Lower increases in health insurance premiums seem to be the immediate result of the decision by the Health Insurance Agency (HIA) not to trigger the risk equalisation scheme. This scheme would have involved a financial transfer from BUPA Ireland to the VHI to compensate for the older age profile of VHI members. The HIA has decided that the scheme should not be triggered for the moment.
The immediate reaction of the VHI was to announce that it would take legal advice on whether to take a judicial review of the decision. It said that at its next price review in September the level of increase would be significantly less than it would otherwise have been - however it warned that this would involve running down its reserves and would undermine the stability of the market.
The VHI's decision to reduce planned price increases due to a decision not to support its finances may appear perverse. However it argues that the relatively high level of price increases in recent years has reflected its support of the community rating principle, under which all policyholders pay identical costs for the same policy and its expectation that the risk equalisation scheme was on the way.
By announcing that a lower level of price increases will now apply, the VHI is in effect throwing down the gauntlet to the regulator and the Minister for Health. Prices are still likely to rise, it appears, but not as sharply as has happened in recent years. The key point is that the VHI will fund lower price increases from its reserves, which it will thus run down. A continual run down in reserves is clearly not sustainable in the long term.
It is difficult to judge the merits of the HIA's decision without knowing the details of its assessment. The VHI's case is that BUPA is earning very significant profits in the Republic and that its subscribers have effectively been subsidising this. BUPA, not surprisingly, has argued strongly against the introduction of the risk equalisation scheme saying it would limit its ability to compete.
Time will tell what the impact of the decision will be on the VHI's finances and on the competitive shape of the Irish market. It is important to realise that the HIA re-assesses the position regularly - indeed part of the VHI's strategy is, no doubt, to try to persuade it to change its mind next time around.
The challenge for the regulator - and for policymakers - is to marry the need for competition with the public policy objectives of universal access to health insurance and community rating. Experience in other areas of the economy shows the difficulty of maintaining this balance between competition and wider policy goals.