Health insurers to face risk equalisation from January

The Tánaiste, Mary Harney, has decided to trigger the controversial risk equalisation measure in the health insurance sector from January 1st next.

But Bupa, which would stand to pay millions to its rival VHI under the scheme, immediately obtained an interim injunction in the High Court to prevent the measure going ahead pending the outcome of a High Court case in February.

Bupa claims the legislation and regulations on risk equalisation contravene both EU law and the constitution.

Ms Harney said her Department would be seeking the Attorney General's advice on the matter.

In a statement, she said she had decided to accept a recommendation from the Health Insurance Authority issued in October to introduce risk equalisation in the health insurance sector.

Ms Harney said she had previously made it clear that risk equalisation is a "necessary and appropriate mechanism" in a community-rated market. The measure will force VHI's competitors to pay millions of euros to compensate it for the fact that its client base is older and therefore more likely to claim.

"In June when I decided not to trigger risk equalisation I stated that I believed that the introduction of risk equalisation would be premature in advance of a government decision regarding the commercial status of VHI and that deferring a decision would allow time for further corroboration of trends both in risk profile and competition in the market."

"The government last week approved legislation in relation to the commercial status of VHI and the recent report from the HIA confirmed a further divergence in market risk profiles. On this basis I have accepted the recommendations of the HIA and the Department's profession advisors to now commence risk equalisation transfers."

Ms Harney said she had been advised that a court order has been made in relation to the matter and that the Department of Health would seek the advice of the Attorney General's office on the issue.

The Tánaiste said she had also received Government approval for legislation designed to ensure that VHI operates under similar conditions as apply to other insurers in the market. She has asked the competition authority and the HIA to report to her within six months on further measures to encourage competition in the health insurance market.

She also asked the HIA to take steps to improve consumers' awareness of their right to move between insurers without having to incur penalties.

VHI, which stands to be paid millions in compensation from its rivals Bupa and Vivas Healthcare, welcomed the move. Risk equalisation means that the newer health insurers in the Irish market will have to pay compensation to VHI, which has an older client base and is thus exposed to higher claims.

The group said in a statement that the decision was "essential to ensure the continuation of the community rated system of private health insurance in Ireland, which has served Irish people so well over the past fifty years".

Vhi chief executive Vincent Sheridan said: "Today's decision is a victory for consumers and a great day for Vhi Healthcare members. It will stem the haemorrhage of funds leaving the Irish healthcare system by way of windfall profits. It will also encourage competition in all sectors of the market."

Vhi also welcomed the changes proposed in relation to its own corporate status. It said it had advocated such changes for some time. The detail of the changes will be studied over the coming weeks, Vhi said.

Vivas said it was "surprised and disappointed" that the Tánaiste has decided to trigger risk equalization at this time.

"It is an especially bizarre decision due to the fact that six months ago she didn't deem risk equalisation necessary and the market hasn't changed significantly in that time. This decision is going to damage innovation and competition in the market and consumers are the ones that will ultimately pay," Vivas said in a statement.

A report sent to the Tánaiste by the Health Insurance Authority in October found that Bupa, the biggest private health insurer, was making "super-normal" profits.  It said the absence of risk equalisation had facilitated Bupa in making a surplus of more than 17 per cent of earnings from its subscribers last year.