Tánaiste announces introduction of risk equalisation and measures to achieve greater competition in the private health insurance market
The Tánaiste announced today (Friday) that she has today decided to accept a recommendation from the Health Insurance Authority (HIA) that risk equalisation be commenced from 1 January 2006.
“In June when I decided not to trigger risk equalisation I stated that I believed that the introduction of risk equalisation would be premature in advance of a government decision regarding the commercial status of VHI and that deferring a decision would allow time for further corroboration of trends both in risk profile and competition in the market.”
“The government last week approved legislation in relation to the commercial status of VHI and the recent report from the HIA confirmed a further divergence in market risk profiles. On this basis I have accepted the recommendations of the HIA and the Department’s profession advisors to now commence risk equalisation transfers.”
The Tanaiste has been advised that a court order has been made in relation to the matter. The Department of Health and Children will be seeking the advice of the Attorney General’s office on this matter.
The Tánaiste said she has also:-
- sought and received Government approval for legislation designed to ensure that the VHI operates under similar conditions as apply to other insurers in the market;
- asked the Competition Authority and the HIA to report to her within six months on further measures to encourage competition in the health insurance market; and
- asked the HIA to take steps to improve consumers’ awareness of their right to move between insurers within having to incur penalties.
The Tánaiste said “I have previously made it clear that risk equalisation is a necessary and appropriate mechanism in a community rated market. I have considered the recommendation in the letter of the HIA of 27 October 2005 and representations made by insurers. Mercer, my Department’s professional advisors are in accord with the HIA recommendation. I am satisfied that the commencement of risk equalisation is necessary in current market circumstances.” The Tánaiste said she was publishing the advice of her Department and Mercers on the matter, as she had done last June.
Commercialisation of VHI
The Government has approved the drafting of a Bill to amend the existing Voluntary Health Insurance Acts. The Tánaiste advised the Oireachtas at the end of June of her intention to bring such proposals to Government. The main provisions of the proposed Bill include:(i) giving commercial freedom on products and pricing to the Voluntary Health Insurance Board (VHI),(ii) obliging the Board to attain the level of reserves necessary to achieve authorisation as an insurer within six years.This decision also provides for the preparation of legislation to allow for the conversion of the VHI Board to a public limited company (PLC) as set out in the White Paper.
The Tánaiste said the changes arising on implementation of the legislation will also encourage the development of greater competition in the health insurance market as VHI will be obliged to operate under similar conditions as apply to other insurers in the market.
The Tánaiste reiterated her commitment to a vigorous community rated private health insurance market. She said “Risk equalisation is not, in itself, inconsistent with a competitive market and I want to encourage the development of greater competition in the market. In order to ensure the maximum degree of competition and a level playing field for all market participants and new entrants, I am today also announcing a number of measures which are designed to facilitate greater competition in the private health insurance market. In particular, I have:-
- written today to the Chairman of the VHI advising him that the Government has approved the drafting of legislation that will oblige, and allow, the VHI to operate under similar conditions as apply to other insurers in the market including, in particular, obliging the company to build up its reserves to the level necessary to achieve authorisation as an insurer within six years;
- asked the Competition Authority and the Health Insurance Authority to report to me within six months on further measures to encourage competition in the health insurance market and the strategy or strategies which might be adopted in order to create greater balance in the share of the market held by competing insurers; and
- mandated the Health Insurance Authority to carry out a major and sustained campaign focused on heightening consumer awareness of their right to switch without penalty between insurers and to seek the cooperation of employers in facilitating this process.”
- Department of Health and Children recommendation, and
- Advice of Mercer – Actuarial Advisers
Note for Editors:
Risk equalisation involves transferring funds from insurance companies which have a large proportion of young, healthy subscribers to companies which have a larger proportion of older people who are more prone to illness and therefore more likely to make claims on their health insurance policies. This ensures that younger and older subscribers pay the same amount for similar health insurance cover. This is what community rating means.
Under community rating subscribers pay the same amount for similar cover throughout their lives. This means that people can continue to afford health insurance right into those decades of their lives when they are most likely to need it. The situation in Ireland, with community rating and lifetime cover in place, is in marked contrast to countries such as the UK and the US where risk rated health insurance products result in older people no longer being able to afford to maintain their insurance cover. Ireland has tried, through sensible regulation of the health insurance market that supports intergenerational solidarity, to ensure that the young and healthy can continue to keep up their insurance cover when they are older and more likely to need it.
Under the terms of the Memorandum of Understanding between the Competition Authority and the Health Insurance Authority, the Government has requested the two Authorities to report to the Tánaiste within six months on measures to stimulate competition in the health insurance market and the strategy or strategies which might be adopted in order to create greater balance in the share of the market held by competing insurers. These recommendations will inform the drafting of the Bill that will provide for the conversion of VHI into a PLC.
Heightening consumer awareness
The Health Insurance Authority has already run publicity campaigns on the portability rights of consumers and product comparisons. The Tánaiste is mandating the Authority to intensify its efforts on heightening consumer awareness in relation to open enrolment and lifetime cover applying when people move from one insurer to another. This means that persons can move from one insurer to another without having to serve initial or pre-existing conditions waiting periods. She will be requesting the authority to undertake a campaign aimed at encouraging employers to facilitate employees who wish to change insurer.