BUPA ruling could change insurance sector

A EUROPEAN Court of Justice (ECJ) ruling this morning could have significant implications for the private health insurance market in Ireland.

The Government and health insurance companies will await the judgment of the Luxembourg-based court to a challenge brought by BUPA against the state’s risk equalisation scheme.

BUPA has asked the ECJ to annul a decision of the European Commission in 2003 that ruled in favour of the Government’s risk equalisation scheme for private health insurance.

Lawyers for BUPA — whose Irish operation was taken over by the Quinn group in 2007 — have claimed that the effect of risk equalisation is to grant an illegal subsidy to the state-owned VHI.

However, the commission supported the Government’s stance that the scheme did not constitute illegal state aid as it was intended to compensate insurers for services they performed in the general economic interest.

In the case before the ECJ, the commission’s view is supported by the Government, the VHI as well as the government of the Netherlands.

Risk equalisation is the mechanism that requires private health insurers like BUPA and Vivas — who are exposed to a lower-than-average risk because of their younger customer base — to make payments to the Health Insurance Authority.

The authority then compensates firms like VHI, which have an older customer base and higher risk profile.

The VHI claims risk equalisation is vital for the future of the community rating scheme — the obligation on health insurance companies to charge customers the same premium regardless of their age or health history.

If BUPA is successful in today’s case, industry sources believe the future of risk equalisation could be under serious threat.

It is estimated that the VHI’s competitors could owe about 40m after the Government triggered the operation of the risk equalisation scheme in January 2006.

Such payments have been frozen due to the series of judicial reviews against the Government’s decision.

Separately, the Government is in the process of introducing laws that will require the VHI to attain the same solvency requirements as its rivals.