The VHI is expected to warn of future premium rises, following a decision not to introduce a scheme under which it would have received significant financial transfers from its main rival, BUPA. Cliff Taylor, Economics Editor, reports.
The Health Insurance Agency (HIA) is recommending that the so-called risk equalisation scheme not be activated for the moment.
This scheme is designed to compensate one insurer when it has a significantly riskier profile of customers than its rivals and is likely to face higher claims.
The VHI had strongly lobbied for the scheme, which, it has been estimated, could have led to the transfer of up to €20 million a year from BUPA. The HIA, established in 2001, is the regulator for the health insurance sector.
In a preliminary decision, it is believed to have found that the level of excess risk faced by the VHI, due to the profile of its customer base, is not sufficient to justify the imposition of the scheme.
Following representations from the insurers, it will forward a final decision to the Minister for Health, Mr Martin. It is unlikely to reverse its preliminary view, meaning Mr Martin cannot activate the scheme.
The news represents a significant boost for BUPA, which warned that imposition of risk equalisation, which would have started to cost it money from 2005, could push up its premiums. However, the VHI is expected to warn that not going ahead with the scheme will impose an unfair burden on its finances, meaning higher premiums for its 1.5 million subscribers.
VHI premiums have already soared by more than 60 per cent over the past five years.
This is the first time the HIA has ruled on risk equalisation. It will receive accounts from the two health insurers every six months and keep the issue under review.
Risk equalisation is designed to underpin a number of key principles in the market, particularly community rating which means everyone pays the same premium regardless of age, sex or health.
The EU Commission has approved the concept of risk equalisation, but BUPA is challenging this through the European legal system.
Under the existing rules, if the difference in the risk faced by the two insurers is less than 2 per cent, then the risk equalisation scheme would not come into place under any circumstances.
If the difference is more than 10 per cent, then the scheme would definitely operate.
However, if the difference is between 2 per cent and 10 per cent, then it is up to the agency to recommend to the Minister what to do. The HIA has calculated that the gap falls into this 2 to 10 per cent range.
On the basis that it falls towards the lower end of this range, it is understood to have told the insurers that it does not believe risk equalisation should be triggered at the moment.