WHEN the EU directive on nonlife insurance came into effect in July 1994 it was inevitable that the VHI would face competition from European health insurers.
However, the nature of that competition had already been determined by the Health Insurance Act of 1994, which stipulated that all health insurance offered in Ireland must abide by the principles of "community rating".
This meant all subscribers must be offered basic health insurance at the same rate, irrespective of age or level of risk. It is the principle which underlay the operation of the state run VHI since its inception, and effectively means that younger, healthier subscribers subsidise those who are older and more inclined to illness.
This type of insurance cover has been an integral part of Irish health policy for most of the lifetime of the State. It means that a huge proportion - now 40 per cent - of the population contributes to its health costs through private health insurance, as well as to the overall health budget through, taxation. Keeping them in the private health insurance system keeps them out of the already overcrowded public hospital care system.
If community rating was to be undermined, and older people faced higher premiums, then this section of the population, which has higher than average health costs, could be forced out of private health insurance altogether and on to the overstretched public system. There was therefore a consensus among the public and the politicians to maintain this system.
The regulations which accompany the legislation spell out the conditions under which health insurance companies may register and recruit members: once a person is insured cover cannot be withdrawn; what minimum benefits must be offered; and the structure of the risk equalisation system.
So, as well as community rating, certain other features of health insurance which exist in other countries (like, for example, refusing cover to certain conditions) are outlawed, and all companies coming into the Irish market must offer the same cover for pre existing conditions.
When the legislation was published a number of European health insurance companies made it clear they thought it was too restrictive to make it worth their while coming in. However, the largest British health insurer, BUPA, was undeterred.
When it introduced its product on the Irish market last November, BUPA was addressing a very different market from the British one. In Ireland there is no NHS, though the medical card system offers a roughly similar service to the third of the population judged unable to provide for their own medical care.
The rest are guaranteed almost free hospital care (in public wards, naturally) if they need it, but they are likely to face long waiting lists, depending on the condition being treated. For general medical care, or access to hospital, they have the choice of paying for it as the need arises, or taking out health insurance. Even then, health insurance, in the form of the VHI, does not meet all the bills.
The amount of cover offered by the VHI varies according to the plan bought. All plans have certain features in common: they offer the same limited cover for GP services and a grant in aid for maternity cover and consultant cover which varies according to the agreement between the consultant and the insurer.
The choice of hospital accommodation varies according to the kind of plan: the basic plan A allows a semi private room in a public hospital, while the top plan E offers a private room in one of the top of the range private hospitals such as the Blackrock Clinic.
However, the variations in the plans also have implications for treatment, as certain high tech, expensive procedures are massively oversubscribed in the public hospitals. Those VHI subscribers on its basic plans A and B wishing to avoid waiting lists must go to the Mater Private or the Blackrock Clinic and face huge additional bills.
When BUPA announced its products, it clearly identified a desire to have access to the best medical treatment, including alternative medicine, as a higher priority for the consumer, especially the younger consumer, than having access to a luxury private hospital room.
It therefore offered an Essential Plan which gave basic semi private hospital accommodation combined with cover for all treatment in hospital. Unlike the VHI, this includes heart surgery in the Blackrock Clinic and Mater Private. Meeting the needs of the legislation, this plan is community rated and eligible for tax relief.
Instead of different plans with different levels of cover, it offers additional cash plans to subscribers to enable them to buy more luxurious standards of hospital accommodation, They are not eligible for tax relief. These plans are heavily age weighted on the basis according to a BUPA spokeswoman, that older people are more likely to use them. It is this aspect of the BUPA package which has attracted the accusation that it is in breach of the community rating provision.
But BUPA argues that the cash plans are quite separate from the basic Essential Plan, and have nothing to do with medical treatment and health insurance as such. They are like other cash plans already on the market in Ireland, and indeed are quite compatible with, for example subscription to the VHI for medical insurance, according to the spokeswoman.
While hospitalisation is necessary to claim the cash benefits (ranging from £30 to £150 per night in hospital), the money does not have to be spent on upgrading hospital accommodation.
The problem with the cash plans was essentially one of "presentation", according to the spokeswoman, and she expressed confidence that it would be ironed out, perhaps by separating applications for them and the Essential Plan. But if they are not ironed out she was in no doubt they would be fought out in the courts of Europe, at considerable cost to the Irish taxpayer and BUPA subscribers.