People who take out health insurance later in life will have to pay substantially higher premiums under reforms for the sector published yesterday by Minister for Health Mary Harney, write Paul Cullenand Arthur Beesley.
Suggested changes to the current system of community rating, where everybody pays the same for the same level of cover, mean a 45-year-old entrant to health insurance would pay 45 per cent more than a 30-year-old. A 60-year-old would pay almost double.
In addition, community rating may in future be applied only to basic health insurance packages.
The report of the Barrington Group on health insurance, published yesterday by the Minister, suggests that insurers be given the freedom to price higher-level packages as they wish. This would mean older and/or less healthy customers would end up paying higher premiums.
Stating that the VHI has a "dominant, favoured and protected position", the Barrington Group found that the current insurance market is not one in which "existing and prospective" rivals to the State company can earn a return regarded as adequate for the industry.
Ms Harney is to meet VHI chairman Bernard Collins and chief executive Vincent Sheridan today over her plans for radical changes in the way its business operates.
The company said last night that the proposals create the prospect of "large price increases" for health insurance in the long term.
It is particularly unhappy with the Minister's decision to cut by 20 per cent the risk equalisation payments that VHI receives from its rivals in compensation for its older customer base.
This will immediately reduce by €10 million the money that Quinn Healthcare, the former Bupa Ireland, will have to pay the VHI in respect of the first six months this year.
In addition, VHI's derogation from solvency requirements will cease at the end of the next year, four years earlier than planned.
The new solvency requirements mean the VHI will have to find at least €100 million in reserves and possibly as much as €200 million.
While debt financing or a Government cash injection may be possible, the privatisation or part-privatisation of the State-owned company are also under consideration as a means to fund that requirement. Ms Harney said the Government had an "open mind" on the future capitalisation and ownership of the company.
The VHI said the end of the derogation had "serious implications" for a continuation of the "not for profit" ethos of the company.
The VHI board will meet today following the meeting with Ms Harney. She said her aim was to bring forward a level playing field in the health insurance market to the earliest possible date. "The changes will remove uncertainties for existing operators and will hopefully encourage new entrants into the market." The Government was strongly committed to maintaining community rating as the basis on which health insurance is offered to consumers, she insisted.
Sources close to the Minister said that "existing insurance holders would not face any new charge" arising from the proposal to levy higher premiums on people who wait until later in life to take out insurance.
However, there is little chance that legislation reforming the operations of the VHI can be introduced so close to the general election.
The package, which was approved by Government this week, also includes a number of measures to make it easier for consumers to select insurance plans and switch between insurers. These do not require legislative change.
Fine Gael health spokesman Dr Liam Twomey insisted the reform package must not be "rushed or guillotined" through the Dáil and that more clarity was needed.
"To introduce an extensive reform package such as this, without discussion, so close to an election shows scant regard for private health subscribers and there is a lack of clarity around the Minister's reasoning," he said.
Amicus, the union representing VHI workers, accused the Minister of throwing the health insurance provision of older and less healthy people into doubt. Under her proposals, Ireland was moving to the US model "where you are welcome so long as you are young, healthy, and no likely burden on the health insurance company".