Consumers could be facing further price increases in the cost of health insurance after the European Commission formally called on the Government to abolish special rules for the VHI and to make it subject to the same rules as other health insurance providers.
The commission ruled yesterday that the VHI no longer qualifies for an exemption from EU rules on competition on the basis that it has changed substantially since it was set up in 1973.
The effect of the decision is to require the State-owned insurer to find an additional €100-€200 million to increase reserves from a current level of 23 per cent of income to the 40 per cent other insurers are required to maintain. The extra money will have to come from higher premiums or Government subvention.
However, the Government has already decided to remove the VHI's derogation by the end of 2008, having earlier contested the commission's stance by arguing that it would be impossible to end the derogation overnight as this could involve "an unsustainable increase in prices".
Last year, Minister for health Mary Harney told the VHI it would have to bring its reserves up to normal commercial levels by 2012. Then, in April, she decided to implement the findings of a number of expert reports which called for a lifting of the derogation by the end of 2008.
The VHI said last night the matter had been dealt with by the Government, and both it and the Government were committed to the removal of the derogation by the 2008 deadline.
The VHI hopes to recoup large amounts of money in risk equalisation payments by rival insurer Quinn Group/Bupa, estimated at €32 million since the beginning of 2006. However, Quinn is challenging this issue in court.