Government announces plans to sell VHI next year

 

The Government is planning to sell the State owned health insurance company VHI.

In advance of the sale the State announced today it will invest a “substantial" capital injection into the company’s reserves to allow it to be authorised by the financial regulator.

The Government will also announce it is changing the rules for minimum benefits in the health insurance market to ensure that all companies cover GP visits and health screening.

The Government will also announce a new risk equalisation scheme to operate in the health insurance market.

Last month, it emerged plans to bring the VHI under the regulation of the financial regulator – a move that could require an investment of up to € 200 million – have been postponed by the Government for more than 18 months.

Minister for Health Mary Harney has set a new date of January 1st, 2012, for the VHI to accrue the capital reserves required for authorisation. This is at least the fourth deadline set by the Government for such a move. All previous deadlines have been missed.

The Government, which faces court action by the European Commission for failing to implement an adequate regulatory regime to oversee the State-owned VHI, had initially set a date of last September 1st for the State-owned company to be authorised by the regulator – a deadline that was later extended to December 31st and subsequently to March 31st.

There had been strong speculation that among the options under consideration by the Government for generating the level of funding required to allow for VHI to be authorised would be to put in place a full or part privatisation of the company.

The VHI benefits from an exemption from the general insurance supervisory regime established by two EU non-life insurance directives, even though the firm has expanded beyond the health insurance market.

This means it does not have to meet some obligations required of its rivals in the Irish market, such as setting aside reserves for a minimum guarantee fund and meeting solvency levels.

Ms Harney said earlier this year the Government was addressing the issue of having a level playing pitch for all health insurers and ending the VHI’s special derogation under directives on insurance from prudential regulation by the regulator. The Government had decided the VHI should be in a position to attain authorisation from the regulator and satisfy its prudential requirements as soon as possible, she said.

In a statement today, Ms Harney said the proposals were to secure a stable, community-rated market that contains "effective solidarity between the younger and older people and healthier and sicker people".

"We are protecting older and sicker people from being loaded with premium increases or more expensive policies solely because of their age and medical history," she said. “There are very complex challenges involved in our health insurance market. It is important to deal with all the complexity on the basis of a clear objective and a determination to achieve it."

Ms Harney said the Government had decided to make a substantial capital injection to help the VHI achieve authorisation.

The level of this investment would be determined "in due course" by the Minister for Finance and the Minister for Health.

"The amount required will depend on a number of factors including the extent to which VHI arranges reinsurance and the requirements set by the Financial Regulator when the company makes its application for authorisation," she said.

"The Government expects that in the sale process, the injection of State capital will be recovered, with a return also. Our first step in the process will be to appoint financial advisers, and the Government will take further decisions in relation to the sale upon that advice. I have no doubt that several well-established, potential purchasers will come forward."

Taoiseach Brian Cowen said the new risk equalisation system would involve cash transfers between companies in relation to the cost of insurance for older and sicker people.

"The scheme will be significant in scale and scope, reflecting the real additional cost of healthcare for older or sicker customers. While we prepare the legislation and engage in appropriate consultations, we will ensure that there is significant support of costs of claims for older people though the tax system," he said.

Mr Cowen said the Government was ensuring that there is a "level playing field" among health insurance companies, that all are fully regulated and comply with regulatory reserves and solvency levels.

"This means that the VHI, in particular, is to be fully regulated. We are prepared to invest significant sums of State capital into VHI to help it achieve authorisation."

Mr Cowen said that since the Government would be requiring risk equalisation cash payments between companies, it was vital that the State acts "in a totally even-handed and impartial way between companies, and that we maintain the confidence of all concerned that that is so, in every respect".