Tensions between VHI and Minister for Health on risk equalisation and price increases

Recent months have seen tensions between the State-owned health insurer, VHI, and Minister for Health James Reilly official correspondence shows.

The correspondence reveals that the insurer and the Department of Health differed over its plans for price increases and a new risk equalisation scheme for the market.

VHI chairman Martin Sisk effectively argued that a new risk equalisation scheme introduced by the Government as part of legislation put in place late last year was less effective than the one previously in operation.

He warned this could have serious implications for the Government's plans to have the company authorised by the Central Bank in time to meet a deadline of December 31st agreed with the European Commission.

Levies
Some other health insurance companies maintain the scheme, which includes tax credits and a levy, was responsible for pushing up premium costs. VHI effectively argued that it did not go far enough.

On December 12th last year, Mr Sisk outlined his concerns to the Minister about the new risk equalisation scheme.

He said while the levies were set at an appropriate rate, the corresponding credits were far too low.

He said the result would be “that the amount of transfers available in respect of older and sicker customers are less than they should be.

“It also means, as per our calculations, that the new risk equalisation scheme will take in significantly more money in 2013 than it will pay out.”

Mr Sisk maintained that the effect of the new scheme “puts the authorisation of VHI Healthcare at the end of 2013 beyond reach, with serious consequences for the business and the State”.

Mr Sisk contended that the company had already generated savings of more than €200 million and that would cut a further €100 million from its costs over the coming years.

“These will include further price reductions, utilisation management initiatives and robust clinical audits to mention a few.”

Mr Sisk maintained that “cost containment alone will not address, nor is it a substitute for a comprehensive and robust risk equalisation scheme, which remains a critical and essential part of VHI Healthcare’s ability to put together a sustainable business plan to achieve authorisation by the Central Bank of Ireland”.

“The new proposed scheme does not deliver this and is perverse.”

Mr Sisk sought changes to the scheme to allow for increases in the credits “to ensure a greater proportion of the revenues collected through levies are paid back to the market”.

On December 21st Dr Reilly said a key priority for VHI this year was “cost containment and reductions”.

Challenging plan
He said VHI had to put in place a challenging plan with ambitious savings targets, which identified key individuals who would deliver on these.

He said four areas needed to be examined: volume of procedures; clinical audit to determine the appropriateness of procedures being claimed for; the introduction of a system of paying per procedure; and a new benchmarking arrangement to look at current payments for particular procedures and how these could be driven down.

Further correspondence also supports suggestions that there were tensions between the company and the Minister over its proposed price rise for this year. On January 30th, The Irish Times reported that the company was to announce rises of 6 per cent on average and that Dr Reilly had a few days previously rejected moves by VHI to hike subscriptions by 8 per cent.

In a letter dated February 5th, Mr Sisk describes a meeting held with Dr Reilly and his officials on January 28th as “difficult for all concerned” and said that there had been a “frank airing of issues”.

“However, I do want to express in the strongest possible terms our concern at the use of projections furnished to the Department of Health in September 2012. It appears to us that these projections were being used solely to justify an argument that the VHI Healthcare price increase should be limited to a maximum percentage.”