I decided not to trigger risk equalisation in health insurance, but I want to ensure that we do not have a market which has only one real participant, writes Mary Harney
Consumers win from competition, and they know it. This debate has been won in recent years in Ireland, but there will always be policy decisions to be made that can further support and promote competition in the public interest.
This was the context in which I decided not to introduce risk equalisation in health insurance in the current circumstances. I believe that consumers can benefit from more competition and a clearer, level playing field in the health insurance market.
Ireland is fortunate in having a strong private health insurance market. Our economic success is allowing more people take out health insurance. Some 52 per cent of the population are now covered. Approximately €1 billion is paid in health insurance premiums, which funds a substantial amount of health services.
The number of people insured is up from 1.42 million in 1997 to nearly two million now. VHI and Bupa are increasing their membership, as is the latest market entrant, Vivas. Both VHI and Bupa have prospered, with each of them making record profits in 2004.
The evidence is that the opening of the market since 1997 has spurred efficiency and innovation by all the market participants. All consumers have benefited.
The Government is committed to maintaining a strong, community-rated market in health insurance. Community rating means that, while insurers can have different levels of cover and benefits, they must charge the same premium for this cover to everybody who applies. This is unlike a normal insurance market, where insurers vary the premium to individuals based on risks, for example, related to age, gender or claims history. Young males pay more for car insurance and smokers pay more for life assurance.
Community rating, however, creates a potential distortion in the market if some companies have many more young low-risk members relative to their number of older high-risk members, while others have the reverse. In recognition of this, the Oireachtas provided for a scheme of "risk equalisation", if judged necessary to underpin the stability of the market.
Risk equalisation aims to neutralise differences in insurers' costs that arise due to variations in the age and gender profile of their members. Depending on the extent of the variation, risk equalisation may result in cash transfers from insurers with lower-risk members to insurers with higher-risk members.
The legislation does not mandate the automatic implementation of risk equalisation regardless of circumstances.
The best overall interests of health insurance consumers is the overriding objective, defined in the Health Insurance Act as including "the need to maintain community rating across the market for health insurance and to facilitate competition between undertakings".
The law provides that where the variation in risk profile is relatively small then risk equalisation will not be triggered. If the variation is large, its triggering is virtually automatic.
If it is in-between, its triggering is a matter for judgment as to its likely impact on the overall market and the overall interests of consumers.
In those circumstances, this judgment is to be exercised by the Minister for Health and Children taking into account the advice of the Health Insurance Authority.
I studied carefully that advice, and the advice of my Department and its actuarial advisers. At this time, the HIA advised for triggering risk equalisation, the Department, and separately its advisers, against. I also consulted with the insurers in the market.
I decided that risk equalisation should not be triggered in the current circumstances.
My obligation is to promote the interests of consumers, not the interests of any particular insurer, irrespective of its ownership. I had to assess whether risk equalisation at this time would tend to promote or stifle competition, and encourage or discourage new entrants.
I was influenced by the fact that there is a dominant insurer in the market, VHI, with an 80 per cent market share, conferring significant advantages. I was also influenced by the difficulty in reversing risk equalisation once triggered.
My concern is to avoid the possibility of a return to a market with only one real participant. This would not be in the interest of consumers in general or even of the members of the VHI.
I intend to address some of the other distortions in the market, such as the corporate status of the VHI and its exemption from commercial solvency requirements and regulation.
My concern will continue to be the overall interest of current and future health insurance consumers. I will work to promote a vibrant, competitive health insurance market that contributes to sustainable funding and innovation in our health services broadly. With further reform, that is both entirely achievable and in the interests of the public as users of health services.