Limited health cover proposed by watchdog

The Competition Authority has proposed that health insurers should be allowed to market "limited cover" products which would be cheaper for the subscriber but offer a restricted range of hospitals or doctors who could provide treatment.

In a report on the health insurance sector commissioned by Minister for Health Mary Harney, the authority proposes that the Government's existing rules on minimum benefits that insurers must provide be simplified and updated.

It recommends that products offering limited cover should be permitted subject to prior approval by the market regulator, the Health Insurance Authority.

It suggests that such a move would allow companies to offer lower-cost health insurance plans by agreeing reimbursement terms with a limited number of selected hospitals or consultants.

Such plans could possibly exclude maternity benefits.

The report also argues that the introduction of a controversial risk equalisation scheme for the sector will result in average prices increasing all round.

It says that this will be true regardless of the cost-cutting measures that would be expected in a competitive market, as the the introduction of risk equalisation payments would significantly adjust the cost base of insurers.

It says the start of risk equalisation payments and the requirement on VHI to increase its financial reserves would inevitably lead to price increases.

"The effect of the commencement of risk equalisation on competition will be to limit price competition, consolidate the market position of VHI and inhibit and discourage entry. The overall effect is that the risk equalisation scheme will tend to substantially strengthen VHI's market power and limit significantly the competitive constraint that other health insurers can place on its behaviour," it states.

The report says VHI's current exemption from prudential regulation should be ended as soon as possible and that the company should have to face the same solvency requirements and corporate structuring rules as other insurers. It recommends that consideration be given to allowing the company to build up its reserves other than through price increases.

The report stops short of calling for the break-up of the VHI but says the Government could consider "fundamental measures" such as splitting the company into a number of competing entities, privatising it or reviewing the concept of younger members subsidising the old.