Health insurers considering new strategies for growth

VHI interest in purchasing private hospitals signals a shift in commercial strategy

In February 2018, former national director of HSE clinical programmes Barry White will take up a role with VHI to scope out a new model of care.

In February 2018, former national director of HSE clinical programmes Barry White will take up a role with VHI to scope out a new model of care.

 

In the 20 years or so since the ending of State-owned VHI’s monopoly on the provision of private health insurance in Ireland, the sector has been in a constant state of flux.

New companies arrived, others departed; a bewildering array of products and health plans appeared; there were new Government regulations that prompted rows and court cases. Over that period, the size of the market expanded, then contracted and then rose again in line with the ebbing and flowing of the domestic economy.

The health insurance sector now appears to be on the cusp of more reforms with The Irish Times reporting this week that the State-owned VHI, which has about 52 per cent of the market, was looking at acquiring private hospitals.

A number of months ago the company made unsuccessful approaches to acquire the 200-bed Beacon Private Hospital, which is controlled by businessman Denis O’Brien.

It is now thought to be looking at St Vincent’s Private Hospital on Merrion Road, which is part of the overall St Vincent’s Healthcare Group.

However, this is just one element of a broader re-examination of its business model that VHI is undertaking in the face of a number of impending challenges.

The company has forecast that the traditional system of healthcare in Ireland will not work in the future.

“The demographic profile of the Irish population is continuing to change with increasing demands on both the public and private healthcare system. It is clear that the healthcare system in place now will not meet the needs of the Irish population in the future. This challenge is even more pressing for VHI given the age profile of our customers”, the company told The Irish Times this week.

Integrated care

Traditionally, patients have generally been referred by GPs to hospitals for episodes of care for particular issues and then sent back to the community.

However, there are other more integrated types of care developed or in development elsewhere – some with a greater focus on primary care, others looking at the more wide-ranging health needs of the patients, as well as providing for step-down care.

Next February, the former national director of the HSE’s clinical programmes, Barry White, will take up a new role with VHI to scope out a new model of care for the future.

The company’s reform plans come in the face of significant challenges – one is the inevitable demographic changes the company will face in the years ahead and the second involves the political drive to reform the traditional public healthcare model here.

The economic model of health insurance is quite simple. As people get older they tend to become ill more frequently and claim more regularly. Younger people are healthier in general, and therefore more profitable for insurance companies. Ireland operates a system of community rating where policies cannot be loaded as subscribers to health insurance plans age.

Inter-generational solidarity

The theory is that the younger people subsidise older subscribers, who will be subsidised in future years as part of what is known technically as inter-generational solidarity.

However, the operation of this system will face challenges as a result of the demographic changes to our population that are forecast.

A report published last October by the ESRI projected the population would both grow and age substantially in the years to 2030, resulting in a substantially increased demand across all health and social sectors.

The report forecast the number of people aged 65 and over increasing by 60-64 per cent, and the number aged 80 and over rising by 89-94 per cent.

The report projected this would result in a 32 -37 per cent increase in demand for inpatient bed days in public hospitals, the equivalent to up to 1.2 million extra bed days in 2030.

Private hospitals will see an increase in inpatient bed day demand of up to 32 per cent, and a rise in day-patient demand by up to 28 per cent.

VHI is already facing demographic pressures as it has by far the largest number of older people with health insurance in the market.

On its books, are 66 per cent of the over-60s cohort and 81 per cent of those aged 80 and above.

The projected surge in demand for care also comes at a time when VHI and other health insurers face being squeezed out of the public system under the Government’s Slaintecare proposals.

At present, health insurers pay public hospitals about €600 million annually for treating subscribers in their facilities – as well as millions more to doctors.

Competitive advantage

Slaintecare envisages the abolition of private medicine in public hospitals. This is where ownership of one or more private hospitals could provide VHI with a competitive advantage.

Already, the company’s move to acquire the 50 per cent of the Swiftcare clinics previously owned by Centric Health allowed it to restrict access to the centres in Dundrum, Swords and Cork to its near 1.1 million subscribers.

