Insurers may seek new arrangement on payments to VHI

Analysis:Yesterday's judgment by Mr Justice Liam McKechnie on risk equalisation has profound implications for the private health insurance market in Ireland and its two million customers.

Uncertainty remains over the intentions of Bupa Ireland following the High Court ruling that the company should have to pay potentially tens of million of euro in risk equalisation payments to its main rival, VHI.

Bupa, which has more than 400,000 subscribers, had previously signalled that it would leave the Irish market if the Government's risk equalisation scheme was upheld. However, yesterday there were indications from Bupa that it would go down the political route and seek some form of new accommodation with the Department of Health.

Although it lost in its legal challenge, the High Court did acknowledge that there was an element of anti-competitiveness to the Government's risk equalisation scheme.

Mr Justice McKechnie also concluded that even in the most optimistic situation Bupa would not be able to operate here without incurring losses if it was to make the financial obligations that could be imposed under the scheme.

Bupa is expected to highlight these aspects of the ruling when it meets the Minister for Health next week.

The company yesterday stood by its contention that it could be forced to pay out up to €161 million over the next three years at a time when its forecast accumulated profits will be in the region of €64 million.

There was speculation last night that the talks on Tuesday could centre on some new arrangement under which Bupa would make some form of risk equalisation payments, although not at the level currently envisaged.

Bupa is still awaiting a written copy of the 200-page judgment issued yesterday by the High Court before deciding on whether it will appeal the ruling.

However any move to go to the Supreme Court or to Europe could be fraught with difficulties for the company.

The risk equalisation scheme has been in force for the last 11 months and although as a result of a High Court stay, no payments have yet been made, the meter on the contingent liability is running all the time.

Informed sources said that the board of Bupa would have to consider carefully whether, in such circumstances, it would be prudent to embark on an appeal to the Supreme Court or to Europe which could take two or three years to conclude.

Even if the current legal stay on making payments was maintained, at the end of the proceedings Bupa could face a liability running possibly into nine figures.

Bupa Ireland operates as a subsidiary of Bupa in the UK and it is understood that financial regulators there have in recent years expressed concern that the risk equalisation payments or liabilities could be a drain on the group as a whole.

For the VHI yesterday's court ruling was as good as the company could have dreamed.

The legality of risk equalisation was upheld and in the judgment, the court even made reference to the level of profits being generated by Bupa in Ireland.

The judge said that there was some reasonable evidence to suggest that Bupa had made profits that were not available to comparable companies in other markets.

VHI has long contended that Bupa was making super-normal profits from its operation in Ireland and there are likely to be continuing references to this finding in the commercial skirmishes between the two companies in the future.

VHI chief executive Vincent Sheridan said that the company could receive between €7 million and €8 million in risk equalisation payments for the first six months of the year.

It is unclear whether these figures have been drawn up internally by the VHI or whether they come from the unpublished assessment of the market for the January to June period which was carried out by the regulator, the Health Insurance Authority.

Under the rules of the scheme, companies would have to make only 50 per cent of the payments due in the first year of the scheme. This could leave VHI expecting to receive around €30 million in the second year of operation.