VHI chief warns of 'worse to come'

VHI chief executive, Vincent Sheridan, painted a stark picture of the company's finances yesterday.

In the year to the end of February, its health insurance business lost €12 million. The company ended up with a pretax profit of €5 million because it earned €17 million on its investments.

But Mr Sheridan pointed out that this was still 90 per cent short of the €62 million pretax figure it returned last year. He warned that there was worse to come.

The VHI is set to lose between €30 million and €40 million in the current financial year, which ends in February next year.

It says it will have to shore up these losses from its reserves.

These stood at €281 million in February, but are likely to dwindle rapidly.

According to Mr Sheridan, that will leave the company at the point where it will be insolvent in about two years time.

The solution to this financial crisis lies in the hands of Tánaiste and Minister for Health, Mary Harney, he claims.

All she has to do is to give the go-ahead for risk equalisation to be introduced to the Irish health insurance market.

This is a system whereby some of the profits from young, healthy people with insurance are used to offset the losses from older, less healthy people.

It is designed to support community rated charges, which means that health insurers charge all comers the same for the same level of cover, no matter what the risks.

VHI has 90 per cent of the older people - 49 and upwards - in the Irish market.

As things stand, if risk equalisation is introduced, its main rival will have to transfer an estimated €30 million to it.

Coincidentally, this figure is at the lower end of VHI's projected losses.

But Ms Harney has put a temporary halt to risk equalisation, saying that she first wants to advance VHI's transformation from a statutory body to a commercial State company.

It is this decision that Mr Sheridan and his chairman, Bernard Collins, are working desperately hard to get her to reverse. And while the figures quoted yesterday are accurate, highlighting the company's poor performance is part of that campaign.

But there is another figure there as well. VHI's unexpired risk reserve, the money it has to put aside against foreseeable risks arising from last year, increased from €15.6 million in 2004 to €53.4 million this year.

One of the main drivers of this is the fact that medical costs are going up. A big factor in this is Ms Harney's decision to withdraw State subsidies for private beds in public hospitals, which added 25 per cent to these charges.

In fact, VHI's director of marketing and business development, Declan Moran, said yesterday that the whole health insurance market is "underpriced" because it is not keeping up with these increases.

The company has added 12.5 per cent to its charges, half the increase of the main medical cost against which it is insuring. Risk equalisation is one factor in its "financial crisis", but these figures indicate that it is not the only one.