Govt faces legal threat over VHI's status

The European Commission today threatened to take legal action against the Government for continuing to give State health insurer VHI special status.

The European Commission today threatened to take legal action against the Government for continuing to give State health insurer VHI special status.

Private insurance company Vivas complained to Brussels last year that VHI was allowed to operate under different rules from other insurers.

The EC has accepted it is operating at an unfair advantage over its privately-owned rivals and should no longer be exempt from normal competition laws.

VHI was originally granted exemptions in 1973 because of its then unique status, but the EC insists it has changed substantially since then and no longer warrants special treatment.

Competitors argued the exemptions allow the State body to continue operating with less cash reserves than other private insurers are legally required to have in case of a huge number of claims.

Under the special status, VHI would have been able to argue that it had Government-backing with public money available to it in case of a surge in pay-outs.

But because the State insurer now operates in a different environment, with two major competitors Quinn and Vivas, and it has moved into other non-core areas such as travel insurance, the EC is demanding a level playing field for all operators.

The EC’s Internal Market department, headed up by former Minister of Finance Charlie McCreevy, has already written to the Department of Health urging it to abolish the special status, but is now threatening legal action.

The EC warned it will consider taking the case to the European Court of Justice within two months if the Government refuses to give a satisfactory response.

Quinn Group, which acquired Bupa at the start of the year, and is involved in a separate dispute with VHI welcomed the latest move by the EC.

“We would welcome this initiative to remove a barrier to competitiveness and a proper level playing field,” a spokesman said.

A VHI spokeswoman said: “Both VHI Healthcare and Government are committed to the removal of derogation by end [of] 2008.”

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