State must comply with ruling on VHI reform, says EU

THE EUROPEAN Commission has criticised the Government for failing to fulfil obligations under European law in relation to reforming the VHI, following a ruling of the European Court of Justice last year.

It has also reminded the Government that the court can fine member states that do not comply with its judgements.

Last month it emerged that the commission was unhappy with Government proposals for the State-owned health insurer arising from the court ruling. But the Government declined to publish the contents of the commission document, parts of which have now been seen by The Irish Times.

The Court of Justice found last September that VHI’s exemption from Central Bank authorisation and regulation was in breach of EU directives. In contrast, its private competitors had to have substantial financial reserves.

The ruling had huge implications for the Government which faced having to pump over €200 million into the company to bring its reserves up to a level which would facilitate authorisation by the Central Bank.

Under proposals sent to the commission last December, the Government said that the VHI would not be authorised by the Central Bank until the end of 2013.

The Minster for Health James Reilly told the Cabinet late last year that, while €220 million may be needed to invest in VHI reserves, the amount would not be determined until the application process was under way.

The Government indicated to the commission that, under its timetable, the Cabinet would make a final decision on investment in the reserves when the authorisation process with the Central Bank was nearing conclusion towards the end of 2013. The Government also said it would engage with the commission to determine whether any such capital injection would be regarded as a form of State aid. The commission was not happy with these proposals.

The commission’s letter says that according to Article 260(1) of the Treaty on the Functioning of the European Union, a member state must take the necessary measures to comply with the judgment of the court.

“Moreover, it is well established case-law that the importance of immediate and uniform application of Union law means that the process of compliance must be initiated at once and completed as soon as possible.

“With regard to these legal requirements, your Government’s failure to complete or even to begin the process of applying the Directives on a non-discriminatory basis, in line with the judgment of the Court of Justice of 29 September 2011, is not justified by the arguments brought forward by your Government.

“Those arguments are of a purely domestic nature, whereas a member state may not rely on circumstances existing in its internal legal system . . . to justify a failure to comply with the obligations and time-limits under Union law. The Commission therefore takes the view that Ireland has failed to fulfil its obligations under Article 260(1) of the Treaty on the Functioning of the European Union.”