THE GOVERNMENT is to invest up to €300 million in the VHI and place the State-owned private health insurance company on the market.
The measures form key elements of new reforms to the health insurance market announced yesterday by Taoiseach Brian Cowen and Minister for Health Mary Harney.
The Government said its measures were aimed at securing the future of community rating where everyone pays the same for identical products regardless of age.
Ms Harney said the reforms would not increase premium costs for the Republic’s two million private health insurance subscribers.
She said that, as a result of the Government’s action, “older and sicker people would pay less than they would otherwise have paid because, if we didn’t make these decisions, there’s no doubt that the market would have segmented”.
“Obviously health costs are rising but we also believe the emphasis on primary care should help to reduce the cost of health insurance,” she said.
The VHI has also been told by the Government to open up its travel insurance operation to non-members and to put in place controls on its claims costs.
Under the Government’s plans, health insurance companies will have to cover GP services and measures such as health screening as part of minimum benefits offered to subscribers.
There will also be new penalties to encourage people to take out health insurance earlier rather than later in life. The Government has also signalled that it will consider measures to achieve a greater balance of older customers between the various companies in the market.
At present, VHI has 94 per cent of all subscribers over 80 in the market and nearly 90 per cent of those over 70.
However the Government said its new proposals would not necessarily mean the break-up of the VHI.
The State investment in the VHI is required to bring its reserves up to the level needed for authorisation by the Financial Regulator.
Ms Harney said that on its own to increase the VHI’s reserves from the current 20 per cent of premium income to 40 per cent would involve an investment of €338 million.
However, the Government believes this figure could fall substantially if the company avails of reinsurance services – essentially where an insurer seeks insurance against some of the risk. “We want to establish the capacity of the VHI to get some of that money from reinsurance and what the Financial Regulator will require.” She said there was also “a new solvency directive” coming from the EU.
Ms Harney also stated that the Government expected to recover its investment – “all of that and more” – from the sale of the VHI.
Until now, VHI, unlike its rivals in the market, has been exempt from regulation by the Financial Regulator. However, the Government said it would introduce a level playing pitch for all firms.
A new “robust” risk equalisation scheme is to be introduced which will involve cash transfers between companies with younger membership profiles to those with predominantly older subscribers.
A previous risk equalisation scheme was struck down by the Supreme Court in July 2008.
The sale of the VHI is expected to take place in 2012 or 2013.
Ms Harney indicated the Government would give “serious consideration” to providing staff with a share in the company.
Explaining the reason for privatising the VHI, she said: “The fact that the Government is the owner of the VHI and requires its competitors to transfer resources to the Government’s company means that we don’t have an even playing field.”
Fine Gael said the proposals would not address the high price of insurance premiums, while Labour said the taxpayer was going to be asked to pump as yet unquantifiable sums of money into VHI to fatten it up for privatisation.