Comment: The decision announced by the Tánaiste this week not to trigger the introduction of risk equalisation subsidies is a decision which supports competition in the health insurance system and is good for the consumer.
Since Vivas Health entered the market in October 2004 we have argued that risk equalisation subsidies should not be introduced until after the future structure and regulation of the VHI have been addressed.
Any implementation of risk equalisation in advance of this process would have been premature. That one dominant player with 80 per cent of the market, enjoying many unfair advantages because of its size and special unregulated status, should be subsidised by smaller entrepreneurial companies is intuitively wrong and would be laughable in any other sector of our economy.
Vivas Health does not argue against the philosophy of risk equalisation and is not seeking to have it removed from the statute books. We fully support the principles of community rating and have signed up to them through all of the legal and regulatory frameworks that govern the operation of our business in this market.
While it is necessary to have risk equalisation as a potential tool to help negate against any market instability, a clear case needs to first be built for instability. With a dominant, growing State-owned player there are very clearly no signs whatsoever of instability. VHI will not collapse any time in the future unless it continues to threaten Government by cutting off its nose to spite its face and purposely continues to run down its reserves. The board of any insurance company in Europe following such a strategy must surely have its competence questioned.
Risk equalisation does not operate in any other jurisdiction, either inside or outside the EU where the market leader has in excess of 30 per cent market share. The VHI, through its position of dominance, is currently allowed to leverage its long-established brand, state backing and purchasing power to carry out predatory anti-competitive practices.
The Tánaiste this week stated that risk equalisation is a necessary support "in certain circumstances", in a community-rated market such as ours. We do not disagree. What is now required for Vivas Health and for any other potential investors in the market is clarity as to what those certain circumstances might be. Asking investors to take a business risk when entering a new market is to be expected, but add to that the threat of regulatory risk and the market becomes very unattractive for new entrants. A definition in terms of relative market shares which ensured the dominance of VHI was reduced would be helpful.
The commitment by the Tánaiste to bring proposals to Government about the future structure of the VHI is also welcomed. We look forward to hearing the Tánaiste's proposals in this regard and would strongly urge her to consider dividing up the VHI book into a number of smaller companies with similar membership profiles. VHI has complained for long enough about its older customer base.
Carving up the VHI book is a very simple solution to VHI's problem, one that does not require the disproportionate heavy handedness of risk equalisation payments. Surely a simple mechanism can be found to either split the VHI book into smaller competing entities or to transfer older members to other insurers in the market so that the market shares and age profiles converge. Such an approach would be an effective means of promoting vigorous competition on multiple fronts in the interests of all consumers.
The VHI, in its present incarnation, benefits from the fact that it is not regulated by Irish Financial Service Regulatory Authority (Ifsra), either from a prudential or consumer protection perspective. One set of rules for the state-owned entity and another for all others is patently unfair. VHI is permitted to retain a lower solvency margin than Vivas Health and Bupa by virtue of the fact that the financial regulator does not supervise VHI. As a consequence of not being regulated, the VHI has also been allowed to continue to run down its solvency reserves built up over many years.
The assertion that VHI needs risk equalisation payments to ensure its continued viability is simply not true. VHI has consistently stated that it would be in financial difficulties if risk equalisation payments were not made, yet has reported increased profits in every year since the advent of competition in 1997. There is no evidence that VHI could not have continued to price at the correct economic level and continue to compete effectively.
That the healthcare sector in Ireland faces many challenges is clear to all. The opportunity to create a genuinely complementary public/private healthcare system which attracts international insurers and providers and is accessible to all would be thrown out were risk equalisation implemented before the VHI's dominance and regulation free status is dealt with.
The decision on the timing of implementation of risk equalisation payments and the future structure of the VHI's insurance book must be linked. Failure to make private healthcare and health insurance attractive to competition and investors will damage the healthcare system to the detriment of all consumers and flies in the face of Irish and EU competition policy.
What is required now is further clarity and debate around this week's statement by the Tánaiste, a proactive approach by the Government to reduce the dominance of the VHI and a commitment to create a marketplace where appropriate regulation leads to true competition and a vibrant healthcare sector.
Oliver Tattan is chief executive of Vivas Health.
