These are tough times to be starting a business anywhere, but you would need a special brand of foolhardiness to dip a toe in the rapidly contracting health insurance market.
In a perfect storm caused by rising premiums and falling personal income, the sector is haemorrhaging customers – almost 200,000 in the past five years. Many of those still hanging on to their insurance have downgraded their cover. The trend seems set to continue as levies increase and medical inflation gathers pace.
Add to this the uncertainty surrounding Minister for Health James Reilly 's plans for universal health insurance. Talk of cutting waiting times for public patients is admirable, but if achieved, what is the point of having private health insurance?
Yet into this turbulent scenario a new provider, Glo Health, opened its doors last July. And far from being beaten down by the prevailing gloom, it appears to have carved out a useful starting niche for itself.
Alternatives
Jim Dowdall, co-founder and chief executive of Glo, allows himself a modest pat on the back before getting onto the traditional sport of the private end of the health insurance market – bashing the VHI.
Glo, he says, has enjoyed “phenomenal success” since it started, with more than 40,000 people switching from other providers. The number sounds impressive but, in a market of 2.1 million subscribers, it amounts to a share of less than 2 per cent.
Still, it compares well to the start-ups by two previous entrants to the market, Vivas Health and Bupa, which attracted 12,000 customers each in their first year in operation.
“These numbers demonstrate to us that customers are crying out for alternatives that add value. They’ve voted with their feet,” enthuses Dowdall, a veteran of the sector as a former chief executive of Aviva Ireland.
In the corporate market, Glo has managed to persuade 32 companies to switch from existing providers. One of them is Facebook which, in a substantial early fillip, came over on Glo's first day in business.
The company now employs 50 people, with a number of senior appointments, including a new head of claims, due to be made shortly. Having outgrown its original premises, Glo recently moved to a new building in Sandyford.
Dowdall says he and his partners spent 15 months researching the market before deciding on their product offering.
“We saw there was a gap in the market for real innovation, better value and policies that were more relevant to what people wanted.”
The health insurance sector has only four players, he points out, whereas up to 15 sustainable, profitable companies are to be found in other insurance sectors.
'Affordability crisis'
In contrast to the blizzard of products on the market, Glo's product palette spans five basic plans, though customers can personalise policies according to need.
Though no less immune to the virus of rising premiums than anyone else in the business, it claims to offer savings ranging from €400 to €599 compared to its rivals, for a family of two adults and two children.
Yet it too is suffering from the “affordability crisis” caused by the exodus of mostly younger and healthier subscribers from the market.
A 60 per cent rise in health insurance costs since 2009 is driving the trend, but Dowdall claims the problems of the sector can be traced back to one simple cause, the insurance levy introduced to fund risk equalisation.
Because the VHI has more older and therefore sicker customers than its private-sector rivals, the money raised through the levy largely goes to compensate the State-owned insurer for the extra costs involved. This year it is likely to benefit to the tune of about €60 million.
Dowdall claims this money is an indirect subsidy that allows the VHI, and the Minister, avoid having to deal with the State company’s high cost base.
"We need to address the elephant in the corner, which are the cost issues of the VHI. It wouldn't take a cynic to think that the levy is more about providing an income stream for VHI to help it get regulated by the Central Bank than anything else."
He says the current policy isn’t working and “somebody needs to stand up and say ‘no more’”.
Dr Reilly could reduce the cost of health insurance overnight if the levy was removed, he claims. “It would keep the VHI awake at night because it would then have to address efficiencies issues but why not: that’s the way most commercial organisations work.
“If VHI had a look at its own organisation, its own cost base and the efficiencies it could make, it could save more than it’s getting from the health levy today.”
The levy, he asserts, acts more as a penalty on the competitors to the VHI than it is of value to VHI itself. “It leads those competitors to put their prices up and so VHI doesn’t have to worry about cost issues.”
Hefty increase
In Opposition, Dr Reilly was "scathing" about the levy, he points out. "If the Government were strong, the Minister would address these issues. That policy may have been sustainable in the Celtic Tiger years but it certainly is not sustainable now. We need to be brave and stop it, or at a minimum not put it up anymore."
Dowdall is also exercised about the introduction late last year of two tiers to the levy. Somehow, all health insurance subscribers have ended up on the higher tier, and will have to fork out a hefty increase in premiums after the charge goes up to €350 next month.
“The Minister stood up in the Dáil last December and said legislation would protect 330,000 people on lower-level insurance plans.
"Yet when the Bill was passed and the Health Insurance Authority made its assessment, 100 per cent of the plans were made subject to the higher levy. That was wrong."
The effect is that more than half of the cost of premiums for people on the lower plans will be accounted for by the levy, he points out. The Minister wants the insurers to adjust their offerings by bringing more basic plans to market but Dowdall says this can only be done by stripping away benefits.
“So for an MRI scan costing €160, you tell the customer that only 66 per cent of the cost will be covered – that’s crazy. You’re impacting on the people who can least afford it.”
So how would he rate the performance of the Minister generally?
“There’s no doubt he has the most challenging brief in Cabinet, and there is a need for real reform. I would be concerned whether the Minister has the tools and resources he needs at his disposal. Previous ministers also found it very difficult to drive reform, and he risks ending up in the same place. There’s a need for fresh thinking in the Department.”
As for Dr Reilly’s holy grail of universal health insurance, Dowdall warns that this goal won’t be achieved if prices keep rising.
“There’s a huge amount of detail missing. I believe in the ambition of UHI but I’d like to understand the roadmap to get there. The timeframe is very aggressive and there is no evidence of the required level of progress being made.”
Despite the turbulence in the market, Dowdall says Glo’s ambitions are big: “We’re not here to be a me-too player. We aim to change the shape of the market and to lead it in the next few years.”
The recent sale of Irish Life, which invested €8 million in the start-up for a 49 per cent share, will have no impact on the health insurer, he says.
