Comment: Considerable concern has been expressed about the recent VHI Healthcare premium increases of up to 8.5 per cent. These increases continue the trend of private health insurance premium inflation in Ireland, Dermot Ryan.

Since August 1998, VHI has increased its premiums by 63 per cent; BUPA Ireland's increased by 58 per cent. During that five-year period, the consumer price index was growing at an average annual rate of just under 4 per cent while private health insurance premiums were rising by an average 10 per cent a year.

And while it is not unusual for such inflation in developed countries to exceed general inflation, the general public's valid concerns at recent rate rise are shared by the Health Insurance Authority.

The authority is an independent regulatory body in the private health insurance market. We have no role in reviewing applications for increases in premiums by private health insurers. But we do monitor the operation of health insurance business.

The authority has commissioned research into competition in the private health insurance market. We will use this research to show the extent to which competition exists, and whether impediments exist in the operation of a competitive market. We also aim to identify the reasons why more insurers have not entered the Irish market.

Earlier this year the authority published research into consumer behaviour and attitudes. This pointed up some relevant issues. One example is that private health insurance consumers are generally slow to change insurer: only 6 per cent have switched since the advent of competition in 1997. This market inertia may be explained in part by a lack of awareness of consumer rights and in particular the ease with which they may change insurer.

The research shows that less than half of private health insurance consumers appear to know insurers may not impose an initial waiting period when they switch. This information gap extends to consumers' lack of understanding of the insurance products they are paying for and the benefits to which they are entitled. In fact only 30 per cent of consumers believe they have a full understanding of their private health insurance plans.

In fairness, it would appear that consumer information needs have not been adequately met, a challenge the authority is squaring up to.

Other results of the Health Insurance Authority's research are more heartening. About 90 per cent of consumers are satisfied with the range of products available, the cover provided and the customer service received and the value for money offered in the private health insurance market.

The regulatory structure of this market is based on three "pillars": community rating, open enrolment and lifetime cover.

Community rating ensures that insurers cannot vary the premiums they charge depending on the age or health status;

Open enrolment ensures that cover is not refused to people under the age of 65.

Lifetime cover ensures that privcate health insurers cannot terminate or refuse to renew contracts, regardless of the consumer's age or health status.

These three fundamentals underpin inter-generational solidarity, a principle widely supported by private health consumers, whereby the premiums of more healthy, younger people support the claims of the less healthy, mostly older people.

The community-rated private health insurance market in Ireland is prone to certain risks. One arises from the fact that it is a pay-as-you-go system, that is each year's claims are paid out of the same year's premiums. If the customer base of an insurer ages, therefore, claims will inevitably increase and premiums will need to increase to reflect this.

An insurer's customer base might age either because the average age in the market is rising or because other insurers are attracting a larger share of younger consumers. In the case of the latter situation, the premiums of the younger consumers with some insurers would not support the claims of the older consumers across the market. In a community-rated market such as Ireland's this could have a detrimental effect on market stability or on other consumer interests.

To help to address such risks, the Government introduced a Risk Equalisation Scheme in July which operates as follows: after a period of six months, the private health insurers will send returns to the Health Insurance Authority, which will include a breakdown of insurers' memberships by age and gender. The authority will analyse these returns using criteria laid down in the legislation.

It will then decide whether, in the best overall interests of health insurance consumers, to recommend to the Minister for Health and Children that risk equalisation payments should, or should not, be introduced. Even if the authority and the Minister decide such payments should begin, the first payments cannot be made before early 2005.

If payments begin, they will be made from insurers with younger customers to insurers with older customers.

The authority recognises that the introduction of RES payments might be justifiable in a community-rated market. But we will need to consider the effect such an introduction would have on the overall interests of consumers including competition in the market. In this context the competition research that the authority has engaged in will become an important component of this deliberative process.

Dermot Ryan is the chief executive/registrar of the Health Insurance Authority