VHI has vowed to campaign against a 20 per cent cut in payments to it from rival health insurers in compensation for having an older customer base. Paul Cullen, Consumer Affairs Correspondent, reports.

Regulations giving effect to the 20 per cent reduction in risk equalisation payments to VHI were rushed through the Dáil yesterday, just a day after the move was announced by Minister for Health Mary Harney. This reduces by €10 million the money that Quinn Healthcare, the former Bupa Ireland, will have to pay VHI in respect of the first six months of this year.

In a meeting with the Minister yesterday, VHI chairman Bernard Collins and chief executive Vincent Sheridan expressed their "real concern" about the decision, which they say will result in substantial increases in insurance premiums. However, they agreed to work with an inter-departmental group being established by Ms Harney to make recommendations on the future structure of the State-owned company.

The Minister yesterday defended the reduction in risk equalisation payments as a "proportionate response" to the removal last year of the three-year derogation from such payments for new entrants to the market. The cut amounts to less than 1 per cent of VHI's premium income, or about €6 per member, so it could not be argued that the change would push up prices, she said.

The regulations were passed through the Dáil in 25 minutes, over the protests of Opposition TDs. Measures to provide consumers with clearer information and to make it easier to switch insurers were also approved.

Ms Harney promised there would be consultation before any changes were made to the community rating scheme, which means people pay the same premium for the same level of cover, regardless of age or health.

Proposals to charge higher premiums for those who take out health insurance later in life were a matter for political decision, she said, and would have no effect on people who currently have health insurance.

The issue of whether all policies should be community rated was also a political decision. "The question is whether people with low or modest health insurance cover should subsidise the additional benefits purchased by wealthier people who have very high levels of coverage."

Quinn Healthcare expressed disappointment that the changes to risk equalisation did not go far enough. General manager Colin Morgan said the dominant position of VHI would still hinder competition. Vivas, the third company in the market, also said the changes were inadequate.

Ms Harney said the Government had an open mind on VHI's future, including its continuation in State ownership.