BUSINESS OPINION:Last Friday Minister for Health James Reilly launched a document called the Path to Universal Healthcare, which focused on steps being taken towards the introduction of universal health insurance.
As you might expect, a good part of the document dealt with how to make the VHI fit to take its position as a State-owned player in the new compulsory market. Part and parcel of this is for the VHI to become an authorised insurance company operating on the same basis as the other players.
A few bits are worth quoting. “VHI has been in focused planning discussions with the Central Bank of Ireland regarding the process involved in making an application for authorisation . . . Good progress has been made by VHI in relation to a number of structural and corporate governance issues . . .”
Application process
It goes on to say there will be “continued work by the department and the VHI in relation to the latter’s application process for authorisation by the Central Bank of Ireland. The aim will be to reach the point of authorisation, subject to a final Government decision regarding capitalisation of VHI, by the end of 2013. The process is dependent on decisions, not only of the Government, but also of the European Commission (in relation to state aid issues) and the Central Bank of Ireland as the independent Irish financial regulator.”
This should all make for pleasant reading in Brussels where the European Commission is concerned about the distortion of the health insurance market by the VHI’s State ownership and what it contends is an implicit guarantee. Following a European court case in 2011, the Government has been given until the end of the year to achieve authorisation of the VHI or face fines and a state aid investigation. Authorisation requires the VHI to meet the same capital and solvency requirements as its rivals.
Unfortunately the document’s optimism would appear to be at variance with the facts. As reported in this paper today, the talks with the Central Bank are not going well at all. In fact, the regulator, deputy governor Matthew Elderfield, has told the Department of Health and the VHI itself that he can’t really see how he could consider an application for authorisation unless the Government gets its house in order over the issue of risk equalisation.
The rather blunt response from the regulator is understandable and represents something of a collision between the dysfunctional world of Government departments and the State agencies they control, and the real world of financial regulation in post-banking crisis Ireland.
It may not seem surprising to the department and the VHI that they can both take radically different views of how the same Government policy works – in this case, the risk equalisation scheme that transfers money from the other insurers to VHI to compensate it for its older membership base. But to the objective outsider – which the Central Bank strives to be – it is little short of ridiculous. That the two bodies should present themselves at a meeting with the Central Bank seeking authorisation while still bickering between themselves is hard to fathom. It says nothing positive about the culture of the department or the effective implementation of Government policy by the Minister.
Internecine squabbling
By apparently sending them packing, the Central Bank has done the public a big favour. Because if Mr Elderfield is baffled by the internecine squabbling behind risk equalisation, the two million holders of health insurance policies are both mystified and feeling it in their pockets. VHI customers were hit last month by a 6 per cent increase blamed in part on the scheme that the department claims works quite well but the company says is only about 55 per cent effective.
The revelation of the extent of the breakdown in the relationship between the VHI and the department, and the Central Bank’s disquiet, might hopefully spur the Government to tackle the issue once and for all. A clear statement on how and when the risk equalisation scheme will be improved – as suggested by the Central Bank – would be a good start.
No doubt questions will be raised in Brussels as to whether the Government is serious about authorisation for the VHI or if it is happy to kick the can down the road and take its chances with fines and a state aid investigation that will drag on for years. That should help as well.
