New study of health insurance market ordered

The Government is to establish a review group to determine whether health insurance companies can make a profit in the Irish …

The Government is to establish a review group to determine whether health insurance companies can make a profit in the Irish market as it is currently structured and regulated. Martin Wallreports.

The plan for a new "business review", which was brought to Cabinet by the Minister for Health, Mary Harney, last Tuesday, represents the Government's first tangible response to the announcement by Bupa Ireland that it is to withdraw from Ireland.

Bupa has maintained that the introduction of a risk equalisation scheme, which would see it having to pay tens of millions of euro to rivals with older membership profiles, has made its business unviable.

The new review group, which will include business and insurance experts, will be asked to produce a report within three months or so.

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The Government hopes that if the report shows an adequate return can be made, it would send a signal to international companies which may be considering entering the market in the future as well as to those already in it.

Bupa has contended that the absence of many of the large international insurance companies from the Irish health market is evidence of a widespread belief that it is not considered commercially attractive as a result of the introduction of risk equalisation.

Risk equalisation is effectively a compensation scheme under which insurance companies with relatively older subscribers receive payments from those with younger membership profiles.

The Government believes it is essential to underpin the concept of community rating, where everyone pays the same regardless of age.

The Government has come under pressure from the Opposition in recent days to spell out how it plans to address the issue of competition in the health insurance market following the announcement of the imminent departure of Bupa Ireland.

Senior Government figures have suggested in recent days that the Cabinet may consider breaking up the VHI into a number of competing companies.

This is expected to be one of the main recommendations of a report drawn up by the Competition Authority which is to be given to Ms Harney in about three weeks' time.

Government sources said last night that the aim of the new review was to "double check" the position as to whether a return could be made in the Irish market within the environment of community rating and risk equalisation.

Sources said that the review was considered necessary given the conflicting views expressed in recent times as to whether it was possible for companies to make a reasonable rate of return.

A spokesman for Ms Harney told The Irish Timesthat the new group would carry out its review from a business perspective.

The spokesman said that the membership of the new group would be announced shortly.

Meanwhile, it has emerged that a challenge brought by Bupa Ireland against the EU Commission relating to its approval of the risk equalisation scheme in Ireland is to be heard by the European Court of First Instance on March 7th.

In a letter sent to the Government earlier this week, the court set out a series of questions about the operation of the risk equalisation scheme.

Among the questions set out were why, for the purpose of determining the proportionality of the compensation under the scheme, neither the costs nor revenues generated by the provision of health insurance services could be taken into account.

It also questioned why inefficiencies were not taken into consideration when calculating risk differentials between insurers.