Perhaps the best way to deal with the health insurance system is to get rid of it

VHI CHIEF executive Jimmy Tolan waded into the healthcare debate last week when he attempted to throw back the covers on the spiralling cost of the healthcare system.

The numbers were pretty scary. The annual bill currently stands at €19 billion and will grow to €37 billion over the next decade, driven in a large part by the ageing of the population. His figures are drawn from the Economic and Social Research Institute and the Centre for Ageing Research and Development.

Mr Tolan maintains that he put the figures out there because there has to be a realistic debate about Ireland’s healthcare needs and how they are going to be funded. He appears to be shouting into something of a void. The short-term issues facing the economy are such that longer-term issues including the ability of the State to fund social provision such as healthcare and pensions don’t even get a look in.

It’s tempting to say that Tolan has rather overstepped his brief, which is to run a health insurance business, not set health policy for Ireland. But in his defence, it is pointless if not impossible for him to do his job – to plan the future of VHI, which insures 1.5 million odd souls – unless there is some sort of agreed vision of what sort of health system we want.

It remains to be seen whether the debate he is seeking – which involves confronting some pretty unpleasant truths – is forthcoming. If it is, then Tolan had better be prepared to fight his own corner.

One of the things that comes across very clearly from the figures put out by VHI is the relatively small contribution that health insurance makes towards covering the cost of healthcare.

VHI paid out around €1.3 billion last year in respect of its approximately 1.5 million members. The next largest insurer is Quinn Insurance, which has about 500,000 members. If VHI’s assertion that Quinn pays out around half what VHI does on a per member basis (because its members are younger), then its share of the bill is around €270 million. Aviva, the smallest player in the market, pays around €40 million by the same yardstick.

In very rough terms, the health insurance industry covers around 10 per cent of the cost of the health system. When you consider that almost half the population have health insurance, you have to wonder whether health insurance is part of the problem, part of the solution, or actually irrelevant when it comes to facing up to the cost of looking after the health of Ireland’s ageing population.

The suggestion that it might be something of a sideshow is the most intriguing. By VHI’s own analysis, it will be paying out something in the region of €2.5 billion a year in claims by 2020, at which point it projects that the healthcare system will be burning through almost €40 billion annually. Assuming its competitors keep step with it, the health insurance industry as a whole will still not cover more than 10 per cent of this.

If you accept the VHI’s projections, then it is pretty clear that if this problem is going to be solved – and it’s far from certain that it can – then it will have to be done by the Government. And private health insurance on the scale we currently have is not a given in this context.

In fact, the size of the problem puts the train wreck that is the health insurance market in a very different perspective, and raises the prospect that perhaps the best way out of the mess is simply to get rid of it as part of the process of facing up to the bigger problem. The intractable nature of the problems in the health insurance industry make abolishing it seem quite tempting. The fundamental problem is that the mechanism put in place to stop new entrants cherry-picking VHI’s younger and healthier members after the market was opened to competition has not worked. It has in fact been ruled illegal.

As a result VHI is on the cusp of a death spiral, unable to match its rivals on price and facing a much higher cost of claims. Even if the Government can implement a risk equalisation scheme that passes legal muster, the ability of the other two players to pay the money they would “owe” VHI at this stage is unclear.

In tandem with sorting out the whole risk equalisation scheme, the Government has committed to subjecting VHI to the same regulatory conditions as its rivals, which will involve injecting hundreds of millions into the company to bring its reserves up to the necessary level.

The plan, unveiled earlier this year, involves the subsequent disposal of the VHI in order to recoup the money. It will, at best, be a long and tortuous road. At worst it is a fantasy.

Simply winding up the industry and raising the €2 billion it contributes through taxation rather than indirectly via health insurance premiums paid by half the population seems comparatively simple and politically saleable.

The problem with this of course is that disentangling the private health insurance industry from the health system is an equally onerous task. But it’s probably a sounder and more worthwhile one than trying to fix a dysfunctional health insurance system that in the current context is not actually very useful.