New private clinics such as Whitfield in Waterford and the Beacon in Dublin opened their doors in the closing weeks of the year, but the real issue for private healthcare was Bupa's bombshell earlier this month that it was pulling out of the Irish market.

The reason was risk equalisation. As this applies in health insurance, profits from the younger, healthier people are used to subsidise the cost of older people who are more likely to claim on their policies.

The system is used to support community rating, which guarantees that everyone pays the same amount for the same level of cover, irrespective of their risk. This is contrary to normal insurance practice, where the greater the risk you pose, the higher your premium.

Because Government policy favours people taking out health insurance, it has to take this approach in order to ensure that the maximum number can afford it. However, under the regime adopted by Minister for Health Mary Harney, this meant Bupa had to transfer €1 million a week to its bigger competitor, the State-controlled VHI. The British-owned company said it could not afford this and announced it was leaving the market.

For 300 people in the Cork town of Fermoy, it was the worst thing they could hear with Christmas less than a fortnight away. For people insured with Bupa, it caused some confusion. However, the company said it would honour their policies.

The medium and long-term ramifications for the two million or so people in the Republic with health insurance are clear: less competition. There are two players left, the dominant VHI and its much smaller rival, Vivas. It is accepted that this will drive up prices.

When it comes to investors in private healthcare, opinion is divided. Angus Lochlann, consultant with advisers Watson Wyatt, believes it should not deter further private investment, simply because such a high number of Irish people have health insurance.

He points out that 52 per cent of Irish people are insured, compared to just 11 per cent in Britain. "The fact is that a high proportion of people have got health insurance and they're likely to keep up that insurance," he says.

The more people who are insured, the greater the demand for private healthcare.

From the hospitals' point of view, Bupa was always willing to provide cover for procedures, which meant they were guaranteed payment for treating their members. With three players in the market, they were also in a position to play one insurer off the other, which meant they could secure the best terms.

That was particularly attractive from an investor's point of view. However, with a market made up of one large player and one much smaller operator, much of that advantage is lost, because for the foreseeable future, private hospitals will almost certainly have to get VHI to agree to cover them. This means that when it comes to bargaining, the State player holds all the aces.

According to Dr Jim Madden, chairman of Euro Care International, which owns the recently opened Whitfield Clinic, VHI is capable of driving a hard bargain. "They're good operators and they know their business very well," he says. "They now can drive a harder bargain than before."

The impact, he says, will be to squeeze the returns from healthcare, which he agrees could make it harder to attract investors. "There's very little margin for error left," he says.

Lochlann acknowledges that in the past, hospitals have complained that the VHI has been slow to provide cover, and at times it even refused to provide 100 per cent cover where it believed that proposed prices and increases were too high. In those situations, hospitals billed patients for the balance between what the VHI paid and the cost.

There is no evidence yet that private investors will back off from healthcare, but it is certain that Bupa is as good as gone. Even if it stayed or returned, it has irreparably damaged its reputation in the eyes of most Irish people.

Whether its departure makes healthcare a bad bet for private investors remains to be seen.

One person who will be watching carefully is Mary Harney, who has made it clear that she sees the private sector playing a key role in curing the ills that afflict our health service. It would be ironic, then, if part of that approach, to make health insurance affordable and widely available, were to result in the rest of the policy unravelling completely.