Vibrant competition in the health insurance sector is the best guarantor of consumers' interest, writes Martin O'Rourke
Much has been written about risk equalisation and its implications for Bupa Ireland. It is clear that the system, which would require us to pay over multiples of our profits as a subsidy to the VHI and the ESB, would make Bupa Ireland loss-making.
The so-called "solution" is to increase the prices of our products for the benefit of our dominant competitor. This would not work - nor do our customers believe that they should be required to subsidise other insurers. Removing the lowest priced products from the market is being promoted as being in the public interest. To protect competition, we will return to the High Court shortly challenging the legality of this system.
Competition has brought many benefits to consumers and to the economy. Consumers want quality insurers with proven records and expertise. They value the guarantee that they are entitled to all treatments that were only available on the most expensive plans under the monopoly. Savings for a family on the basic plan are €236 today, up from €44 in 1997. Older customers value the health screenings, young couples the maternity packages, people across the age groups the choice that alternative medicine gives them, and all consumers appreciate the end of balance billing.
In related areas of the economy last week alone we started providing services to UK customers, through 40 people who are based in Fermoy bringing the total workforce to approximately 300.
Our investments are possible because as a provident association our surpluses are reinvested in health care. While our gross profit per member continues to be lower than for other general insurers here, or than in Bupa in the UK, we continue to develop our services here.
Competition has been good for VHI's customers who have got new products and choice. The VHI itself put €300 million into reserves while predicting doom. More competition would drive an even better service. In this market, four or five quality experienced insurers with established records of operation could easily co-exist to serve consumers with more choice and price competition.
When we came to the market, we offered five cash plan products and one health insurance plan. We were strongly encouraged to change our offering to compete directly with the VHI. We made it clear that we could not do that with the risk equalisation scheme. We were told that the scheme was not "written in stone" and could be easily changed.
The system was removed in 1998 and the much more restrictive current regime introduced only in 2003.
One of the problems with the scheme is the fact that the crucial decision-making is all effectively vested in the department responsible for our dominant competitor.
The regime has been severely criticised by those best positioned to understand its implications, including a former EU commissioner, the minister who signed the EU directive and the former head of legal services and competition in the EU.
The absence of established insurers other than Bupa Ireland is the most relevant verdict for consumers. Ireland needs more competition. Risk equalisation drives out or prevents competition. Insurers already have licences in the market but cannot compete because of the scheme.
We could not pay €161 million in subsidies to the VHI and the ESB over three years when our accumulated profits for the same period would be around €64 million.
With 20 per cent market share we could not subsidise the 80 per cent dominant insurer. We would be forced, totally impractically, to price our products in a manner inconsistent with the legislation but acceptable to the dominant State insurer. It could continue to price as it sees fit.
Regulations that target the customers of a smaller entrant are contrary to fair play and competition. It does not happen like this anywhere else in the world. The absence of any impact analysis for a regime with such far-reaching implications for consumers is particularly disconcerting. Where is the open market and the end of restrictive practices, subsidies and monopolies that are part of the European ideal?
The VHI complains about the high cost of claims for its older customers. It is difficult to understand why an age group, which comprises about 10 per cent of its membership, should pose such an overwhelming problem for a dominant VHI.
We have offered before the Oireachtas health committee to take on all of these members. We will accept their premiums (after all, the VHI takes 40 per cent more revenue per member than Bupa Ireland), pay their claims and look after them as we do all our other members.
Someone born in 1930 will be 76 this year irrespective of our market entry. They have contributed premiums for nearly 50 years.
Prudent management and reserving over all of the years would have provided for the inevitable.
"Community rating" is protected by law and competition. It has grown stronger despite the VHI's declared and successful "cherry- picking" strategy which brings it younger customers than those who join Bupa Ireland. Yet our customers are expected to be motivated to build up VHI and ESB reserves for the foreseeable future. Experienced insurers, for example Axa and Allianz, who have looked at the market have invariably said "No thanks" to this prospect.
We continue to seek a fair, proportionate resolution to the issue - a sensible structure that protects prices for consumers and facilitates competition as the guarantor of consumers' interest.
We are committed to the market. We brought choice, innovation and value for money. Our plans include further investment in health care as well as insurance. We are determined to remain one of the "EU's top companies to work for". We believe that consumers deserve no less from those who serve them.
Martin O'Rourke is managing director, Bupa Ireland