BUSINESS OPINION:THE ENTRY of Glo into the health insurance market means the State now has four dogs in this particular race. It owns 100 per cent of the VHI, 70 per cent of Laya via Quinn/Anglo Irish Bank and 28 per cent of Aviva via AIB. To this it now adds 50 per cent of Glo via its stake in Irish Life.

The stakes in Laya and Aviva can be described as unforeseen consequences of the bailout of the banks. But the decision by Irish Life to invest in Glo was taken when the company was in State ownership.

According to Irish Life, it was approved by the Department of Finance under the framework agreement that governs the ownership of the insurer.

It may make sense to have a health insurance business from the perspective of Irish Life. From the Government perspective, the situation is far more complicated.

The solvency and long-term viability of the VHI has slipped pretty far down the list of national problems, thanks to the banks, but it has not gone away.

Ever since the entry of Bupa (the forerunner of Laya) into the market in the 1990s, VHI has been in trouble, as newer players targeted the younger, more profitable part of the market, leaving VHI to carry the older, loss-making sector.

Attempts to regulate the market and create an even playing field through community rating and risk equalisation have failed as a result of, among other things, legal challenges from the new entrants.

They have all played a short-term game against the dominant State-owned player, which has had to play the long-term game. Several of them have exited the market, having banked substantial profits, including Bupa and the first round investors in Aviva (then known as Vivas). Meanwhile, the VHI has floundered.

The decision by the State to allow another competitor into the market – never mind invest in one – seems like an act of folly in this context. Glo has already made it clear that it is going after the same low-hanging fruit that was targeted by Bupa and Vivas.

We can take it as read that helping the Government sort out VHI and the health insurance market is not part of the Glo business plan.

There is another aspect of Glo that makes little sense from the standpoint of Government or public policy.

The current administration is committed to bringing in universal health insurance as part of its very ambitious plan to reform the health service.

The plan envisages several players in the insurance market – preferably privately or co-operatively owned – and strong regulation to ensure risk equalisation. How the existing players will be slotted into the inherently less profitable new structure is not clear.

If experience to date is anything to go by, they will not co-operate.

Bupa’s response to risk equalisation and what it meant for profitability suggest they will either fight, take their profit and exit the market or, as was the case with Bupa, do both.

The worst case scenario is that efforts to bring in compulsory health insurance descend into legal chaos as VHI goes bankrupt.

The alternative is that the State exerts control over the incumbents via its shareholdings to ensure that they all co-operate. It would be nice to think that the Government can operate in this fashion. It requires an element of long-term planning and policy co-ordination that is beyond anything we have seen to date.

It is also very difficult to engineer in any representative democracy, never mind a broke one.

Unfortunately, then, we have to conclude that the Department of Finance’s decision to approve Irish Life’s entry into the health insurance market is not part of some cunning plan for implementing the Government’s plans for the health system.

It is what it looks like: a retrograde and unhelpful step, from the point of view of health service reform and the VHI, but a positive and pragmatic one, in the short term at least, from the point of view of banking policy and the exchequer.

The addition of a health insurance arm to Irish Life will increase its value, albeit at the expense of VHI.

The very real prospect of raising some money by selling Irish Life in the next few years has trumped the sadly somewhat less likely prospect that health reform will move at a pace that will see compulsory health insurance in place any time soon.

Glo is going after the same low-hanging fruit that was targeted by Bupa and Vivas