Expert: Sale will not halt premium cost increases

THE Government’s decision to sell the VHI and introduce a new risk equalisation scheme will not stop the surge in the cost of health insurance, an economics expert has warned.

As a private company, the VHI would need to produce a return on capital for its investors and repay the Government for the capital injection it needs to increase its solvency reserve, said Brian Turner, an economics lecturer at University College Cork.

The VHI, however, would be compensated for its older membership profile in the form of money transfers following the implementation of a new risk equalisation scheme.

But the introduction of the scheme would also mean that Quinn Healthcare and Aviva would be net contributors to it, a move that was likely to result in higher premiums for its customers, said Mr Turner, who was formerly with the Health Insurance Authority.

“Overshadowing all of this is the ageing population, continuing advances in medical technology and the Government’s intention to charge the full economic cost for private beds in public hospitals,” he said.

The introduction of co-located private hospitals would also put upward pressure on health insurance premiums. “Private beds would be moved out of hospitals where they are, in effect, being subsidised by the Government because they are not being charged the full economic cost,” he said.

“Of course, the landscape might be radically changed if Fine Gael’s FairCare proposals are implemented.”

And, while he would welcome the introduction of a new risk equalisation scheme, he believed any new scheme would be challenged in the courts, delaying its implementation.

“Given that VHI’s financial position will be challenging in the absence of such a scheme, the attractiveness of the insurer to new buyers might be affected by such uncertainty,” he said.

Chief executive of Aviva Jim Dowdall said the company had no plans to increase its premiums.

“We are satisfied that we are charging the right premium that enables us to deliver the best value on the market,” he said on RTÉ Radio yesterday. “We have a health insurance levy that has been put in place on an interim basis because we don’t have a regulated market. That is over 30% of the cost of health insurance and that could be reduced overnight if we had a proper competitive environment.”

Professor of health policy and management at Trinity College Dublin, Charles Normand, said it would not have been long before the VHI found it impossible to operate because of the absence of risk equalisation.

He also believed premiums would rise as result of the VHI becoming a private company; and a move would be made eventually towards universal insurance.

Taoiseach Brian Cowen said he hoped the new risk equalisation scheme aimed at providing more security for older and sicker people would withstand a legal challenge.