Business Opinion: Our ongoing national obsession with the second terminal at Dublin airport must seem somewhat peculiar to anyone visiting from abroad. Even after fighting their way through the chaos they must still be bemused to find out that the issue is a regular feature on the front pages.
What they don't realise, of course, is that the second terminal has come to symbolise the Government's incompetence when it comes to transport policy. In a similar way, the Groceries Order debate is shorthand for the rip-off culture that is now endemic and the row about broadband penetration is code for the unpleasant taste left in people's mouths by the Eircom flotation.
In many ways this sort of oversimplification suits everybody. It reduces complex issues to something that the public - and to be honest the media - can get their heads around, while at the same time diverting attention away from the wider systemic failures of Government policy.
The newest member of this odd collection of lightning rods is risk equalisation, which will colour the health service debate in a similar fashion over the next few months.
Risk equalisation is the regulatory system to facilitate competition in the health insurance market, which operates within the constraint of community rating. This is the principle that a health insurer must offer everybody the same level of cover for the same price, irrespective of age or health. The theory is that profits made on young and healthy members offset the losses made on older and sick members.
The problem with community rating is that, although its purpose is laudable, it does not necessarily work in the interest of the consumer. This is because the best strategy for any newcomer in the market to adopt is to concentrate on the young and healthy part of the market and leave the older and unprofitable sector to the incumbent, which must up its prices.
This is what Bupa has been accused of doing since it entered the heath insurance market in 1996. Last week the chief executive of VHI, Vincent Sheridan, told the Oireachtas joint committee on health that "Bupa entered the market, targeted younger members, did not reduce their prices to reflect the lower claims profile but rather followed VHI prices. This has resulted in enormous windfall profits for Bupa, which Irish consumers are paying for through higher prices".
His assertion was supported by the chairman of the Health Insurance Agency (HIA), Prof Alastair Wood, who told the committee that VHI premiums had increased by 98 per cent since Bupa entered the market and Bupa's premiums had increased by the same margin. Neither increase could be explained solely by medical cost inflation, he said.
Under risk equalisation, insurers who have an above-average exposure in the profitable sectors of the market must make payments to those insurers that have above-average exposures to the unprofitable sectors. The theory goes that, over time, the risk-equalisation mechanism will make predatory pricing non-viable and force the insurers to compete in more conventional ways.
The HIA has now decided that the imbalances in the market are such that the risk-equalisation process should be triggered. Payments of up to €40 million a year by Bupa have been mooted, but not confirmed.
The HIA made its recommendation last Friday and the Tánaiste and Minister for Health now has 60 days to make a decision. It will not be an easy one to make. Bupa has made it clear that it considers the proposed payments excessive in the context of its profits here - €23.4 million in 2004 - and warned it will pack up and leave if the Government goes ahead.
It is hard to know how seriously to take this threat, But both Sheridan and Wood referred last week to a report commissioned by the HIA from UK consultants, the York Health Economics Consortium. It concluded that: "If Bupa Ireland cannot make satisfactory profits in the health insurance market with risk equalisation, then it may be introducing inefficiency into the market, such that its withdrawal would be in the best long-term interest of consumers."
It also argues that Bupa will only leave the market if its business plan is based around catering to the the young and the healthy. If this is the case, then its departure really it is no loss. If, on the other hand, Bupa is serious about being a long-term player in the Irish market with its community rating ethos, it will adapt to the less attractive economics imposed by risk equalisation.
There is a compelling case for calling Bupa's bluff, not least because the Government cannot let itself be so obviously bullied by big business. But the Tánaiste may be reluctant to do so. Bupa's withdrawal would be something of a disaster, given her avowal of the free-market and her desire to see more private sector involvement in healthcare. And judging by the tenor of the questions put by her party colleague Fiona O'Malley to Sheridan and Wood at last week's committee, the Progressive Democrats have plenty of time for Bupa.
When you throw the next round of social partnership and the active lobbying for risk equalisation by VHI's trade unions into the mix, along with the Taoiseach's new-found socialism, it's pretty clear that we will be hearing a lot about risk equalisation this summer.
