Unhealthy competition

At a time when our health services are lurching from one crisis to another, what possible explanation can there be for Mary Harney to gift a British company €16 million out of that service? Because that is exactly what her decision not to invoke risk equalisation in the health insurance business does.

Until late last Monday afternoon everyone in the business of health in this country expected that she would ask BUPA to pay the VHI the same €16 million in compensation for taking a majority of the low risk subscribers to private health insurance. Three weeks ago she effectively said that is what she was going to do. Under legislation she is required to consult with all involved before making the decision, but after taking representations from the three insurers in the Irish market she reversed that decision. The reversal came as a bombshell to the VHI and left BUPA laughing all the way to the bank. It left the rest of us asking what exactly went on during those representations.

The issues involved sound fairly complex, but in fact they are quite simple. In Ireland it is Government policy that we operate health insurance on a system called community rating. That means that everyone pays the same level of premium, young or old. Effectively the young and healthy subsidise the less healthy older subscribers on the understanding that when their turn comes they will benefit in the same way.

It's a system which keeps premiums down. Even though the cost of health insurance has been rising quickly in recent years, we still pay far less in Ireland than elsewhere. It also means that we have many more people paying for private health insurance. In Ireland half of the population has private health insurance; the figure in the UK where community rating does not operate is just 12 per cent. What happens in the UK is that when you are young and working you can afford the low premiums, or as often happens it is a perk of the job. But when you retire the premiums you are asked to pay are so high that most people can't afford them and fall back on the public health service. That doesn't happen here, people stay with the VHI all their lives.

When BUPA entered the Irish market they managed to attract a much larger proportion of younger and healthier people to them. Those who had been with VHI tended to stay put and they tended to be much older and more vulnerable in health terms. At the moment this means that the VHI – whose premiums are more or less the same as BUPA – are paying out much more in claims than their competitors.

I should declare an interest here. I know many people who work for the VHI, my wife was one of them for a time. I have also been a member for years. In its favour it has delivered a good product at a good price to Irish people for generations and its administrative margins are no more than a commercial company would have. On the downside they have probably been a bit too cosy with hospital consultants for my liking. They have been making a small percentage profit in recent years which they have been putting into a reserve fund in the knowledge that the Government will sell them off whenever they can.

BUPA on the other hand have little or no connection with Ireland. The undoubtedly large profits they make are transferred to their UK parent and they have consistently refused to say exactly how much they make in Ireland. When they were told that they would probably have to pay the VHI compensation they threatened to pull out of Ireland and leave their customers high and dry. But that threat was so obviously a hollow one that not even the Department of Health believed them.

The €16 million refused to the VHI by Mary Harney would translate to about €30 million in a full year. That will have to be found from somewhere, and the likelihood is that VHI premiums will go up to cover it and other changes in the system. BUPA of course will follow the increases, reaping them even more profits from the health service which can then transfer abroad.

The explanations emanating from the Department of Health this week – that the Tánaiste made this decision to ensure competition in the sector – were as unconvincing as they were obviously disingenuous. The reasons for the reversal of the Government decision obviously lie in the representations made in recent weeks, leaving the rest of us literally picking up the bill.

Fergal Keane is a reporter with RTÉ Radio's Five Seven Live