Risk equalisation is not necessary in the Irish health insurance market and will hinder competition, according to BUPA Ireland's chief executive, Mr Martin O'Rourke.
Rejecting the assertion by VHI chief executive Mr Vincent Sheridan that risk equalisation was required to underpin community rating, Mr O'Rourke argues it is anti-consumer, prevents competition and facilitates insurers that do not try to contain costs or introduce new products.
Community rating means all subscribers pay the same premiums to their health insurer regardless of age, gender or state of health. Risk equalisation aims to equalise the cost of claims of less healthy people across all the market players in proportion to their market share. The reason is to ensure that health insurers with older customers are not financially disadvantaged by providing for cash transfers when there is a material market imbalance between the customer profiles and claims experience of the companies in the market.
The VHI maintains the absence of risk equalisation persuades insurers to target younger, healthier and lower-risk customers.
This would drive up insurance costs for older or less healthy people, drive customers out of private insurance and cause market instability, it argues.
Mr O'Rourke asserts that risk equalisation would destroy competition and create market uncertainty. If risk equalisation were introduced, BUPA Ireland would have to pay VHI about £30 million (#38 million) over the next three years, says Mr O'Rourke, which amounted to the smaller player subsidising the old monopoly. The assumption that risk equalisation is needed to underpin community rating is false, he maintains.
"In a highly regulated market, where cherry-picking is illegal and customers are entitled to open enrolment, free transferability and lifetime cover, risk equalisation is totally unnecessary," he says. Open enrolment means customers cannot be refused insurance, free transferability means they can move without discrimination between insurers, while lifetime cover means they cannot be refused insurance as they get older.
BUPA Ireland's average customer age is higher than the 27 years attributed by the VHI, he says, declining to disclose the average "because we won't hand over commercial intelligence to our competitor". And he adds that the average age of customers joining BUPA is higher than at the VHI.
"VHI's fears that competition without risk equalisation would reduce the size of the market, push out older customers and lead to the collapse of insurers have proved to be unfounded. The market has grown, premiums are competitive and no one has collapsed," he argues. But BUPA accepts that measures to ensure market stability should be put in place.
"We think the proposed Health Insurance Authority should have a reserve power to recommend a risk-equalisation scheme if such a scheme was independently considered necessary by the authority to maintain market stability. It is in our interest to have stability and we acknowledge that, at some stage, someone could cause instability, so we feel reserve power based on an objective criteria - such as downsizing of the market, exit of older-aged policy-holders or the impending financial collapse of one or more insurers - should be allowed for," Mr O'Rourke says.
Objecting to VHI documentation setting out premium and profit estimates for BUPA for 2002, Mr O'Rourke says the figures cited are "completely wrong". He declined to discuss performance figures for the period.
"What this is all about is that we are a not-for-profit organisation and they are being fattened up for sale. They have grossly overstated our income and they think if we increase the size of the market they are entitled to get some sort of rental income from us," he contends.
With legislation on changes in the health insurance market before the Oireachtas, the risk-equalisation battle between VHI and BUPA is expected to intensify.
