BUPA gets injunction on risk equalisation scheme

Health insurer BUPA tonight secured a High Court injunction to stave off potentially massive compensation bills following Tánaiste Mary Harney’s decision to bring in risk equalisation.

The scheme could see BUPA and VIVAS forced to pay out around €30m a year to its rival Vhi to cover the cost of claims for its ageing and less profitable client base.

In a statement BUPA said: “This would involve BUPA Ireland having to provide for an annual subsidy, estimated to be more than twice its annual profits, to the ESB and the Vhi.

“We have always said that risk equalisation makes competition and the BUPA Ireland business unviable. This remains the case.”

The High Court injunction blocks any attempts to implement the scheme before February 7.

BUPA said the legislation and regulations contravened European Union law and the Constitution.

But 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 Tánaiste said her Department would be seeking the Attorney General’s advice on the matter.

The move came following a recommendation by the Health Insurance Board which also suggested changing the commercial status of Vhi.

Risk equalisation means the newer health insurers will have to pay compensation to Vhi to even out the cost of providing care for an older client base which inevitably has a higher number claims.

VIVAS said it was surprised and disappointed, but Vhi 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 six 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 has been drafted 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.