Agency to decide on risk-equalisation plan

The Health Insurance Agency (HIA) is due this week to announce its final decision on whether a risk-equalisation scheme, which would involve a significant financial transfer from BUPA to the VHI, is to come into operation.

Since its preliminary decision that the scheme would not be introduced for the moment, the HIA has received submissions from both of the health insurers, with the VHI arguing strongly that the preliminary decision should be reversed to guarantee the long-term stability of the health insurance market.

The HIA's decision will have far-reaching implications for the market with a third operator - Centura - preparing to enter the market next month and other insurers believed to be considering an entry to the Irish market.

A key part of the agency's role is to decide whether the risk-equalisation scheme is triggered. This scheme is designed to compensate one insurer when its customers have a significantly higher risk profile to ill-health than the others, so underpinning the principles of universal access to health insurance and community rating, under which all customers pay the same amount for the same insurance cover.

The organisation meets tomorrow to consider its final decision and will present its findings to the Minister for Health, Mr Martin, on Thursday.

In its preliminary decision, the HIA found that the risk-profile of VHI customers was not sufficiently higher than that of BUPA customers to trigger a financial transfer.

It has been estimated that if the scheme did come into operation, the annual transfer from BUPA to the VHI could be in the region of €20 million per annum, meaning it has significant financial implications for both parties.

In its submission to the HIA, which has not been published, the VHI is believed to have argued that its analysis suggests that BUPA's level of profitability here is four times the level recorded by the same organisation in the UK and nine times the VHI profit level.

The submission is understood to argue that not implementing the risk-equalisation scheme would be inequitable to the VHI and would endanger the long-term financial stability of the health insurance market.

Currently, the VHI argues that it is trying to maintain prices at a reasonable level to underpin community rating, but this is at the expense of building up the organisation's financial reserves.

The equalisation scheme is seen as essential by the VHI if it is to meet these two conflicting goals of community rating and long-term financial stability.

It is not known whether the submission refers directly to the possibility of higher health insurance prices if the scheme is not triggered.

However, the implication of the VHI's argument is that without the scheme, prices will have to be significantly higher in the years ahead than if the financial transfer was operational.

Under the legislation, Mr Martin cannot reverse the HIA's decision if it recommends against introducing the scheme, although he has some discretion if the decision is to trigger it.

Initially BUPA would be the only insurer who would be hit by its introduction, with new entrants to the market such as Centura being given a period of years before they would become liable.