The Supreme Court ruled that “risk equalisation” — which ensures that health insurers do not discriminate against customers on the grounds of their age or state of their health — had no sound legal basis.
Discrimination is outlawed under the policy of “community rating”. This is meant to compel insurers to charge all customers equally whether they are elderly, more prone to sickness and costlier to cover or they are young, illness-free and very profitable to cover.
Risk equalisation would compensate companies that have a greater proportion of more costly customers by making insurers with more profitable customers pay their rivals subsidies.
However, the court ruled that community rating as stated in law did not mean equality across the entire market of health insurance but only that customers who chose a given health insurance policy could not face discriminatory charges relative to each other.
For example, everyone who chooses the most popular policy, VHI’s Plan B, should be charged the same regardless of age or health status, but those charges do not have to bear any relation to charges for another VHI plan or any policy offered by other insurers.
As risk equalisation was based on a wrong interpretation of community rating, the compensation payments have no legal grounds.
No money had been paid since the scheme was introduced in 2003 as Bupa, which was then operating in Ireland, initiated the legal challenge. VHI was expecting a €40 million windfall next year with further compensation payments from its rivals to follow annually.
With VHI arguing it could not offer affordable health cover without compensation, and Bupa arguing it could not stay in business if forced to pay compensation, the ruling has plunged the market into doubt.
The three insurers currently in Ireland — VHI, Hibernian and Quinn Healthcare which bought Bupa Ireland last year — all said they remained committed to the principle of community rating but none could say how it could be supported without risk equalisation.
“We are now in a vacuum. We don’t have a legislative framework,” said VHI chief executive Jimmy Tolan. “If you look across Europe, risk equalisation and community rating go hand in hand. There is no health system I am aware of where you can have community rating without risk equalisation.”
That view was echoed by Health Minister Mary Harney. “I know of nowhere in the world where you have community rating that it is not supported by risk equalisation,” she said. “I have to take legal advice and advice from my officials. It is not clear, certainly at the moment, if we can find a solution to the problem.”
The Health Insurance Authority, which regulates the industry, also said: “Risk equalisation is essential in a community-rated market”.
Quinn Healthcare and Hibernian, however, welcomed the ruling and said risk equalisation was not essential to preserve the benefits of community rating.
Dick O’Driscoll, managing director of Hibernian Healthcare, said the decision would benefit consumers by attracting more insurers into the market, generating greater competition and result in more choice and lower prices. “The very small number of players in the market has come about because the legislation has been a bar to new entrants.”
Quinn Healthcare said: “In the current market, where the VHI enjoys a state-supported dominant position, the removal of risk equalisation will encourage both competition and innovation to the benefit of a community rated market.”