Bupa wins appeal to prevent risk equalisation


COURT JUDGMENT:PRIVATE HEALTH insurer Bupa has won its Supreme Court appeal aimed at preventing the introduction of the risk equalisation scheme of 2003 in the private health insurance market.

The five-judge court yesterday granted Bupa's appeal against the High Court's rejection of its challenge to the scheme and ruled the scheme was invalid because it was based on an incorrect interpretation of the term "community rating" in a provision of the Health Insurance Act 1994.

The scheme was meant to come into effect in 2005, but was deferred pending the outcome of Bupa's challenge. It was meant to spread the claim costs of high-risk persons amongst all insurers proportionate to their market share, meaning insurers with lower risk clients would compensate the VHI for its older, less profitable clients.

The VHI has 20 times more clients aged over 80 than Bupa.

The State had argued that risk equalisation was a fundamental prerequisite for the effective operation of community rating as it would guarantee all insurers would proportionately share the costs.

It said risk equalisation would also preserve market stability as a risk of destabilisation stemmed from the fact that new companies in the market tended to primarily attract younger clients, would therefore have a more favourable risk profile and could profitably provide the same services at lower premiums than the VHI.

The State said this latter practice would not be a sufficient incentive for older customers to leave the VHI but would be more attractive to younger people entering the market and would enable new companies to maintain their favourable risk profile.

In its reserved judgment yesterday, the court ruled that risk equalisation was invalid because Minister for Health Mary Harney adopted it on the basis of an incorrect interpretation of the meaning of the phrase "community rating across the market for health insurance" as set out in the Act.

It ruled that the Minister exceeded her powers under the Act in adopting the scheme "on the basis of community rating across the market for all insured persons within the private medical insurance sector". This meant the scheme was based on supporting a form of community rating different to the form referred to in the Act, the Chief Justice, Mr Justice John Murray, said.

He said the correct interpretation of the term "community rating across the market for health insurance" in the Act meant community rating "within a plan" or contract across the market, that each insured person within a policy must be charged the same premium, irrespective of their risk profile. This meant "the best overall interest of health insurance consumers" must be construed for the purposes of such a scheme.

The judge added that the court could not interpret community rating in the way urged by the State on the grounds that such an interpretation was considered necessary from a policy point of view to implement risk equalisation.

This would involve the court in legislating and would usurp the function of the Oireachtas, he said. The scheme would have a serious impact on the trading position and profitability of Bupa and others if introduced, he added. In those circumstances, if the term "community rating" in section 12 of the 1994 Act was intended to have a radically different meaning from that provided for in Section 2 as the State and the VHI argued, then it was expected the Oireachtas would have said so, he said.

The judgment was delivered by Mr Justice Murray and Ms Justice Susan Denham, Mr Justice Adrian Hardiman, Mr Justice Hugh Geoghegan and Mr Justice Nial Fennelly agreed.

A stay on a requirement for new companies in the market to make risk equalisation payments to the VHI was obtained in July 2007 by the Quinn Group, which took over Bupa earlier that year, pending the outcome of Bupa's appeal.

Earlier this year, the European Court of First Instance dismissed Bupa's appeal against a European Commission decision to sanction the scheme on the basis that the Government was entitled to compel Bupa to make compensatory payments to the VHI. The group argued in separate proceedings it was not obliged to make payments under the scheme for three years.

It claimed it would incur costs of €30 million if had to do so. Those proceedings were deferred pending the Supreme Court decision.

Mr Justice Murray said the critical issue was the interpretation of "community rating" in section 12 of the Act, which referred to "the need to maintain the application of community rating across the market for health insurance".

He said section 2 specified the interpretation to be given to "community rating" and provided that community rating was to be construed in accordance with section 7. The High Court was wrong in finding that section 7 did not prevent the "community" part of the phrase "community rating" from comprising a class different to the class within a given plan, he said.

He upheld Bupa's arguments that community rating in the Act always meant "within a plan" - that each insured person must be charged the same premium, irrespective of their risk profile.

Earlier, the judge said an important feature of community rating was that it provided a form of intergenerational solidarity. Younger people paid a higher premium while older people, with a high risk profile, pay less, fulfilling "an important social objective".

Some form of community rating was "a critical element" of the market and, therefore, in risk equalisation scheme, the judge said.

While both forms of community rating at issue achieved such solidarity, they did so to a different degree.