The EU Commission has approved Ireland's scheme of levies and tax relief in the health insurance sector, primarily aimed at making health insurance affordable for older people by decreasing the risk differentials for health insurers between old and young customers.
The proposals, which replace the previous Risk Equalisation Scheme annulled by the Supreme Court last year, will see the Government boosting tax relief on health insurance premiums for the over-50s.
Under the scheme, insurers are obliged to accept a customer who wishes to conclude an insurance contract, cannot terminate the policy against the will of the insured, and must apply the same premium for a given insurance policy regardless of the risk (age, health status) represented by the insured.
However it also proposes that insurance firms pay levies of €160 per year for adults, and €53 per year for children - charges which may result in increased customer premiums.
In a statement, the Commission said it had concluded that the measure was in line with the EU Framework for state aid in the form of public service compensation.
The Commission was also satisfied that none of the insurers would be overcompensated for the discharge of the public service.
Competition Commissioner Nellie Kroes said “Consistent with the earlier decision on the Risk Equalisation Scheme, the Commission continues to recognise the wide margin of discretion Member States enjoy in the organisation of health services. The Commission supports aid in the form of justified and proportional compensation linked to the performance of public services.”
In the course of the investigation, the Commission found that the scheme was designed in way so as not to lead in principle to overcompensation of the insurers.
The Government also committed to introduce a mechanism to avoid the overcompensation of the net beneficiary of the scheme, the VHI.
An EU investigation into the overall Irish health insurance market is still ongoing.
Vhi Healthcare welcomed the decision, calling it "an important first step in ensuring that the current system of community rating continues and that older people can continue to access private health insurance."
“We welcome today’s decision by the European Commission which recognises that in a community rated market you need a mechanism to support older customers," said VHI chief executive Jimmy Tolan.
"This is a necessary and important first step to maintaining a community rated market."
Competitor Hibernian Aviva Health however criticised the EU's approval of what it called a "protectionist" levy.
"Hibernian Aviva Health believes the implementation of the levy in its current form is unnecessarily forcing higher premiums on health insurance customers and that it is designed only to preserve the market dominance of VHI," said a statement.
"The imposition of the health insurance levy is being misrepresented as protecting older customers – this is not true," said managing director Jim Dowdall.
"The law in Ireland is clear - all health insurers in Ireland must operate on the principle of community rating and charge all customers the same premium irrespective of their age and accept all customers, irrespective of their health status. Community rating is supported by Hibernian Aviva.”
“We have written to the Minister for Health & Children seeking an urgent meeting to ensure that all insurers are regulated properly and obliged to operate to the same consumer protection rules and solvency levels," Mr Dowdall confirmed.
"Hibernian Aviva Health has already stated that it will refund to our customers any levy fees not paid to the Government in the event of a successful challenge to the levy and today reaffirms that commitment.”