Thanks for that, Mike.  I agree that 40% is on the high side alright.  It’s certainly higher than the EU recommended norms and as far as I’m aware the new Solvency II directive will also specify a lower threshold.  I’m not sure why the Central Bank here has such a high margin – although it might be linked with the failure of a major general insurer (PMPA) here in the 1980s.  It also won’t be helped by the recent events relating to Quinn Insurance, a large general insurer here in Ireland, one arm of which – Quinn Healthcare – is the second largest (of three) health insurers in the Irish market.

 

As for your points on competition, I agree that more competition would be good.  However, I would qualify that by saying more of the right kind of competition would be good for the market.  Unfortunately what we have in the Irish health insurance market doesn’t necessarily match that description.  What we have at the moment could be described as too much choice – although there are only three insurers they offer nearly 200 plans between them (and that’s after one of the insurers cut their number of offerings by 54 plans at the start of September).  Many of these plans are not marketed to individuals but solely to companies, so even though under open enrolment regulations anybody can sign up to any plan, most consumers aren’t aware of all their options, and those that are face a bamboozling array of metrics on which to compare plans.  In my view, there is unquestionably market segmentation going on.  There’s also evidence of risk selection in the market, which is understandable given that we have community rating but not yet a functioning and robust risk equalisation system.  (We currently have a set of interim measures which are approximately 55% effective, until such time as a new risk equalisation scheme – the third attempt – is brought in, which is expected in 2013.)

 

In the context of the current market, adding more competitors wouldn’t necessarily add more competition (or at least not the right kind of competition), so I would advocate that the regulatory environment be strengthened before any more ‘competition’ is introduced.

 

 

Brian,

 

Tough problem.  Let me bring a slightly different perspective. In the U.S., we have a public-private health insurance hybrid run by the federal government for their employees, retirees and their dependents.  It covers about 9 million lives.  It also has a reserve requirement to ensure financial viability and coverage for subscribers, in the event that one of the participating private insurance companies runs into financial difficulties.  The program has been in place for over forty years.  Private companies have joined and left the program over that time, but no subscribers has lost coverage.

 

The logic of using such reserves is to ensure that if the plan’s actuaries have terribly underestimated the cost of providing care and run out of premium financed funds before the end of the year there will be enough to ensure coverage and payments to providers through the end of the year.  In the next year the premiums will have to be adjusted to cover actual costs and replace the reserves that were tapped.  Unlike what the EU is asking VHI, these reserves are typically one month’s premiums for well performing plans and perhaps as two month’s premiums for poorer performing plans.  A 40% reserve is unheard of and I’m not sure it makes sense unless you think the plan’s actuaries are idiots who can’t estimate a proper premium, or you just want an excuse to kill the plan outright.  Any idea why they would choose such an astronomical figure?

 

The Minister’s idea of breaking VHI into multiple plans has the disadvantage of splintering purchasing power, but has the advantages of increase choice for consumers and increased competition based on quality and price.  Now before you go off thinking here’s another American being a cheerleader for competition, consider the bind Ireland is in.  It’s not clear what path provides the way out of the current problems. Multiple plans trying different strategies may provide Ireland with a natural laboratory for innovation.  In addition, if one component plan goes under, you have a smaller impact that if the entire current VHI goes down.

 

Good luck,

 

Mike O’Grady