Under the scheme, companies cannot cherry-pick low-cost customers and cannot charge people based on their age or state of their health. But all will contribute to a central fund that will be used to compensate those with a higher proportion of high- risk members.
A form of the scheme, including one based on a tax and levy, has been operating for the past 10 years on a temporary basis, but now with the commission’s approval, the new risk-sharing scheme will become permanent.
The state-owned Voluntary Health Insurance board, (VHI) is expected to get more than any of the other newer companies because they have a much higher proportion of older members and so higher claims costs.
As a result, it’s competitors Laya, Aviva and GloHealth will end up contributing to the VHI, unless they increase the number of higher risk, higher claims customers they have.
VHI chief executive John O’Dwyer, welcoming the decision, said compensation from the fund will be determined on the basis of age, sex and health status of the members insured and that it will be cost-neutral overall.
“This permanent scheme puts the foundation in place for a stable market in the future. The critical point now is to ensure that the scheme is effective and removes the incentive to cherry pick healthier customers”.
Because it’s considered to be a form of state aid, it needed the approval of the European Commission. Competition Commissioner Joaquín Almunia said: “The risk equalisation scheme, which aims to ensure solidarity between generations, is a pillar of Ireland’s health policy. The decision finds that the aid to insurers is justified and proportionate in light of the public service obligations they fulfill”.
Ireland has a very high reliance on private medical insurance with almost half the population having cover as a complement to the public health system.
The public service obligations insist that insurers must accept any applicant regardless of age or health status; they cannot terminate a policy without the consent of the member; the same premium applies regardless of age or health status; policies offer a minimum benefit prescribed by law.
However, the VHI says the scheme will not cover the full cost of providing a community rating service. They believe it will cover just about half while the Department of Health consider it will cover up to 90%.
The commission has said VHI must reach the same level of capital and solvency as other insurance companies by the end of this year.
They currently meet the minimum requirement regarding solvency but they need to increase this before December. A figure of €200 million — which would come from the state — has been mentioned.
A VHI spokesperson said: “It will depend on a number of factors such as the strength of the market in 2014 and beyond, the effectiveness of the risk equalisation scheme and the extent of reinsurance which can be obtained.”