In January, the Competition Authority published a report entitled Competition in the Private Health Insurance Market after undertaking a study into the private insurance market in this country. It makes a number of significant recommendations designed to introduce a workable level of competition in the market. The report refers to Ireland's public policy objective in private health insurance as being 'intergenerational solidarity', whereby the young subsidise the old by paying the same prices for private health insurance despite the lower risk they represent to health insurers. The report points out that the concept of intergenerational solidarity is underpinned by the following principles:

• Community rating: health insurers must charge all customers the same price for the same level of cover regardless of age, gender and the current or likely future of their health
  
  
• Open enrolment: all applicants for private health insurance must be accepted by a health insurer
  
  
• Lifetime cover: all consumers are guaranteed the right to renew their policies irrespective of factors such as their claims history
  
  
• Minimum benefits: health insurance is required to cover a particular set of treatments and procedures and to cover all public hospitals
  
  
• Risk equalisation: this system aims to neutralise the differences in health insurance costs that arise due to variations in the risk profile of an insurer's customer base. Risk equalisation results in a cash transfer from insurers with lower risk profiles to insurers with higher ones.

The Competition Authority points out that the legislative and regulatory framework in Ireland which is designed to support the public policy consideration of intergenerational solidarity significantly limits the scope of competition in the private health insurance sector. The Authority highlights a number of examples, including:

• health insurers cannot offer discounts to people with healthier lifestyles, such as non-smokers
  
  
• they can't offer discounts to employers who have programmes for promoting employee health, such as free or subsidised health screening
  
  
• innovation in private health insurance is limited as health insurers must continue to cover procedures that have been undertaken by more effective and efficient technologies until the minimum benefit regulations are updated
  
  
• health insurers are constrained in their ability to select the most efficient network of hospitals.

In its report, the Competition Authority also points out that the private health insurance market is characterised by a number of other factors that tend to 'distort and dampen competition beyond the restrictions imposed by intergenerational solidarity'. For example, the report refers to VHI Healthcare (the largest private health insurance provider in Ireland) and the fact that it is not prudentially regulated as a health insurance undertaking given that it received an exemption under article 4(c) of the EU's First Non-Life Insurance Directive of 1973. The Authority points out that in the absence of this exemption, the VHI would have to be regulated by the Financial Regulator and would be legally required to have reserves far greater than its current levels and to establish subsidiary or sister companies for selling its non-health insurance products, such as travel insurance and contact lenses. The Competition Authority points out that, as a result, the VHI enjoys a regulatory advantage that allows it to compete in ways not available to other health insurers.

The Authority also refers to many barriers to new health insurers entering the Irish market. The report mentions that a barrier to entry is the market position of VHI Healthcare in terms of its legacy as a state-owned monopoly and its regulatory advantage. The Competition Authority also refers to the large legacy network of salary deduction schemes that VHI Healthcare built up as a former monopoly provider of private health insurance and the inertia on the part of employers which makes it difficult for other health insurers to build up a similar network. And it refers to the fact that although the process of switching health insurers is simple and straightforward, some consumers have an incorrect perception that the process is difficult and cumbersome and that certain practices by health insurers discourage consumers from switching health insurers in response to a more competitive offering. The report makes a number of key recommendations, including the following:

• VHI Healthcare's exemption from potential regulation should be ended as soon as possible so that it becomes subject to the legal solvency requirements and corporate restructuring rules that apply to other health insurers in Ireland
  
  
• a package of measures should be introduced to provide consumers with useful and timely information to enable them to consider alternative private health insurance products and to promote consumer awareness of the ease of switching health insurer.

For further information please contact Marco Hickey.

Spring 2007.