Lack of competition has driven up health premiums - CC

Health insurance premiums have been driven up by a lack of competition amongst private hospitals, the Competition Commission has found.

In its provisional findings on privately-funded healthcare services, published today, the CC identified 101 hospitals facing little local competition, some of them in clusters under the common ownership of one of the major private hospital groups – BMI, Spire and HCA.

Although the prices charged by operators to insurers are set centrally, the CC said the lack of competition in many local areas results in higher premiums on a national scale.

The CC found that large insurers including AXA PPP and Bupa achieved significantly lower prices than the smaller insurers, but that no single insurer had strong enough buying power to offset the market power of the big three groups.  

It also raised concern about the practice of tying and bundling - where hospital operators respond to a loss of business or reduction in price in one area by raising charges in another – in its negotiations with insurers.

It also urged insurers, especially Bupa, to improve its communications with policyholders about what their premiums entitle them too.

The CC has opened a consultation on measures to make the market more competitive, including requiring operators to sell hospitals in certain areas, a ban on some incentive schemes, and making it easier for new players to enter the market.

CC chairman Roger Witcomb said: “The lack of competition in the healthcare market at a local level means that most private patients are paying more than they should either for private medical insurance or for self-funded treatment.

“Our job has been to look specifically at competition in private healthcare rather than health insurance but clearly we have had to consider the role of the larger insurers in particular. Although Bupa and AXA PPP have some clout, we haven’t found that this completely offsets the power of the hospital operators.

“Curing these ills and trying to get a better deal for patients is not going to be straightforward. High costs and other factors mean that new competing facilities are not going to spring up so we may look to increase competition and require sales of hospitals to other operators where we can. We will also look at ways that will stop hospital operators using local strength in one area as leverage in their negotiations nationally.”

AXA said it welcomed the possible remedies the CC presented. “We are encouraged by the direction that the investigation is taking, which is consistent with our experience of how the market operates in practice,” it said in a statement.