These centres allow patients to avoid overcrowding and queues in the emergency units of public hospital, and the VHI announcement that only its subscribers in future could attend Swiftcare facilities was quickly followed by a declaration by its rival Irish Life Health that its members would have reduced-rate access to minor injury clinics operated by Affidea in Dublin and Cork.

VHI has not given any public indication of where it would see ownership of private hospitals fitting in with its future strategy, although it has not denied making approaches to Beacon and others.

Some industry sources have suggested that part of the company’s objective may be greater control of costs and that it may even want to employ its own doctors.

It is likely to be sometime into 2018 before the full indications of the company’s plans are known. However its shareholder – Minister for Health Simon Harris, who has his own health reform plans in the shape of Slaintecare – has signalled that he would need to be convinced about the merits of VHI buying private hospitals.

Any move towards employing doctors would also likely face criticism about a potential dilution of clinical independence.

Caution from the Minister surrounding the purchase of hospitals is replicated in the wider health insurance industry. Dónal Clancy, the managing director of Laya Healthcare, said that, from his perspective, this is a “very unusual move for the VHI”.

Better outcome

He noted other instances where health insurers had tried to diversify by buying hospitals in the UK and the US with limited success.

“We have a fundamental understanding that what we’re trying to do is get a better outcome for the customer. And right now we don’t see how going down that avenue would get our customers a better outcome,” he said.

Jim Dowdall, the managing director of Irish Life Health, questioned whether VHI, and by consequence the State, should be getting into the private hospital sphere.

“I think it’s right and proper that the State sets health policy for the nation, I think it’s right and proper that the State regulates the market. But, I don’t think it’s right that the State also owns the largest health insurer in the market because they should be setting policy, they should be setting the rules for the market but not necessarily the largest participant in the market that could benefit, or not benefit, from whatever policy direction the State decides to take.”

Both insurers stressed that attracting customers and holding on to the ones they already have, required innovative add-ons and benefits.

When asked whether he was looking at buying a private hospital, Mr Dowdall said: “It’s not our intention to use our customers’ premiums to buy a hospital . . . If you owned a hospital and let’s say that hospital didn’t deliver the best outcomes in the medical system, would you still be driving your customers into that hospital even though there’s better options available elsewhere?”

In a battle that is currently being comprehensively won by VHI – at least in terms of market share – its competitors have taken to diversifying their offering.

Laya gives its clients access to add-ons like “healthcoach” and “quickcare” while Irish Life Health has a benefit called “digital doctor”.

In any event, while price is still important to consumers, Mr Clancy said: “We’re trying to look at you when you’re well to make sure you stay well for as long as possible and that really is centred around giving you a personal health plan.”

Mr Dowdall sung off the same hymn sheet: “Our emphasis in Irish Life Health would be on improving the health and wellbeing of our customers. And from our perspective it’s about having convenience and choice and access to a wide range of hospitals and consultants for if and when somebody needs medical care. It’s not about having restricted access.”

HEALTH INSURERS: BY THE NUMBERS

Laya Healthcare

Pretax profit: €5.5 million (year ended December 31st, 2016)

Market share in 2016: 27%

Number of insured lives: 559,520

First established as Bupa Ireland, Laya was launched in May 2012 following a management buyout of Quinn Healthcare. It is a wholly owned subsidiary of the Jersey incorporated Avondhu Ltd, which, in turn, is owned by the US-based insurance giant AIG.

Irish Life Health

Pretax profit: €4.02 million (year ended December 31st, 2016)

Market share 2016: 21%

Number of insured lives: 430,400

Irish Life acquired Aviva Health and the 51 per cent of GloHealth that it didn’t own on August 1st last year. The two businesses have since been merged under the Irish Life Health brand.

VHI

Pretax profit: €18.4 million (year ended December 31st, 2016)

Market share 2016: 52%

Number of lives insured: 1,076,000

The VHI board was created under the Voluntary Health Insurance Act 1957 to act as a voluntary body to undertake the business of writing private medical insurance in Ireland.

Total insured persons: 2.152 million (a 45.8 per cent share of the population).