisation scheme. The Government has insisted that such a mechanism is necessary to underpin the concept of community rating – whereby everyone pays the same amount for identical products, irrespective of their age.

The Government’s original risk equalisation scheme was struck down by the Supreme Court in 2008. It was replaced by a series of levies and tax arrangements designed to achieve the same purpose of compensating those companies with large numbers of older subscribers.

The VHI has argued that the current arrangement does not go far enough and that it is still losing €850 per person on its 129,000 customers over the age of 70. However, its rivals have contended that the current scheme is effectively a subsidy for the VHI which is unnecessarily increasing the cost of health insurance.

Aviva, for example, has argued that if the levies are abolished – and presumably not replaced with some other measure that would add to its costs – it would immediately reduce the cost of health insurance by up to 30 per cent on typical plans.

At the weekend, the Minister of State at the Department of Health, John Moloney, said the current system of levies and tax arrangements could be on the way out very soon and that new risk equalisation legislation would be ready within two or three months.

However, highly placed sources close to Government have indicated that this timeline seems very ambitious.

It is understood that the Department of Health is hoping to have transitional legislation ready by the middle or end of this year, with a view to it coming into effect next January. It is not envisaged that a new full risk equalisation scheme will be introduced until 2013.

Informed sources said yesterday that companies would have to be allowed a period to “trade in” the impact of the new risk equalisation scheme to their business model, given that it is likely to involve some having to hand over several million euro annually to rivals.

With the new risk equalisation legislation still some way off, a more immediate issue for the market will be the implications of the health strategy of Fine Gael and Labour if, as the polls suggest, they are to form the next government.

Under the proposals for a universal health insurance system – as proposed by both parties – the traditional distinction between public and private patient would disappear.

Under these plans everyone, through their insurance scheme, would have access to the same basic healthcare package. Presumably people will be allowed to pay extra for additional benefits on top of this package.

Where, precisely, existing health insurance companies would sit under these reforms has still to be set out. However – given that one of the main motivations for people to take out health insurance would appear to be the certainty of care and timeliness of treatment in the private sector as opposed to the public system – the implications are obvious.

The next government, of whatever hue, will probably have to find some mechanism for shoring up the VHI – its losses of €100 million over the past two years are not sustainable – and the concept of community rating.

The market for private health insurance has been falling over the past year or so. Official figures – presented by the industry regulator, the Health Insurance Authority, to the Department of Health in November – show that the number of people covered by private health insurance fell by about 6,000 between the end of the second-quarter of last year to the end of the third-quarter in September. This means that, for the first time in many years, less than half the population is now covered by health insurance.

The figures also reveal that VHI’s share of the market is continuing to contract – down to 61.8 per cent in September – while Aviva is performing strongly – up from 10 to over 12 per cent. On foot of the massive increases announced last week, the trend set out in these figures is likely to grow in the months ahead.

With both Government and opposition planning significant reforms, the one certainty in the health insurance market would appear to be that the existing structures are in their final stages.

In the meantime, more argument can be expected over how any new risk equalisation scheme would operate and how the Fine Gael and Labour plans for universal health insurance will sit in relation to the traditional private healthcare model.