Private health insurer BUPA has won its Supreme Court appeal aimed at preventing the introduction of the risk equalisation scheme (RES) in the private health insurance market.
The RES was intended to spread the claims costs of high risk persons amongst all insurers in proportion to their market share and effectively meant that insurance companies with lower-risk customers would have to compensate the VHI for its older and less profitable customer base.
VHI has 20 times more customers over the age of 80 than has BUPA.
However, the five judge Supreme Court today unanimously ruled that the RES is invalid because Minister for Health Mary Harney had 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 Health Insurance Act 1994.
The court found the Minister was wrong in law and exceeded her powers under the 1994 Act in adopting the RES “on the basis of community rating across the market for all insured persons within the private medical insurance sector”. This interpretation meant risk equalisation was based on supporting a form of community rating which was different to the form of community rating referred to in the Act, it said.
The court ruled the correct interpretation of the term “community rating across the market for health insurance” in the Act means community rating “within a plan” or contract across the market - that each insured person within a given policy must be charged the same premium irrespective of their risk profile (eg their age).
Chief Justice, Mr Justice John Murray, said this meant “the best overall interest of health insurance consumers” must be construed for the purposes of a risk equalisation scheme.
He also said the court could not interpret the phrase “community rating” in the manner sought by the State simply because such an interpretation was thought necessary from a policy point of view for the effective implementation of a risk equalisation scheme. To do so would involve the court in legislating and usurp the function of the Oireachtas, he said.
The RES would have a serious potential impact on the trading position and profitability of Bupa and others if it was introduced, the judge said. In those circumstances, if the term “community rating” in Section 12 of the 1994 Act was intended to have a meaning which was radically different from that in Section 2 of the Act (as the State and VHI had argued) then one would have expected the Oireachtas would have explicitly said so, he said.
The State had argued that a system of “risk equalisation” is a fundamental prerequisite for the effective operation of community rating as it guarantees that all insurers, and the members of their schemes, would share proportionately the costs inherent in community rating. It also said a RES would preserve market stability.
The court's judgment was delivered by the Chief Justice and Ms Justice Susan Denham, Mr Justice Adrian Hardiman, Mr Justice Hugh Geoghegan and Mr Justice Nial Fennelly agreed with the decision.
The Minister had brought the RES into effect in 2003. However, a stay on a requirement for new companies in the private health insurance market to make risk equalisation payments to the VHI applied pending the Supreme Court decision. The stay on introduction of the RES was obtained in July 2007 by the Quinn Group, which took over BUPA earlier that year.
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 Quinn Group has argued in separate proceedings that it is not obliged to make payments under the RES for a three-year period. It claims it would incur costs of some €30 million if obliged to make payments under the scheme. Those proceedings had bene deferred pending the Supreme Court decision.
In his judgment, Mr Justice Murray said the critical issue in the case was the interpretation to be given to the term “community rating” in Section 12 of the 1994 Act. Section 12 referred to “the need to maintain the application of community rating across the market for health insurance”.
He said Section 2 specified in clear terms the interpretation to be given to “community rating” and provided that community rating was to be construed in accordance with Section 7. He found the High Court was wrong in finding that Section 7 of the Act did not prohibit the “community” part of the phrase “community rating” from comprising a class different to the class within a given plan.
If the Oireachtas had intended “community rating” in Section 12 to have a different meaning from “community rating” in Section 2, it was to be expected that it would explicitly have said so, the Chief Justice said.
He agreed with BUPA's arguments that community rating in the Act always means community rating “within a plan” - in other words, that each insured person within a given policy must be charged the same premium irrespective of their risk profile.
