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The Actuary The magazine of the Institute & Faculty of Actuaries
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BUPA and VHI

The actuarial and competitive economics of health insurance pricing are likely to be exposed in a court case currently going on in Ireland where BUPA is challenging the minister for health’s recent decision to activate the provisions of an actuarially designed risk-equalisation scheme. The scheme was originally designed some years ago in order to sustain the community rating system traditionally operated by Ireland’s Voluntary Health Insurance (VHI), which continues to account for 80% of the market.

The battle is likely to continue on several fronts, as the press reported that BUPA was encouraging its members to lobby their local politicians in opposition to the higher premiums which would be a consequence of risk equalisation.

BUPA said: ‘“Risk equalisation” would compel us at BUPA Ireland to pay out over twice our profits each year to subsidise our major state competitor. No company could afford to do that. It would destroy the choices that our customers have already made. All consumers in the health insurance market would lose. We want to give you more choice.’

Meanwhile VHI told its members: ‘BUPA generates a rate of profitability in Ireland, which is three, or four times the rate of profitability earned by the same company in the UK. BUPA claims to be cheaper than VHI Healthcare yet its operating expense ratio is as much as 50% higher than that of VHI Healthcare. The activation of risk equalisation will mean that these excess profits will in future have to be transferred into a risk equalisation fund and be used for the benefit of the Irish healthcare consumers. The HIA has concluded that BUPA will be in a position to make risk equalisation transfers and generate the same level of profitability in Ireland as it does in the UK.’ VHI continued: ‘The fact that BUPA supports community rating and risk equalisation in Australia, where it is a net recipient of transfers, totally destroys its credibility in arguing against risk equalisation in Ireland.’