THE ECONOMICS OF COMPETITION IN HEALTH INSURANCE- THE IRISH CASE STUDY.

I INTRODUCTION.

In the White Paper on Private Health Insurance (WP) in 1999 the Government of
Ireland decided against competition among the providers of private health insurance. This
paper reviews the economic aspects of the decision to forego in health insurance the normal
benefits of competition such as the stimulus of new market entrants, competitive pressures to
reduce costs and the needs to respond to consumer preferences and to innovate.

II THE CASE AGAINST COMPETITION

The introduction to the White Paper notes that in submissions "widespread support
was expressed for the core principles of community rating, open enrolment, and lifetime
cover." (WP,2).

Lifetime Community Rating requires the same premium regardless of age, gender,
sexual orientation or current or prospective health status. This requirement is enforced under
the Health Insurance Act, 1994. The White Paper states that "community rating is the corner-
stone of the Irish health insurance system. In the absence of community rating, today's healthy
individual could become tomorrow's uninsurable risk.......In particular, the intergenerational

solidarity which is at the very core of community rating in Ireland has made insurance
accessible to those( i.e. the elderly and chronically ill) who might not be able to afford the
cost of cover." (p.33). The reference to the elderly and chronically ill must be qualified
however. O''Shea (1999) notes that private long-term care insurance is currently not available
in Ireland." (p.5)

Community rating depends, however, on younger members joining the health
insurance schemes in order to provide the resources from which cross-subsidisation may take
place. The White Paper proposes a maximum premium loading for those who join a scheme
in middle age or later. The loading ranges from 10% for those joining at ages 35 to 44 to
80% for those who join at age 65 or over. In addition the White Paper allows insurers " the
discretion to charge a premium loading to people who switch to plans with a higher level of
cover at a later stage in life" ( WP,35).

Community rating is further eroded in the White Paper by the provision to increase
from 21 to 23 years the upper age for reduced premiums for students. On the other hand the
White Paper rejected a proposal to charge lower premiums to non-smokers. "It was
considered that this could have undermined the community rating system. In addition, issues
relating to effectively implementing such a measure and technical difficulties in relation to risk

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