Madam, - Bupa claims that risk equalisation would cost it €161 million over the next three years, compared with projected profits of €64 million under the current system of operation.
That's about €21 million profit a year, generated through the surplus of premium income over costs - principally staff, marketing and medical claims. This is a reflection of Bupa's relatively young customer base whose age profile would automatically mean a lower incidence of medical and hospital claims.
While Bupa is willing to recruit older customers, and has undoubtedly recruited a modest number of them, the reality is that (a) its marketing effort has been focused on recruiting company schemes in well-paid employments, where typically the average age of employees is probably as low as 30; and (b) older people are far less likely to move from an insurer they've been with all their lives in case the newcomer proves unreliable - as has turned out to be the case with Bupa.
If Bupa is currently making profits of about €20 million a year, then presumably it has long ago recouped its set-up costs and has accumulated a healthy surplus. These surplus funds should be invested to meet future claims, as inevitably an ageing membership base will make increasing claims while, in theory, the premium levels will remain relatively stable in real terms.
By cutting and running now, Bupa is able to pocket the accumulated surplus which should considerably exceed its winding-up costs, estimated at €20 million.
Meanwhile, VHI and Vivas are obliged to take on the 475,000 abandoned BUPA subscribers without penalty, but without the cushion of the profit these customers' subscriptions have generated in their earlier years of cover.
We should be grateful that Bupa has been forced to show its hand now, rather than in 10 years' time when it really would have milked the market before folding its corporate tent and dumping its unfortunate members on VHI, with all the increased cost implications for VHI members at that time.
- Yours, etc,
PETER MOLLOY, Haddington Park, Glenageary, Co Dublin.