EU examines legality of State plan for health insurance

BRUSSELS is examining claims that Government plans to prevent private health insurance firms poaching younger customers are illegal under EU law.

The plan, known as risk equalisation, would see private insurers BUPA pay millions to the VHI which has a greater proportion of older members.

These measures are designed to ensure the community rating system, which allows members of the public pay the same for health insurance regardless of their age, is maintained in the industry.

Following complaints from BUPA, the EU’s competition directorate is examining whether the proposals flout strict rules over State aid.

These guidelines have prevented the Government from taking measures to protect firms in which they have a financial interest, such as Aer lingus.

However, there are exceptions to the State aid rules, where member states may take operate specific legal provisions to protect the “general good”.

The Department of Health believes this protection means risk equalisation will go ahead and says that previous objections to the system have proved groundless.

The VHI is lobbying aggressively for the immediate introduction of risk equalisation in the health insurance market. It says it will help enshrine life-long, affordable health insurance and claims that 2% of every VHI premium increase is caused by the absence of risk equalisation. It also says the system will help the VHI to maintain a level playing field in the Irish market and hopes it is in place by next year.

BUPA, however, says its introduction would be anti-competitive, arguing that it effectively amounts to a smaller company in the market subsidising the larger operator.

It says it believes in the concept of community rating but has forwarded its own proposals for risk equalisation to the Government.

The Department of Health, however, says the absence of equalisation could cause instability in the market as it could lead to the collapse of VHI and leave older people unable to get insurance.

While all sides have different positions, observers say it is difficult to say how the EU will judge the matter.

Many member states such as Germany and France exploit the “greater good” clause under EU state aid rules with great success, particularly in the health sector. The clause provides for specific legal provisions which include requiring insurers to participate in “loss compensation schemes”.

The Health Department says it has had extensive contacts with the EU Commission on the regulation of community-rated health insurance.

It says it has forwarded a copy of the legislation which paves the way for equalisation, the Health Insurance (Amendment) Bill, 2000, and it was not queried by the Brussels officials.

BUPA also made a previous complaint regarding State aid in the insurance market three years ago but this was not taken up by Brussels officials.