THE GOVERNMENT has said that its plans to sell off the VHI and to introduce significant reforms to the health insurance sector are required to protect the principle of community rating – where everyone pays the same for identical products regardless of age.
Minister for Health Mary Harney said that in the absence of Government action the market could have segmented and premium rates for older people could have increased significantly.
As part of its reforms, the Government is to introduce a new risk equalisation scheme and to put in place a level playing field for all companies in the market.
The VHI currently benefits from an exemption from the general insurance supervisory regime established by two EU non-life insurance directives, even though the firm has expanded beyond the health insurance market.
This means it does not have to meet some obligations required of its rivals in the Irish market, such as setting aside reserves for a minimum guarantee fund and meeting solvency levels.
To bring its reserves up the level required for authorisation by the regulator, the Government is to make a “substantial” capital investment.
The precise level of State investment is unclear but Ms Harney suggested that on its own, increasing VHI’s level of reserves from the current 20 per cent of premium income to 40 per cent could require funding of €338 million.
However the Government believes that this figure will fall considerably if the company avails of reinsurance – in essence if it passes on some of the risk.
However, on the other hand, new EU rules on minimum reserve levels are on the horizon and the requirements that these will set out remain unclear at present.
Under the Government’s plans a new “robust, risk equalisation scheme to support the core policy of community rating”, will be put in place.
The Health Insurance Authority, the regulator for the sector, is to issue a consultation document on this issue within the next few weeks while the Government plans to publish the new risk equalisation legislation next year and to implement the scheme by the start of 2013.
An interim scheme involving a levy on companies and tax relief, which is aimed at subsidising the cost of claims by older people is to continue for the present while a new transitional arrangement – modelled closely on the planned risk equalisation scheme – will come into effect for 2012.
The Government said that it is to appoint financial advisers in the coming weeks to look at the precise sequencing and structures for the sale of VHI.
“The exact timing of the sale will be a matter for further decision by the Government,“ an official briefing paper states.
In the context of the sale, the Government is also to look at measures to achieve a more even balance of older customers between the various companies in the market.
The Government document said that this did not mean that VHI would be broken up.
The Government is also to introduce new regulations governing the minimum benefits which companies in the market must provide.
This is expected to stipulate that GP services as well as measures such as some forms of health screening will have to be covered.
New penalties will also be put in place to encourage people to take up health insurance earlier rather than later in life.
The Government has also told the VHI that it will have to open up its travel insurance scheme – currently available to its subscribers – to everyone.
The Government document said that these various measures would require considerable work over the next two to three years.
MAIN POINTS
1 Risk equalisation system that will involve cash transfers between companies to cover the cost of insuring older and sicker people. Legislation is due to be published in 2011, with implementation in 2013.
2 The investment of "significant sums" of State capital into VHI to help it meet regulation requirements.
3 The privatisation of VHI, perhaps as early as 2012. Financial advisers are to be appointed in the coming weeks to advise the Government on the disposal. By removing State ownership, the State can act "in a totally even-handed and impartial way" between insurance firms.
4 The preparation of a new set of minimum benefits regulations for health insurance, to bring primary care and other services into the set of benefits that insurers must offer.
5 The implementation of lifelong community rating, so there is an incentive for people to take up health insurance earlier in their adult life, rather than later.