Harney defends risk equalisation despite grim reports

Risk equalisation is fundamental to the private health insurance sector, the Minister for Health Mary Harney said today, despite a report painting a grim picture of the marketplace.

The Competition Authority study found the cost of health insurance will continue to soar while the health insurer VHI will retain its dominance of the sector.

The report found efforts to promote competition in the sector were not working.

Harney admitted: “Competition isn’t working as effectively as I would wish for the benefit of consumers and that is why I asked the Competition Authority and the Health Insurance Authority to report to me.”

Ms Harney said she had requested a three-person group led by Colm Barrington to examine the risk equalisation model to probe whether it is possible for companies to get a reasonable return on their capital in the Irish market.

“Because if we can’t have competition we will not be able to protect consumers we won’t get innovation in healthcare and nobody will benefit if we don’t have a competitive market,” Ms Harney said.

“So I think there are a number of things we need to do, obviously I need to consult with the Cabinet and I am not prepared to say in advance of that consultation and decision making process what it is we intend to do in this area.”

The study from the authority has found plans for payments by other insurance companies to the VHI to cover the costs of it having a higher proportion of older customers make it impossible to have a truly competitive market.

One solution suggested by the authority was the sale of parts of the VHI to other established health insurance companies.

British-owned BUPA was taken over by Sean Quinn at the end of January after it announced it was leaving the Irish market over risk equalisation.

Ms Harney said community rating was fundamental and she would not agree with the removal of the risk equalisation policy.

“I want to see competition and community rating and that means everybody regardless of their age or the status of their health pays the same for the same product. You cannot do that if one company has all the older members, and other companies have all the younger members, unless you have something like risk equalisation where younger people effectively subsidise older people.

“That has to be the model going forward. And whether or not the current model we have is perfect or not remains to be seen. That will be a matter to be determined when I see at the end of March the recommendations of the Barrington group,” she said.

After the Quinn group took over BUPA it immediately claimed it did not have to pay the subsidies to VHI as it is a new entrant.

A loophole allows new entrants to avoid paying up for the first three years.

BUPA had said the risk equalisation scheme, which involves newer insurers paying subsidies to the VHI as it has an older and potentially sicker client base, would cost it €160m. Around 50% of the population – 1.9 million people – hold private health insurance cover, with BUPA Ireland covering 460,000 customers.

It has younger customers who make fewer claims, while the VHI has been insuring people since 1957, and many of its customers are older and more likely to need insurance cover.

VHI maintains it needs the compensation in order to provide community ratings, where everyone pays the same premium regardless of age, gender or health profile.

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