VHI customers now face uncertainty as payments under risk equalisation are no longer on the cards, writes Martin Wall
THE DECISION by the Supreme Court yesterday to quash the controversial risk-equalisation scheme effectively undermines one of the main frameworks of the Government's policy for the private health insurance market. The ruling will also have significant implications for the Department of Health, VHI and its rivals in the sector, as well as for the country's two million subscribers.
Rows over the necessity for, or implementation of, a risk-equalisation scheme in the health insurance industry have been going on for more than a decade. Throughout that time, the Government argued consistently that such a measure was essential to underpin the concept of community rating under which all subscribers purchasing similar products pay the same amount, regardless of their age.
With the current scheme, introduced amid much controversy by Minister for Health Mary Harney in December 2006, struck down, what does this mean for community rating, and where does it leave subscribers?
Risk equalisation is essentially a compensation scheme under which companies such as the VHI, which has a larger number of older subscribers (who tend to claim more frequently), would receive payments from rivals with a relatively younger membership profile.
The Supreme Court ruled yesterday that the definition of "community rating" in the existing health insurance legislation relates to community rating within plans offered by insurance companies, rather than across the entire market. The Government will have to go back to the drawing board, although it remains of the view that risk equalisation is required to underpin community rating.
In the meantime, there are fears, expressed by some Government sources, that the application of community rating within plans rather than across the market could lead to the emergence of loopholes which would effectively undermine the ban on price discrimination on the basis of age.
Informed sources said new entrants or existing companies could devise plans which, by the nature of the cover offered, would be more attractive to younger people.
Such plans could concentrate on issues such as maternity cover, laser eye treatment or sports injuries, and provide little coverage for conditions more likely to be of benefit to older people, such as coronary care. Sources said there were fears the development of such products could lead to the migration of younger people from traditional plans.
As a result, the plans which offer cover considered attractive to older people could end up losing the cross-subsidies provided by the younger members and end up costing more, even within a community-rated system.
So what can the Government do to address this situation?
On the face of it, it would appear there is a relatively simple answer: go back to the drawing board and change the definition of community rating and how it is to apply in the legislation. However, the Government is expected to take a more cautious approach, as signalled yesterday by the Minister, when she warned there was "no quick legal fix" on offer.
In its ruling, the Supreme Court did not deal conclusively with all the elements of Bupa Ireland's case. Other issues raised by Bupa, including the constitutionality of the provision and whether it was in accordance with the relevant EU directive and EU law generally, were not addressed by the court. It upheld the Bupa appeal solely on the first point of the definition of community rating.
The Government is now expected to legally assess all the areas of challenge put forward by Bupa to determine whether it is exposed in other areas. The last thing the Government wants is to produce legislation which would be shot down again on other grounds by the courts in the future.
Yesterday's judgment also has major implications for the country's largest health insurer, VHI. For many years, the issue of securing risk-equalisation payments has been one of its core corporate strategies.
However, even though the risk-equalisation scheme has been in operation since December 2006 - as a result of various legal challenges and a stay imposed by the Supreme Court - up to now no money has actually ever been paid over.
VHI had expected it would receive about €40 million in payments under the scheme, largely from Bupa. However, it now appears likely it will never receive this money. For even if the Government did constitute the risk-equalisation scheme as part of revised legislation, it is very unlikely to apply retrospectively.
This creates a further problem for VHI, as it had been generally expected that it would use this money to boost its financial reserves. The company is to be regulated by the Financial Regulator from next year and will be obliged to bring its reserves into line with industry solvency norms.
VHI said yesterday that the company would have to adjust to the new reality of a market without risk-equalisation payments. It may look to re-insurance - effectively selling off some of its risk - to reduce its requirements to boost its own financial reserves.
Ms Harney yesterday urged health insurance subscribers not to panic as a result of the Supreme Court ruling. She said the Department of Health would take legal advice on the issue, but that this could take time.
In the meantime, there appears to be widespread confusion as to how the landscape of the health insurance system will look when the dust settles. At the very least, it seems Bupa, the Quinn Group and Hibernian will not have to pay risk-equalisation liabilities generated up to now.
VHI's 1.5 million subscribers will find out over the next few weeks whether they will have to pay more as a result of the lack of risk-equalisation payments when the company concludes a current price review.
However, as Age Action Ireland has warned, there are fears older people could be the big losers and could, in future, have to pay more for their private health insurance in the absence of further Government action.
Martin Wall is The Irish Times Industrial Correspondent