Harney unlikely to oppose 12.5% VHI rate rise

Minister for Health Mary Harney is not expected to oppose plans by the State-owned health insurance company VHI to increase subscription rates by 12.5 per cent on average from September.

The price rises, announced yesterday, would increase subscription costs by €186 per year for a family of four on the company's most popular scheme, Plan B.

VHI chief executive Vincent Sheridan said yesterday that the price increase had been sought to cover the cost of financing the healthcare needs of its 1.5 million subscribers in the coming year.

He said new drugs, particularly in the area of cancer, as well as technology innovation were key cost drivers.

VHI last year paid out €38 million on chemotherapy and radiation treatments, as well as €28 million on new cancer drugs, he said.

Mr Sheridan warned that there would be further price increases next year, although he would not speculate on the extent of these.

The Irish Times revealed earlier this year that VHI management had told Government-appointed analysts that it would require price rises of 15 per cent next year and the year after.

The new average 12.5 per cent increase, announced yesterday, will come into force in September unless the Minister for Health exercises a ministerial veto within the next month. Sources said that this was not expected to happen.

The cost of VHI's higher schemes, Plan D and Plan E, will rise by nearly 15 per cent.

VHI also confirmed yesterday that it had recorded losses of €32.3 million in the year to the end of February, compared to a €4 million surplus in the previous 12 months.

Mr Sheridan said the losses arose from the absence of a risk equalisation scheme in the health insurance market and that the deficit had been forecast by VHI for the past two years.

The losses will be met from the company's existing financial reserves.

However, VHI has warned that the absence of risk equalisation into the future could lead to a situation where its business was no longer viable.

Risk equalisation is effectively a compensation scheme in the market under which companies with generally older subscribers, such as VHI, would receive payments from rivals with younger membership bases.

The Government believes risk equalisation is an essential component of a community-rated market, where everyone pays the same amount for similar products regardless of age.

Under a risk equalisation scheme, VHI would stand to gain tens of millions of euro annually, mainly from rival Bupa Ireland.

The Government activated a risk equalisation scheme from the beginning of January. However no payments will be made to VHI until an ongoing High Court challenge launched by Bupa is determined.

Mr Sheridan said that in the "appalling vista" of risk equalisation not standing up legally, community rating would not stand up either.

He said such a scenario would not only be a problem for VHI but for the system as a whole. People over 70 could be asked to pay 10 times as much as at present in a risk-related market, he said.

Speaking yesterday, Ms Harney said healthcare costs were increasing internationally and that Irish health insurance subscribers received very good value relative to other countries.

Labour Party health spokeswoman Liz McManus said the latest increase in VHI charges was due in part to the delay by the Government in introducing risk equalisation.

Vivas Health said yesterday that VHI was abusing its dominant position in the market and behaving recklessly by continuing to run down its reserves towards insolvency.