EU backs extension of State-backed subsidy of private heath insurance

A five-year extension of a State-backed subsidy scheme worth hundreds of millions of euro to the health insurance sector has been given the green light by the European Commission.

The Commission confirmed on Thursday that it had approved the extension and modification of Ireland’s risk equalisation scheme that compensates insurers for the provision of private medical insurance.

Under the scheme, health insurers, whose customers have a higher risk profile than the market average, obtain payments from a risk equalisation fund.

The €760 million fund is financed via a duty imposed on all private health insurers. While any operator can benefit from the fund and all operators pay into it, in practice, the state-owned insurer, VHI Insurance, is a net beneficiary of the scheme while its competitors are expected to be net contributors.

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The VHI benefits most because of its disproportionately large share of older and sicker customers.

Equal access to insurance

The aim of the scheme is to ensure that access to health insurance is available to consumers of health services with no differentiation made between them based on for example health risk status, age or sex.

All customers on a given health plan pay the same premium regardless of health history or any other factor.

The scheme was first granted EU approval in 2003. It has been extended on four subsequent occasions but was set to expire this week.

It has been modified to include a “high cost claims pool”, where the amount of a claim in excess of €50,000 will be reimbursed at 40 per cent. All other claims will continue to be reimbursed based on age of the insured person and the number of days/nights spent in a hospital.

There will also be an increase from 4.4 per cent to 6 per cent in the return on sales made by the net beneficiary of the scheme on the basis of the sales of private health insurance service the prolongation of the scheme until the end of March 2027.

The Commission assessed the proposed modifications under the EU state aid rules and, in particular, the EU framework for state aid in the form of public service compensation. It found that, following the modifications, the scheme remains in line with EU state aid rules. On this basis, the Commission approved the modifications and the prolonging of the scheme under EU state aid rules.