Minister warned of possible loophole months ago

The Government has sought definitive advice from independent legal counsel on whether the Quinn Group should be permitted to receive a three-year derogation from having to make risk-equalisation payments following its takeover of Bupa Ireland's health insurance operation.

Minister for Health Mary Harney signalled at the weekend that the legal advice, being provided by senior counsel Gerard Hogan, would be ready in the near future, possibly within days.

The Department of Health had previously said that the issue of whether the Quinn Group would qualify for the derogation was a matter for the industry regulator, the Health Insurance Authority.

The Quinn Group has argued that it would qualify for the exemption from risk-equalisation payments as a new entrant to the market. The existing Bupa management and staff will act as an agent for the new Quinn operation.

In a separate development yesterday, Oliver Tattan, the chief executive of Vivas, the third insurer in the market, said that his company would also exploit any loophole which was available to avoid having to make risk-equalisation payments.

Vivas will have to begin making risk-equalisation payments from this autumn.

Under legislation, new entrants are allowed a derogation from risk-equalisation payments for three years. However, all previous new entrants have been start-up operations.

The legal situation regarding companies which buy existing operations remains to be clarified officially. However, there is a growing view within the industry that the Quinn Group may have uncovered a legal loophole.

Ms Harney said that if there was a gap in legislation which allowed companies to avoid risk-equalisation liabilities by changing ownership every three years, it would not be satisfactory. She added that in such a scenario the principle of community, where everyone pays the same regardless of age, could be undermined.

The VHI, which stands to lose out on tens of millions of euro in risk-equalisation payments if the Quinn Group is allowed a derogation, yesterday again called on the Government to intervene immediately in the event of a loophole being confirmed.

Department of Health sources confirmed yesterday that the Health Insurance Authority had raised the possibility that a company buying an existing insurer could seek a further three-year derogation from risk-equalisation payments.

The Sunday Business Post reported yesterday that the Minister had been warned of a potential legal loophole several months ago.

Department of Health sources said that this was one of about 20 issues or questions raised by the authority as part of an analysis of the market.

Sources said that the Department of Health had sought legal advice through the Chief State Solicitor's Office and that a preliminary report had been received last week.

Mr Tattan, the Vivas chief executive, told The Irish Times last night that whatever the approach the Quinn Group had taken to avoid risk-equalisation payments, Vivas would do likewise.

"We will have to do it. Quinn will be regulated in exactly the same way as we are," Mr Tattan said.

This could involve Vivas switching to a new underwriter and having it apply for a licence as a new entrant.

The authority has estimated that if the risk-equalisation scheme had been fully in place last year, Vivas would have had to pay €2.5 million. However, since then its market share has increased.