One-and-a-half million customers of the Voluntary Health Insurance (VHI) will have greeted the Coalition Government's decision to sanction a further 8.5 per cent increase in premiums with resignation.
The announcement, at a time when the VHI had reported profits of 33.8 million - not allowing for a special risks provision of €35 million - would suggest the company is being fattened for future sale. That is the stated objective of its senior managers, who speak of the need for greater commercial freedom.
But those senior executives stand to gain financially from a sale. And some Ministers are not convinced that privatisation would generate competition in the health insurance market. They are right to be sceptical. Health costs have gone through the roof in recent years. And medical insurance has led the way, in spite of the entrance of BUPA to the marketplace. Last year, premiums rose by 18 per cent. During the past three years, the Minister for Health, Mr Martin, sanctioned increases amounting to 41.75 per cent for the VHI, even though medical inflation was estimated to be running at about 10 per cent a year.
One of the reasons for these higher costs is because the VHI has been steadily adding to its financial reserves, in anticipation of being sold off. In six years its reserves, as a percentage of premium income, grew from 20 to 30 per cent. And its commercially-based, sell-off target is 40 per cent.
If the Government intends to sell off the VHI in order to raise an estimated €300 million at a future date, the surplus cash at present being paid into its reserves amounts to yet another indirect tax on consumers. Policy-holders are being required to fatten the goose in advance of a potential sale. At a time when the Government is talking about greater competitiveness and reducing the rate of inflation, this does not make sense. Next year, on top of its 8.5 per cent premium increase, the company will benefit from the introduction of "risk equalisation" whereby BUPA will have to compensate it for carrying a disproportionate number of older citizens on its books.
BUPA was encouraged to enter the Irish health insurance market to generate competition. But, at the same time, the VHI was allowed to raise its premiums in order to build up its reserves. We have seen the consequences of the sale of Telecom. Investors in the VHI would also want their money back, along with hefty, ongoing profits. Before this situation goes any further, the interests of consumers in the VHI should be taken into account.