Bupa attempt to halt risk equalisation is rejected

Health insurer Bupa has been refused a High Court order halting the introduction of risk equalisation from January 1st next.

Bupa, which has 440,000 subscribers and around 300 staff in Ireland, has said it will pull out of Ireland if the system is introduced as planned at the start of the year.

Under risk equalisation companies with a relatively older subscriber base, such as VHI, would receive payments from rivals with relatively younger memberships, such as Bupa.

Ms Justice Mary Finlay Geoghegan this morning reject an application by Bupa to have the introduction of risk equalisation, in effect, put on hold while the company challenges its validity under the constitution and EU law.

Bupa begins its High Court challenge on February 7th. The company believes this action would end up in the Supreme Court, however, and possibly in the European Court of Justice. It estimates the entire proceedings could take two to three years.

If at the end of this period it loses the action it estimates it will face risk equalisation liabilities of up to €161 million when its projected underwriting profits for the period were €64 million.

Counsel for Bupa said that in effect it would be "betting the house on the ultimate success of the litigation" and that this would be an unacceptable risk for any commercial operation to take.

In her ruling today, the judge noted she was being asked to make a "highly unusual" form of order.

An interim order in Bupa's favour was discharged yesterday with the consent of all parties.

Today's order effectively was a submission on Bupa's behalf asking the judge to rule that January 1st should not be the date for commencement of the risk equalisation scheme.

The judge said there were no "highly exceptional circumstances" which would warrant the making of such an order.

She noted that the legislation allowing for risk equalisation had been in effect since 1994 and that the the scheme itself had been laid out in 2003.

She said it was only after Bupa had received recommendations by the Health Insurance Authority in July of this year that proceedings were issued challenging the entire legislation and the scheme.

She also noted that when Bupa was notified last September of the proposed commencement date of the RES, it did not at that stage seek to bring an application preventing the minister from going ahead.

In a statement released after this morning's ruling Bupa said a "stay on the making of payments under the risk equalisation scheme" continues until the completion of its legal challenge which starts in February 7th.

However, while the need to make payments is put on hold, liability will build up under the scheme from January 1st 2006.

"We have always said that risk equalisation makes competition and our business unviable. We brought competition to the market and we wish to make it even more vibrant in the interest of consumers," the statement added.

"We have invested heavily in our businesses here and will continue to make every effort to protect the interests of our 440,000 customers and the almost 300 people working in the business."

VHI Healthcare welcomed today's High Court decision.

In a statement, VHI said: "We are pleased that the authority of the State has been upheld and that the implementation date for the activation of Risk Equalisation will remain 1st January 2006.

VHI chief executive Vincent Sheridan said: "This decision is in the interest of competition in the health insurance business as well as in the interest of health consumers generally.

"Health insurance is about paying the claims of people that are sick. It is not about generating unconscionable profits. It would appear that those opposed to risk equalisation are motivated totally by the opportunity to make windfall profits and risk equalisation would remove this opportunity from them and redistribute those profits to the Irish consumer. This is clearly in the best interest of the community".

VHI said it confirmed its "total support of fair and vigorous competition in the health insurance market".

"Competition is healthy and is in the interests of participants in the market, their employees and most especially consumers of private health insurance. It ensures that premiums are set at competitive levels and encourages innovation in the market."