McCreevy to insist VHI loses favoured status

EUROPEAN Internal Market Commissioner Charlie McCreevy is preparing to insist the Government changes the VHI’s favoured status in Ireland’s health insurance market.

This would require the VHI to considerably increase its reserves from €220 million to around €370m before the Government’s deadline of 2012.

To raise this money, they would either have to increase their premiums or sell-off some of their ancillary businesses, such as travel insurance and care clinics.

VIVAS, the independent health insurance company, complained to the commission late last year and accused the VHI of using its reserves to increase its membership.

The semi-state company is the dominant player, with more than 80% of the Irish health insurance market, and this is likely to increase with BUPA’s decision last month to pull out. Commission sources said Mr McCreevy is finalising a letter to the Government that will be sent possibly next week.

This first stage of infringement proceedings deals only with the solvency of the VHI and not with the risk equalisation issue that led to BUPA’s decision to leave Ireland.

Health insurance companies must set aside around 40% of all premiums they receive to ensure they have sufficient capital to meet all possible claims. But the semi-state VHI has a derogation until 2012, which VIVAS says should no longer apply especially as they have gone into other businesses outside health insurance.

VIVAS founder and chief executive Oliver Tattan said: “In fact rather than building up their reserves, they are running them down and using the money to cross-subsidise their businesses and in other ways such as marketing and advertising which puts other competitors at a severe disadvantage.”

The chief executive of VHI, Vincent Sheridan, denied this describing it as nonsense. “We do not believe there is any substance to the complaint.”

Once the Government receives the commission’s letter they will have two months to reply and comment on the complaint. If the commission is still not satisfied it will send the Government a legal argument on the breach.

The next step would be to refer the matter to the European Court of Justice in Luxembourg.

The process could take several years and by then the solvency limits for health insurers could be considerably reduced under new regulations going through the European Parliament now.

Both Mr McCreevy’s internal market and competition department are looking into complaints over risk equalisation that would have seen BUPA paying VHI about €50m a year to compensate them for having much younger and, consequently, cheaper members.

Labour’s health spokeswoman, Liz Mc Manus, said the decision could result in the cost of private health insurance increasing substantially.