State-owned health insurance company VHI is set to record losses of around €30 million in accounts to be submitted to the Government within the next few weeks.
The losses will be announced as the company considers a possible rate rise of up to 15 per cent.
The Irish Times has learned draft accounts to be given to the board of the company later this month will show a deficit of €30-€35 million for the year to the end of February.
This is in line with budgetary projections made by VHI management in the course of a High Court action brought by rival Bupa Ireland earlier this year against the introduction of a controversial risk-equalisation scheme in the industry.
The losses will be funded by the VHI's financial reserves, which last year stood at around €280 million.
Sources close to the company said that the losses recorded would not influence the level of subscription increase for this year, which the VHI board will also determine at its meeting next week.
The Irish Times revealed in March that the VHI had told a confidential Government-commissioned survey and analysis of the sector it would require annual increases of around 15 per cent for each of the next three years to meet future solvency requirements.
Highly placed sources said that VHI management now hoped the price increase for this year would be lower than this estimate.
VHI prices have increased by nearly 10 per cent on average over recent years. The firm introduced a 12 per cent rise last September. Sources close to the VHI yesterday attributed the €30 million or so losses recorded last year to the delay by the Government in introducing the risk-equalisation scheme under which the firm would receive payments of tens of millions of euro, mainly from Bupa Ireland.
The extent of the losses recorded last year had been predictable following a VHI decision in 2004 not to include in its price increase that year a component to take account of the absence of risk-equalisation payments, the sources added.
Two years ago, the VHI recorded record pretax profits of more than €60 million. In 2005, it had a pretax surplus of about €3 million. Risk equalisation is essentially a compensation scheme in the health insurance sector under which insurers, such as VHI, which have a large number of older subscribers (these tend to claim more frequently), would receive financial transfers from rivals with predominantly younger subscriber bases.
The Government believes risk equalisation is essential to maintain a community-rated market where everyone pays the same amount for the same product regardless of age.
VHI believes that, without risk equalisation, it has to meet claims made by a larger percentage of older subscribers than its rivals.
Last Christmas, Tánaiste Mary Harney authorised the start of the risk-equalisation scheme from January this year. However, payments under the scheme have been put on hold pending the outcome of a legal action brought by Bupa Ireland.
A ruling in this case is expected shortly. Bupa is challenging the legality of the risk-equalisation scheme under both Irish and European law.
If the legality of the scheme is upheld - and in the absence of any appeal - VHI would begin to receive risk-equalisation payments from this autumn. Bupa has claimed that it could be faced with risk-equalisation liabilities of up to ¤161 million over the next three years under the scheme, a move which would force it out of the Irish private health insurance market.
The full extent of payments to be made by Bupa to VHI would be determined by an examination of the market carried out by the Health Insurance Authority, the regulator for the sector.
