MAJOR REFORM of the health insurance market was inevitable, and has been long overdue. The Government, belatedly, has accepted that reality with its decision to invest up to €300 million of State capital in the VHI, and to put the State company up for sale, possibly by 2012. The VHI, which has a majority share (62 per cent) of the health insurance market, is heavily loss-making and its position is financially unsustainable.
In essence that means equal charges for all subscribers: those who buy health insurance pay the same premium for the same benefit package – regardless of age or medical condition. In a competitive health insurance market, community rating has required risk equalisation between insurance companies. The VHI – with more older customers making many more claims – has got financial transfers from other companies (Quinn Healthcare, Aviva) that have a younger subscriber age profile, whose health is better, and who make fewer less expensive claims. Community rating serves as a form of social solidarity between young and old.
The VHI has found itself beset by a range of difficulties in recent years. In 2008, the Supreme Court struck down the existing risk equalisation model. In consequence, the State company has absorbed huge financial losses, as its subscriber base changed, leaving the VHI with fewer younger – and more profitable – subscribers. About 82 per cent of those over 60 with health insurance are VHI members, and the company estimates that it is losing €170 million on this sector of the market. In addition, the Government has been under sustained pressure from the European Commission to meet a legal obligation to bring the VHI under the Financial Regulator’s remit. But to do so the VHI must double its reserves to 40 per cent of its premium income, which will require a major State capital investment (€300 million or more). The Government’s timeline for its proposed reforms indicates the VHI could be privatised in 2012, after the State’s capital investment, and before a new risk equalisation model is introduced in 2013.
The challenge facing VHI before the arrival of the new risk equalisation model is to ensure it can withstand the competitive pressures from its rivals. VHI chief executive, Jimmy Tolan, is concerned its competitors (Quinn and Aviva) could “cherry pick” customers before the new system is introduced. He has warned that unless the interim arrangements in lieu of risk equalisation – which involve a temporary system of tax relief and a levy to support the cost of older people’s insurance claims – are greatly strengthened, then the VHI may not find itself well-positioned to benefit when risk equalisation returns.
There are three important issues involved. Health is outside of the EU services directive. The system of risk equalisation, not privatisation of the VHI, is the real story. And what about the thousands of people who paid all of their lives for a health insurance company which they were given to understand the State supporterd as a matter of national policy?