I can just imagine the cheers and celebration going on at VHI HQ this afternoon as it was announced that Bupa, the second largest health insurer (with 22% of the market) is going to pull out of the Irish market because of risk-equalisation.
Two things really annoy me about this decision:
- When they set up shop in the first place they knew that risk equalisation was inevitable. It’s a side effect of how the Irish health insurance market works. Everyone pays the same premium, the incumbant VHI has older and more costly members and risk equalisation meant compensating VHI. They should have planned realistically for it although how one can plan to compensate another company a sum of money larger than one’s own entire profits is beyond me.
- Why couldn’t they have come up with a more imaginative solution. If VHI had simply given Bupa a percentage of their elderly members to even out the age spread of their memberships then VHI wouldn’t have had a leg to stand on and risk equalisation wouldn’t be an issue.
I’m a Bupa member as is my wife. A friend of mine works for Bupa in Fermoy. We’re all sorely disappointed at the decision today. There’s still Vivas Health but I wonder what their plan is to cope with the huge payouts VHI will want off them in a couple of years.
The company is blaming the move on a scheme known as risk equalisation – which it says compels it to pay €1 million every week to compensate other insurance providers for covering older consumers.
The company claimed the move would force it to hand over €161m to its rival over three years, even though its profits for the period would be just €64m.
Michele linked to a newsletter written by Martin O’Rourke, the boss of Bupa Ireland. As I expect the Bupa website will disappear sooner rather than later and this message with it, I’ll copy/paste it here after the jump as a record of what evils a monopoly does to an industry.
Notice to BUPA Ireland members and all health insurance customers
Dear Reader,
It is with great sadness that I have to tell you that BUPA Ireland closed for new business on 14th December 2006.
Why we have been forced out of the market
We have made extensive efforts to find an arrangement which would enable us to stay in the market, particularly over recent days. However, this decision has been forced on us due to the scale of the payments required under the Risk Equalisation Scheme which is now costing over €1million every week.
We would be required, over the next three years, to pay €161million in Risk Equalisation payments to our competitor the dominant market insurer. This would be far in excess of our estimated surplus of €64 million for the same period. We brought choice to the health insurance market, but sadly we have no choice but to leave, given the scale of the payments we have to make. We really want to stay and build our services within the community but this is no longer possible.
BUPA Ireland Members
If you are one of our 475,000 members, we have written to you setting out the impact of this decision on you. Please do not worry about your current insurance cover. We will honour all of our contracts in full until your next renewal date. We will continue to provide you with the highest quality of service until all contracts have expired and claims under those contracts have been settled. We will help you and your family in every way should you want to continue purchasing private medical insurance. You will be entitled to credit for any waiting periods which you have served with us.
If you are currently in hospital or you are about to arrange any medical treatment, you again need not worry, your benefit entitlement is unaffected.
Competition has been good for everyone
All health insurance consumers, not just our loyal members, have benefited significantly from the choice that BUPA Ireland brought to the market over the past ten years. We would like to thank our 475,000 members and our 300 loyal colleagues for helping bring competition and choice to Ireland. We have, however, no choice but to leave the market with great regret.
There is no need to ring us now unless you require additional help. We will write to you again before your renewal date to help you with your future plans. Thank you for all of your loyalty and support throughout our ten years of service.
Togha na sláinte agus fad saoil daoibh uilig.
Martin O’Rourke
What I don’t understand is why the government allows VHI to maintain a practical monopoly….
If the government had made _real_ competition viable then any risk equalisation might not have hurt as much, but being forced to pay the company with close to 80% of the market strikes me as a little bit nuts!
The truly annoying things about this entire debacle are that RTE and the media seem to think that BUPA were trying to end Community Rating (they weren’t) and the financial advantages given as a present to VHI by the government. They’ve been promising to level the market conditions Real Soon Now for years, but just haven’t bothered to do so.
I think is better for the market iif BUPA goes. Just my two cents.
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