Even if the VHI does split up, consumers will still face steep premium rises in the years ahead, writes Laura Slattery

Breaking up VHI into baby VHIs would be a "radical step", the Health Insurance Authority (HIA) admits, with consequences for the health insurance market that are difficult to predict.

But in calling on the Minister to commission an independent feasibility study into such a move, the HIA has gone further than the Competition Authority did earlier this week in its report on the same, increasingly thorny, subject of competition in the private health insurance market.

The Competition Authority's 190-line report and the HIA's 170-page report are the first and second parts of a trilogy of reports. The final report will be published by a review group headed by Colm Barrington in March and will focus on profitability within the sector.

The recommendations of all three reports will have to be considered by the Government.

The benefit to consumers should be the main factor in any study into the break-up of VHI, according to the HIA.

Although it cautions that the "precise dynamic benefits" that would flow from the increased competition are somewhat unpredictable, the HIA believes they are likely to be "significant and wide ranging", affecting pricing and product innovation. The HIA says a break-up will also greatly reduce or eliminate VHI's so-called "buyer power", which private hospital developers say is discouraging the opening of new private healthcare facilities.

That all sounds rather like the HIA believes a VHI split could be good news for consumers.

But it doesn't actually mean that health plans are going to be free of steep premium increases in the years ahead: escalating medical inflation means that the cost of health insurance premiums are only going in one direction, regardless of how much or how little competition there is in the insurance market.

In a statement yesterday, the authority stressed that all of its recommendations are conditional on the risk-equalisation scheme going ahead.

The HIA has advised the Minister for Health that the thwarting of her decision to implement risk equalisation with effect from January 2006 would involve significant risks for the current system of community rating that applies to health insurance and which means that everyone, young or old, must be charged the same amount for the same policy.

But after several bouts of legal wrangling, culminating in the exit of Bupa from the market and the purchase of its business by the Quinn Group, the third player in the health insurance market, Vivas Health, could be forgiven for being confused that the HIA has only now decided to suggest significant tweakings to the risk equalisation scheme.

A longer phase-in period for payments, which could affect Vivas sooner than it affects the Quinn Group if the latter company gets it way, is designed to lessen the deterrent to market entry posed by the risk equalisation scheme. It is unlikely to be welcomed by VHI.