Idea of subsidising VHI is absurd The Risk Equalisation Scheme threatens all competition in the health sector

This week's preliminary decision by the Health Insurance Authority (HIA) not to recommend a Risk Equalisation Scheme (RES) for the Irish health insurance market has brought the focus once more on competition in the market, writes Martin O'Rourke, managing director of BUPA Ireland

This week's preliminary decision by the Health Insurance Authority (HIA) not to recommend a Risk Equalisation Scheme (RES) for the Irish health insurance market has brought the focus once more on competition in the market.

Those who keep a close eye on health insurance in the Republic will know that BUPA Ireland has consistently argued against the introduction of this State aid.

While the HIA decision - based on an analysis of the facts - is logical, it is not one for which BUPA Ireland, acting on behalf of its customers, should be grateful. Seeking a subsidy from a private company for a State- owned company is an absurdity the likes of which would not be tolerated anywhere else in the EU.

The legitimacy of this measure is far from resolved and will ultimately be decided elsewhere. BUPA Ireland will continue its challenge at the European Court. The EU did not endorse the subsidy but declined to intervene to stop it. We are strongly of the view that the Commission should have intervened and we feel we must act to protect our position and remove the ongoing threat to our business.

The Third Non-Life Directive was intended to provide for competition, but meaningful competition in the health insurance market cannot emerge if a system is introduced whereby the VHI receives several millions of euro in the form of a subsidy from its only competitor, BUPA Ireland. This subsidy scheme, if implemented, would threaten what little competition there is and put the cost of health insurance beyond the reach of many families.

BUPA Ireland opened for business in 1997 and brought competition and a distinctive value proposition to the market. Consumers, including VHI members, have benefited significantly in terms of greater choice, new products and benefits, and consistently lower prices. As a result, the market has expanded rapidly with nearly 50 per cent of the population choosing to be insured.

Contrary to the "prophets of doom", this has also brought the VHI to record levels of profit and membership.

However, Ireland still has a long way to go before there is real meaningful competition in this market. We could easily sustain four or five health insurers offering a much wider variety of products. Indeed, consumers are demanding such a diversity of competition but are not getting it as result of the stultifying threat of RES and the wider regulatory environment.

The question should be asked as to who is seeking this subsidy and why. It seems that only the semi-State sector in the form of the VHI and the ESB staff fund - which is not open to the general public - are seeking this and are, coincidentally, the only ones who will benefit. Why?

Is it the ingrained resistance of such organisations to competition? Is the VHI being "fattened for sale", as has been widely reported? Or is this an example of regulatory capture on the part of semi-State organisations to insulate their products from competition?

The public can draw its own conclusions as to why a measure whose usefulness has never been demonstrated is being so vociferously sought. The fact remains that this subsidy, if implemented, would ever only go one way - from the private to the State sector, protecting the VHI from competition in an open market. So, no new entrant can grow and develop to a point where it could be a real competitive threat to the VHI.

This is the essence of the argument and we should not be distracted from it by spurious and false arguments whose hollowness is masked by a superficial seductive appeal.

Risk equalisation has nothing to do with risk. Each insurer assesses its own risk and sets its own prices for its own products. Consumers select the value proposition which best suits them and can change insurers without penalty under the open enrolment regulations. So the issue of insurers being "left with all the old people" simply doesn't arise.

Furthermore, the persistent assertion that the limited competition to date has resulted in higher market prices is ridiculous. Further, it suggests a monopoly that is incapable of competing.

BUPA Ireland is in favour of real competition and satisfying consumer preferences. There is a need for a level playing field for market players and a better, more fairly structured system. Consumers want real choice and competitive pricing. A complete liberalisation of the health insurance market is required; where market forces will operate within certain safeguards and where the consumers' needs, not those of monopolies or vested interests, prevail.