VHI will oppose any derogation from payments

Risk equalisation:The announcement that businessman Seán Quinn is to buy Bupa Ireland's operation is good news for the 300 staff in Fermoy who were fearful for their jobs, for 450,000 subscribers who have been guaranteed a price freeze for the year, and for the Government.

However, the State's largest health insurer VHI, is to object strongly to suggestions that the new Quinn operation could enjoy a derogation from making risk- equalisation payments and this issue could now trigger another major dispute in the sector.

In their joint statement yesterday, Bupa and the Quinn Group said the new operation would be considered as a new insurer and would therefore be deemed exempt from risk-equalisation payments for three years.

Under legislation, new entrants to the market are afforded a derogation from risk- equalisation payments for this period. However, all previous entrants have been start-up operations and there has never been a case where one company bought the business of another.

The Minister for Health, Mary Harney, said last night that the issue of whether the derogation would apply in this case would be one to be determined by the industry regulator, the Health Insurance Authority (HIA).

However, VHI chief executive Vincent Sheridan last night said his company was seeking immediate legal advice and wanted a ruling on the issue from the HIA "within days rather than weeks".

Mr Sheridan said that VHI did not believe that a company's liability for risk-equalisation payments could be avoided by a change of ownership.

He said that if the HIA upheld the Quinn/Bupa interpretation of the derogation issue, the concept of community rating in Ireland - where everyone pays the same regardless of age - was dead in the water. What was there to stop every other company staying in the market for three years then selling on to somebody else who would enjoy a further derogation.

Mr Sheridan said that public policy for the last 50 years had been to uphold community rating. He said this was the intent of the current health insurance legislation and that, if Quinn/ Bupa had found a loophole, it would be up to the political system to decide whether to plug it immediately, or to agree to a risk-related system in the market. In such a risk related environment, he said older people could see their subscriptions rise tenfold.

There will be millions of euro at stake for all the parties in the outcome of the HIA deliberation on the derogation issue.

VHI anticipated receiving tens of millions of euro - Bupa estimated up to €161 million - over the next three-year period. Without this money, it says its future viability is threatened.