Tanaiste rejects health insurance risk equalisation

The Tánaiste's decision not to proceed with the implementation of risk equalisation has taken many by surprise, not least the chief executive of VHI healthcare, Vincent Sheridan.

The VHI boss could have looked forward to a cash transfer of up to €30 million from Bupa Ireland under the scheme, which is designed to compensate for the fact that VHI insures more elderly people than its main rival.

The fact that the Tánaiste has gone against the recommendation of the statutory body charged with overseeing the health insurance market is the root cause of Mr Sheridan's surprise.

Although the actual decision to implement the scheme is a reserved power of the Minister for Health, few predicted that she would not proceed to implement the Health Insurance Agency's (HIA) recommendation.

The Tánaiste and her staff put forward an array of reasons for her decision yesterday, all of which hold varying amounts of water.

They ranged from the merely technical to the fundamentally ideological. Included among them was the casting of some doubt over the accuracy of the Health Insurance Agency's calculations which, according to the Tánaiste's advisers, may have been skewed by "random statistical variation".

But, the most substantive argument put forward by the Tánaiste was that it would be "premature" to trigger risk equalisation without first addressing other deficiencies in the health insurance market, specifically the commercial status of the VHI.

Ms Harney appears to have accepted the argument put forward by VHI's rivals - in particular its smallest and newest competitor Vivas - that VHI has a significant competitive advantage because it does not have to operate commercially.

The specific issue is the amount of money the company must hold in reserve to underwrite its policies. Although VHI does hold significant reserves it does not have to hold the same level of reserves that are required of Bupa and Vivas by the Irish Financial Services Regulatory Authority (Ifsra).

Put simply, the Tánaiste's position is that risk equalisation should not be triggered until the ubiquitous playing field is levelled in this regard.

Although Ms Harney yesterday spoke of legislation to deal with this issue as soon as September, by raising it she has provided herself with an excuse to long finger risk equalisation for several years if she wishes.

By her own admission yesterday, it could be several years before the Government gets VHI to where it wants it to be. The main flaw in the Tánaiste's position is that the Health Insurance Agency took the commercial status of the VHI into account when arriving at its recommendation that, on balance, risk equalisation should be implemented.

The Tánaiste acknowledged this yesterday, but was equally clear that the legislation allowed, if not actually required, her to act in what she considers the broader interest, even if it differs from the view of the HIA.

In her view, the need for a "vibrant health insurance market" was the overriding concern. "I don't think it would be good for the health insurance market if VHI increased its market share by a few points, Bupa's market share fell and Vivas can't get in," she said, making clear what, in her analysis, would be the net effect of triggering risk equalisation.

What she did not say, but is abundantly clear, is that she and her advisers sees an insurance market with several large players - rather than a somewhat truculent state monopoly - as necessary percussor to her ambitious plans to increase the involvement of the private sector in the provision of healthcare.

The extent to which the representations made to her by Bupa and Vivas over the last few weeks influenced her decision is a key question.

But the answer would be of little comfort to the 1.4 million VHI subscribers facing premium hikes and the Bupa customers who will continue to support 17 per cent profit margins.