A recent article in the Sunday Business Post revealed the details of confidential submissions from the Vhi to the Department of Health which show the depth of division between the two, on the future of the Vhi.

It seems clear from the submission that it is indeed the State’s intention to break the Vhi into as much as three separate insurers, a move Jimmy Tolan found so unpalatable it caused him to resign on the 5th of May this year. Tolan informed the Ministry that he believed the break up would lead to additional costs of €25 million per annum for the Vhi and higher premiums for consumers.

The governments reasoning for this move stems from the belief that competition in such markets leads to lower premiums. However this theory was dismissed by Tolan as exactly that, a theory unsupported by facts. The submission cited a study by Harvard professor Michael Potter on why such competition in the US Healthcare market failed and moves by Holland, Australia, the UK and the US to merge insurance firms to deliver greater efficiencies.

Tolan’s argument is that if the Vhi was broken up it would no longer have the same level of purchasing power with private hospitals and that this would lead to higher costs of procedures and hence higher premiums. His submission also suggested that more insurers would lead to the cherry picking of customers. A split Vhi, he said, would focus on delivering insurance to the profitable young, resulting in a reduction in the quality of services available to the elderly and that the idea wasn’t sustainable unless the aggressively segmented their customer base.

This makes for sober reading and I personally hope that the Minister has seriously considered this possibility because the ultimate irony in this submission is that the terrible vista Tolan paints is already being constructed under his tenure.

Here’s how:

    1) In February of this year Vhi raised premiums on Plans A to E by between 21% and 45% affecting the elderly in larger numbers than had the increases been on any other plans.

    2) Soon after this, Vhi lowered the level of cover they offer for Orthopaedic and ophthalmic procedures. Cover specifically important to older people (hip replacements, cataracts etc) on all their plans except A to E.

    3) Later this year they changed their Terms & Conditions to disallow any cancellation of policies outside of renewal dates and to issue penalties as a deterrent. They also prohibit the switching to other plans within the policy year.

    4) Vhi announce the renaming of Plans A to E. This will further confuse VHI’s older more vulnerable members.

My conclusion is that Vhi are already segmenting their book of clients, separating old from young by making the only suitable cover available for older people within the Vhi confined to plans A to E and bad value for money.

We are already seeing other insurers react to this by increasing prices on plans that might be considered suitable alternatives and the introduction of Co Payments on orthopaedic procedures. This is exactly what Jimmy Tolan threatened the minister with and is exactly what is happening without any change to the running of the Vhi.

This is a developing problem within the health insurance market and one which needs immediate intervention. The good news is that there is scope to deal with the problem as it is clear contravention with the intended purpose of the legislation as laid out in the Health Insurance Act.

Patrick Brennan
Director of Corporate Business
Irish Health Insurance

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