Harney decision may spark VHI fees hike

VHI SUBSCRIBERS could face hikes in premiums after Tánaiste and Health Minister Mary Harney yesterday pulled back from plans to force rival companies to compensate the health insurer for its older and costlier customer base.

An emergency meeting of the VHI board will be held in the next few days to consider what it called the “very serious situation” that Ms Harney’s decision had created. The board will review the position it adopted last September to stop passing on the cost of supporting older subscribers to its general membership and to limit its price increase to just 3%.

The insurer has been dipping into its reserves since then to meet the extra costs in anticipation of receiving some €30 million in annual risk equalisation payments from its main rival Bupa.

VHI chief executive Vincent Sheridan, said last night that situation could not continue and warned the whole principle of community rating, where all subscribers pay equal premiums regardless of age, was now at risk. “All the experts have told the Government that you can’t have community rating without risk equalisation. Without risk equalisation, how is community rating going to financed? It just does not make sense,” he said.

Ms Harney’s decision clashes with the recommendations of the Health Insurance Authority, but she denied she had bowed to pressure from VHI rivals, Bupa and Vivas, who both made forceful submissions to her in recent weeks.

Bupa, which has begun legal challenges to risk equalisation in the Irish and European courts, threatened to pull out of the Irish market if the scheme was introduced and Vivas also warned it would not be able to compete with VHI if the plan went ahead.

But the minister insisted: “If Bupa had exited the Irish market, they would have sold their business here. They have 400,000 Irish customers and they were hardly going to abandon them.”

VHI has a greater proportion of older customers who make more claims than the younger customers who subscribe to newcomers, Bupa and Vivas.

Community rating prohibits imposing higher charges on more costly customers. In the absence of supports from risk equalisation, VHI could move to seek increases in premiums across the board from its 1.4 million customers or to abandon community rating and target those who make the biggest claims.

Ms Harney said she could not allow the possibility of a price hike to influence her decision. She was not ruling out risk equalisation forever but was swayed by her belief that VHI first needed to be converted from a statutory body to a fully commercial State-owned company to create a more level playing field between it and the other operators. “Once you do it [introduce risk equalisation], it’s very difficult to undo it. I don’t believe it is appropriate to do so on this occasion,” she said.

She plans to have draft legislation for the commercialisation of VHI by September.