Decision to withdraw comes after two weeks of compromise talks

Bupa talks:The decision by Bupa Ireland to withdraw from the Irish market comes after a fortnight of negotiations with the Department of Health, which saw a number of possible options to amend the controversial risk equalisation scheme considered.

Following the ruling of the High Court last month to reject Bupa's legal challenge to the scheme, the company sought a meeting with Minister for Health Mary Harney to put forward a number of scenarios under which it would continue with its Irish operation.

At that meeting, a high-level Bupa delegation signalled to the Minister and her officials that it would withdraw from the market if a compromise formula on the risk equalisation issue could not be reached.

The formal written judgment of the High Court was not available at the time and both parties agreed that this presented an opportunity to discuss issues.

Up to then, Bupa had always maintained that it could not operate in a market in which risk equalisation existed. However, The Irish Times understands that in these discussions, Bupa altered its position somewhat and indicated that it was now prepared to stay if the level of payments it had to make to its rivals was "proportionate".

The Government has argued that risk equalisation payments are vital to underpin the concept of community rating - where everyone pays the same amount for a similar product regardless of age. Bupa contended that it had no difficulty with the principle of community rating but that it did not believe that risk equalisation was essential.

All the parties insisted that the details of the negotiations remained confidential. However, it is understood that Bupa both highlighted previous proposals for amending the risk equalisation scheme and suggested a number of new options. As part of these proposed new options Bupa proposed that the risk equalisation scheme should only apply to the basic health insurance plans, equivalent to VHI's Plan A.

Relatively few of the State's two million health insurance subscribers are covered by Plan A- type schemes and this proposal was not acceptable to the Department of Health as it would have meant that most insurance plans would have fallen outside the scope of the scheme.

Informed sources said Bupa also suggested that calculations for risk equalisation payments should only be based on profits.

Separately it put forward a proposal that risk equalisation payments should only be based on a company's earning over and above the money it would set aside annually to meet its solvency requirements.

It is understood that at final talks on Tuesday, the Department of Health tabled proposals to extend the relief which Bupa and other companies would enjoy from having to make full risk equalisation payments in the early years of the scheme.

Currently companies only have to pay 50 per cent of their liability to risk equalisation payments in the first year.

Informed sources said that the Department of Health had proposed that this 50 per cent rule should also apply in the second year of operation. Under the Department proposals, companies would have to pay 75 per cent of the risk equalisation liabilities in the third year.

However, Bupa believed that under these proposals it would still have to pay out more in risk equalisation payments than it was earning in profits.

The Department of Health also proposed that there should be some form of independent review of the scheme. However, it is understood that Bupa believed a number of strings were attached to this proposal, the outcome of the review would have been pre-ordained and it would have faced higher risk equalisation payments.

Following the breakdown of the talks on a compromise, the Bupa board decided it would have to withdraw from the market. Its international parent board was "devastated" and carried out its own assessment of the situation and later agreed to the move.

Bupa told the Government, in correspondence on Wednesday evening to the Department of Health, of its final decision to pull out and of its intention to hold a press conference on the issue.