The Tanaiste and Minister for Health, Mary Harney has decided not to proceed with the planned introduction of risk equalisation in the health insurance sector.
The Tanaiste said the Government remained committed to the maintenance of community rating and reaffirmed her view that risk equalisation was a necessary support, "in certain circumstances".
Community rating is designed to benefit consumers by ensuring that private health insurance does not cost more for those who need it most. It relies on inter-generational solidarity, which means that the younger, healthier people effectively subsidise older people, who have higher claims, the underlying premise being that they (the younger people) themselves will be subsidised by future generations.
However, the Tánaiste said an introduction of risk equalisation payments at this time would be "premature" in advance of a Government decision regarding the commercial status of the VHI.
She said she intended to bring proposals to Government in this regard shortly. She also said that deferring a decision would allow time for further corroboration of trends both in risk profile and competition in the market, and in this regard she looks forward to receiving the Health Insurance Authority's next report.
Risk equalisation would involve Bupa having to make payments to its State-owned rival, VHI, of about €30 million a year, although the payments would not begin until next year. Risk equalisation seeks to compensate the VHI for the older profile of its customer base.
Other companies in the market like Vivas will also have to make payments to VHI, but because Vivas is a newcomer it will have a longer period before it must start paying.
Bupa has mounted a strong campaign against the idea, claiming that competition will be seriously damaged.
A large number of protest calls have been lodged with the Department of Health from Bupa members, it is understood. Bupa has also warned that its future presence in Ireland could be threatened if risk equalisation is pushed through.
The decision has been described the decision as both surprising and disappointing, by the Labour Party's health spokesperson, Liz McManus. She described it as "contrary to all the indications she has been giving over recent months and to the advice of the Health Insurance Authority."
Ms McManus said the principle of risk equalisation was a well-established feature of the health insurance market throughout Europe. "It is designed to compensate companies like the VHI, which have older and more costly members and thus allow them to compete with companies that have younger members and thus fewer claims. Without this practice, new entries to the market will simply cherry-pick young customers with a view to maximising their profits," she said.