Health insurers face huge bills

Health insurers BUPA and VIVAS were tonight facing massive compensation bills after Tánaiste and Health Minister Mary Harney introduced controversial risk equalisation measures.

The move will force the two companies to pay Vhi Healthcare more than €30m a year to cover the extra claims it receives from an older clien base.

Ms Harney said the vigorous measure would even up the marketplace.

“I have previously made it clear that risk equalisation is a necessary and appropriate mechanism in a community rated market,” she said.

The move came following a recommendation by the the Health Insurance Board changes to the commercial status of Vhi.

Risk equalisation means newer health insurers will have to pay compensation to Vhi, which has an older client base and is exposed to higher claims. The scheme will come into effect from January 1, 2006.

VIVAS said it was surprised and disappointed, but Vhi Healthcare welcomed the move claiming it was essential for the survival of private health insurance in Ireland.

Vincent Sheridan, Vhi Healthcare chief executive, said the decision was a victory for consumers

“It will stem the haemorrhage of funds leaving the Irish healthcare system by way of windfall profits. It will also encourage competition in all sectors of the market,” he said.

In a statement VIVAS described the decision as bizarre.

“It is an especially bizarre decision due to the fact that 6 months ago she didn’t deem risk equalisation necessary and the market hasn’t changed significantly in that time,” the company stated.

“This decision is going to damage innovation and competition in the market and consumers are the ones that will ultimately pay.”

New legislation will be enacted to amend the Voluntary Health Insurance Acts. Vhi will be granted commercial freedom on products and pricing, obliged to attain large enough reserves to achieve authorisation as an insurer in six years.

It will also pave the way for Vhi to become a public limited company.

The Tánaiste said the changes would encourage greater competition in the health insurance market as Vhi would be operating under similar conditions as other firms.

“Risk equalisation is not, in itself, inconsistent with a competitive market and I want to encourage the development of greater competition in the market,” she said.

Meanwhile, the Competition Authority and the Health Insurance Authority have been asked to report to the Tánaiste in six months on further measures to encourage competition.

The HIA will also be called on to ensure the public know they can switch insurers.