group schemes for the Gardai, Prison Officers and ESB staff. The only competitor in the
general health insurance market was BUPA with an estimated 2% market share.
The cost of VHI premiums rose by 91% between 1990 and 1999 (WP, 81). The
increase in gross current expenditure on the public health service from £1.4b in 1990 to £4.3b
in 1999 was 207%. The increase in the consumer price index over the same period was 24%.
Ireland thus has serious problems of cost escalation in the public health service.
The increase in gross current public health expenditure in the 1990s was 2.3 times the
increase in VHI premiums which in turn rose by 3.8 times the consumer price index. The
basket of goods and services covered by VHI differs from those provided by the exchequer
funded health services. The increase in VHI premiums is transparent in members' bills
whereas the more rapid escalation in the cost of the public health service is obscured in the
public mind by the huge revenue buoyancy in the public finances in the second half of the
1990s.
The administration cost of VHI is 6.7 per cent of premium revenues (WP, 81). The
potential gains from competition in respect of administration cost savings is therefore small.
Despite operating in a health sector with rapidly escalating public health service costs VHI
has managed to restrict the growth of its premiums to 44% of the rate of increase in public
health service costs. On the other hand the VHI premium increase was 3.8 times the increase
in consumer prices indicating scope for a better price performance by a new entrant.
VHI is controlled by the Department of Health which also regulates the market in
health insurance and controls prices in the public sector. The White Paper proposes to
remove VHI from the province of the Department of Health and to have a Health Insurance
Authority to regulate the sector.
IV GOVERNMENT INTERVENTION IN THE MARKET FOR HEALTH
SERVICES.
Government intervention in the market for health services in Ireland is a large and
rapidly increasing part of the national budget. Implicit in that policy is that, left to themselves,
people would spend too little on their health. The White Paper estimates that approximately
75 per cent of health services expenditures are publicly funded. "The remaining 25 per cent
comprises expenditure by private health insurance undertakings and private spending by
households" (WP, 11). The composition of the latter is 17 per cent spent by households and 8
per cent spent by private insurance companies. (O'Rourke, p.1)