The European Court of Justice has ruled against Ireland in a landmark case that will have significant implications for the future of the State-owned VHI, the largest company in the private health insurance market.
The Court ruling could mean that the Government will have to find hundreds of million of euro to bring the financial reserves of the VHI up to a level that will allow it to be “authorised” by the Central Bank
In a ruling this morning the Court found Ireland had failed to fulfil its obligations under various EU directives in relation to the health insurance market.
The Court also ruled that Ireland will have to pay the cost of the action.
The case, which was brought against Ireland by the EU Commission, effectively centred on exemptions currently enjoyed by the VHI from certain EU rules on non-life insurance. In essence the case was over the fact the VHI is not subject to regulation or “authorisation” by the Central Bank in the same manner as competitors in the market.
The commission had taken the view that the VHI today differed considerably in terms of membership and activities from 1973 when the exemptions were granted.
The Court found that, given the limited scope of the derogation originally granted, this should be ended if the essential functions of VHI were to be expanded.
It said when it was set up originally in 1957 the VHI was mandated to “‘make and carry out a scheme of voluntary health insurance for defraying . . . the cost to [insured persons in respect of] medical, surgical, hospital and other health services’”.
However, it said under subsequent legislation introduced in 1996, the company was given the right to provided other health-related services and this was extended further in 1998 to allow it to act “as agent for an insurer in respect of the provision of insurance cover pursuant to an international healthcare plan”.
It said under legislation introduced by the Irish government in 2001, the VHI obtained the right to carry out, inter alia, “activities of an advisory or consultative nature”.
The Court said Ireland did not dispute the existence of those successive amendments to the statutes of the VHI, but contended that they were still related to the original basic activity.
It said Ireland also argued the additional activities carried out by the VHI under the terms of the various amendments to its statutes were “of minor importance compared to the principal activity”.
“However, given that, at the very least, the power of the VHI to act as an agent on behalf of another insurer under an international healthcare plan or the right to carry out advisory activities go beyond the basic activities that it was authorised to carry out on the basis of the 1957 Act, it must be held that Ireland’s line of argument cannot be accepted, irrespective of the financial significance of those new activities with regard to the entire revenue of that body, as no provision is made for this criterion in the First Directive.”
The court said it could not uphold the justifications invoked by Ireland that the delay in implementing legislation to end the VHI derogation was due to “internal difficulties”.
For time it has been official policy that the VHI would be “authorised” by the Central Bank, however this has not happened to date.
One of the main reasons for the delay in the VHI being authorised by the Central Bank is that this would require the company to bring its reserves up to 40 per cent of premium income.
Former Minister for Health Mary Harney said in May of last year that to increase the VHI’s reserves from the current 20 per cent of premium income to 40 per cent would involve an investment of €338 million.
The then government said that it would invest up to €300 million in the VHI.
VHI said that the decision of the European Court of Justice was "not unexpected".
Chief executive Jimmy Tolan said that it was "a strategic imperative" that it was regulated by the Central Bank as this was in the best interest of its 1.2 million subscribers and other stakeholders.
However he said VHI would "require additional capital in order to meet the Central Bank's solvency capital requirements".
Minister for Health James Reilly said he was preparing "a comprehensive set of actions" and would be bringing proposals to Government shortly" on how best to address the issues arising from the judgement, as well as those affecting the private health insurance market as a whole".
"I intend to deal with this decision of the Court and other related issues in the health insurance market in a co-ordinated fashion. We need to improve the situation for consumers through effective regulation, a robust and effective system of risk equalisation and a more evenly structured market. This should lead to better competition in which inefficiencies are addressed and costs are kept to a minimum."
Dr Reilly said it had been known for some time that any judgement by the European Court of Justice on this matter would have implications for the future of the VHI. He said the Department of Health had undertaken significant preparatory work in anticipation of the judgement and he had briefed the cabinet on the matter.
The Minister said it was important to note that following the judgement VHI would continue to trade as normal although the Government had to make important decisions on how to address its regulatory position.
"I will examine the judgement of the Court in detail and take legal advice as appropriate. I will also engage in discussions with my Government colleagues, the Attorney General, the Central Bank and the European Commission, in order to address the issues raised by the Court judgement and to rectify the situation for the benefit of all."