BUPA in court move over State scheme

ANY plans to privatise the VHI could be put on hold for several years after rival BUPA confirmed it is taking legal action to stop a Government measure to level the playing field in the health insurance market.

BUPA chief executive Martin O'Rourke has decided to challenge a recent decision by the European Commission to approve the Government's plans to introduce a "risk equalisation" scheme. It began legal proceedings against the European Commission in the European Court of Justice in Luxembourg last week.

The case is initially being heard in the Court of First Instance but will probably take several years before a final decision is reached by the full court. The risk equalisation proposal is designed to ensure health insurance companies are not allowed to "cherry-pick" younger customers, who are likely to make fewer claims.

VHI, which holds around 80% of the market in Ireland, has a greater proportion of older people insured than BUPA.

However, BUPA argues the planned scheme is contrary to European law as it believes the proposal is a form of State aid which is banned under EU legislation. "It is obviously not in the interest of consumers. The VHI is looking for a subsidy based on how big we get," said Mr O'Rourke.

It is believed implementation of risk equalisation could force BUPA to transfer about €36m to its rival a figure which represents almost 45% of its premium income of €81m last year. VHI chief executive Vincent Sheridan has recently begun talks with the Department of Health to press for privatisation of the company.

It is estimated that the VHI, which was granted an 8.5% increase in premiums to begin next week, would fetch over €300m if put up for sale.

However, the Government, which has not yet signalled its medium-term plans for the company, is unlikely to make any decision about the sale of the VHI until it has successfully implemented the risk equalisation scheme.

VHI would also be unlikely to attract serious buyers before the issue has been resolved in the European courts. The company, which insures around 1.6m people, reported profits of €33.8m last year, even though the true figure is believed to be higher.

Critics of proposals to privatise the VHI claim it would not improve the quality of healthcare and would also lead to an increase in the cost of health insurance. VHI premiums have risen by around 50% in the past three years.