HEALTH insurance premiums appear to be spiralling out of control. The latest round of hikes last week saw VHI announce 3 per cent rises on some policies, which was quickly followed by Laya Healthcare, with a 10 per cent hike. It looks like nobody is to blame, which often means everybody is to blame.
The most recent price rises appear to be sparked directly by government policy, which has been to start charging insurers the full price for private beds in public hospitals.
In recent years price hikes have been attributed to rising medical costs, even though the price of everything else in the economy was falling or at least should have been. The other big drivers are the rising number of older people on VHI's books, combined with a vicious cycle that as more people drop their health insurance, there are fewer left to pay for the higher claims of the elderly.
It is a notoriously complex sector from a financial, political and public policy point of view. Solutions are not easy, but the entire system is heading towards a total shambles unless changes are made.
At the end of December 2012, Laya Healthcare had around 18,000 customers aged between 70 and 79. Aviva Health had around 13,560 and VHI had 88,000. The net cost of having a 75- to 79-year-old on your books is €2,070 – according to VHI, even after getting its subsidy through risk equalisation.
VHI believes the risk equalisation payments from competitors, which compensate it for having older more expensive customers, are inadequate because they only cover half of the price of claims from older clients.
Its competitors say risk equalisation is not a fair scheme at all and they don't like paying out anything to VHI.
VHI argues that it has done a lot to reduce the cost of claims. It has reduced fees to consultants back to pre-2004 levels. The cost of an MRI is now the second lowest in Europe and has come down from €600 to €180 since 2002. Its annual report is full of listed savings in how it handles claims and reduces lengths of stay.
It actually lost €7.2m providing health insurance in 2012, relying on other products to bring it into profit.
But Health Minister James Reilly is fully convinced, having said on radio last week that procedures that used to take two hours are now taking 20 minutes, but commensurate reductions in charges have yet to happen.
Questions still remain about VHI's own cost base. In 2011, VHI lost 133,000 customers through competition and non-renewals. Yet its wages and pensions bill only dropped marginally from €52.3m to €51.4m. Its market share has been eaten away from 82 per cent in 2001 to 56.4 per cent at the end of 2012.
Average pay stood at €58,700 in 2009 and had marginally fallen to €57,070 in 2012, at a time when many private sector employees saw their pay savaged. Average pay at Laya Healthcare in 2012 was around €40,000.
At VHI employee numbers in 2009 were 907. In 2011 they were 899. No big change there. After acquiring VHI Homecare and its roughly 52 staff, in 2012, total employee numbers were around 990.
However, VHI states that its operating costs remain very competitive compared with international peers.
In truth, tweaking the pay bill will not substantially alter health insurance premiums. Broader sweeping changes are required.
James Reilly still insists he wants to introduce universal health insurance, but plugging the gaps in the health budget have been the priority. If anything, measures introduced to fix the health overspend have brought universal health insurance further away.
VHI's rivals like to have a go at the state-controlled operator. But if the market is that tough, why are they in it? Why is there now a fourth entrant in the market, GloHealth?
Clearly, there is money to be made in this apparently dysfunctional market. Firstly, look at the pricing structure. Any industry where price plans are varied and complicated is usually a hallmark of insufficient competition and good profit. They are dressed up as consumer choice but often mean consumer lack of real choice. It is true in mobile phone packages and health insurance.
Laya made a profit of €5m in 2012. Aviva Health made a profit of €7.2m that year. There is good money to be made for a period of years by targeting younger customers.
Look at who is in the market. Aviva is a major European insurer. AIB owns 30 per cent of the Aviva Health operation. Laya Healthcare is part-owned by management and part by the new company behind the former Quinn group businesses.
GloHealth, the newest entrant, is part-owned by Irish Life, which is turn is owned by the Canadian giant Great West Lifeco.
Recent price hikes and policy cancellations mean just under half the population is covered, and that proportion is falling.
Part of the problem is that our underperforming public hospital system has become completely intertwined with the private market. It isn't a two-tier system of completely separate healthcare options. The lines are blurred and both have become interdependent.
What is needed is a clean sweep of the system where we move to a form of universal health insurance.
That can't happen until the public system is fixed and operates more efficiently.
One suggestion is for discounts to be applied for younger customers, just to keep them paying. This might work if it meant static prices for older customers and reductions for younger ones. In truth it could end up as static prices for younger and more price rises for older customers.
Government policy has been to ride two horses for years – one private and one public.
They have become completely tangled, and policy must shift so everybody goes one way or the other.