Sandra Ryan speaks to Mr Jimmy Tolan, Chief Executive of Vhi Healthcare, about the changes taking place in the health insurance market.
New Vhi Healthcare Chief Executive Jimmy Tolan, who throughout our interview is admirably pleasant and talkative, doesn’t change his tone (or mince his words) when criticising the competition. In fact, it almost appears that Vhi Healthcare, which still dominates Ireland’s health insurance market, doesn’t even see its competitors as a real threat.
“Basically, we believe we have a higher-quality offering than Hibernian. We’ve been doing this for 50 years,” he said. “Hibernian is a very fine car insurer and general property insurer, but trying to translate that to the health market is a different story. It has no expertise in health insurance, particularly in trying to shape the delivery of medicine. The reality is we paid out D1 billion in claims last year and we think VIVAS Health, for example, may have paid out about €15 million. That’s just to put it in context.”
The VHI’s main competitors have been in the news recently for different reasons: VIVAS Health, which entered the market in 2004, has recently been taken over by insurance group Hibernian, which came under fire itself last week when it announced that 580 jobs would be transferred to Bangalore, India as part of a restructuring plan.
BUPA left the Irish market over its problems with the risk equalisation scheme and was taken over last year by the Quinn insurance group. It had unsuccessfully challenged risk equalisation, which means insurers with a lower number of elderly, high-risk subscribers have to pay compensation to insurers with a higher number of these subscribers.
Meanwhile, the Vhi generated a surplus last year of about €55 million and paid out over €1 billion for 535,000 medical procedures.
h4. Numbers have dropped
“That’s €4 million a day to put it in perspective,” said Mr Tolan. “I think we have helped to change how healthcare is delivered in Ireland over the last five years. We have gone from paying for about 400,000 medical procedures to last year paying for 535,000. Also, the setting has changed — the inpatient numbers have dropped from 180,000 to 162,000. We are in an environment where shorter stays seem to give patients better outcomes and where new drugs and treatments are constantly coming along.
“A good example is the drug Herceptin — last year, we paid out €4 million to our customers for the drug, which is €25,000 a go. That’s 35 years’ membership of Plan B for a single treatment, before including the cost of the doctor and hospital and so on.”
The VHI is also applying for an insurance licence from the regulator under new legislation. Once this is secured, it will no longer need Government approval to launch new products, allowing it to enter different areas of the wider insurance market.
“Historically, we couldn’t expand either geographically or otherwise, and we had limited powers to expand by product,” said Mr Tolan. “So, post-regulation, we believe we can examine both routes of expansion, particularly on new products — but ones based on people rather than objects. We’re unlikely to enter into either car or house insurance.” The insurer is also reportedly planning a €120 million investment in the eastern European market.
Mr Tolan explained that when the Vhi estimated its surplus for the year, it did not include money that it is currently owed, or will be due in future, from risk equalisation payments. He said it anticipates receiving between €25 million and €30 million under the scheme.
“The Court of First Instance in Luxembourg has upheld the Government’s risk equalisation plans, and that has not been appealed. Now we just await the Supreme Court decision, which will hopefully be sometime this year,” said Mr Tolan.
“Basically, it’s measured on age. We have an older membership base and we also have a far higher market share of the medically vulnerable – people in their 60s and over. It’s also measured on gender. We anticipate we should receive between €25 million-€30 million, unless the age is normalised, meaning that we all end up with the same patient profile. But that’s not likely to happen soon; at the moment, there’s a ten-year gap between ourselves and Hibernian and a seven-year gap between us and the Quinn group. The competition tends to focus on the younger customer base because they’re the profitable ones. Hibernian Health, for example, has about seven per cent of the market and about 0.7 per cent of over 60s.”
But VHI’s confidence does not mean it denies it is working in a very competitive market that will only become more so, as more and more private hospitals are developed.
“Of course, we view the market as highly competitive, and if you compare it to health insurance costs internationally, we’re at the lower end of the cost bracket. It’s important to note that the consumer has strong confidence in the product and views it as affordable,” said Mr Tolan. He does see challenges ahead, but believes dealing with issues now will prevent the worst of them.
h4. Significant investment
“One challenge is that more resources need to be put into prevention policies and primary care, particularly for things like diabetes — if up to six per cent of the population have type 2 within ten years, that’s a huge number of people and it will involve significant up-front investment, as well as adjusting medical benefits, and maybe a more sophisticated risk equalisation plan. Because we have 70 per cent of the marketplace share, (and because of our age profile) we’re probably about 85 per cent of what’s paid out at the moment. It will involve co-investment. But we’re confident.”
About Gary Culliton
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