VHI says EC decisions may slow premium rise

The VHI today said its 1.5 million policy holders could be facing lower premium increases following a European Commission ruling that "risk equalistion" does not constitute state aid.

Welcoming the decision, a spokeswoman for the health insurer said 4 per cent of its 18 per cent increase in September 2002 was directly linked to the absence of risk equalistion in the Irish market.

Risk equalistion is a means of assessing the risk levels of the policy holders in each of the insurance companies and "compensating" those with an older or higher risk group.

The move is aimed at preserving the State's community rating-based health insurance which sees policy holders pay the same amount for the same level of benefits regardless of age or risk profile.

If introduced in the State, BUPA may have to pay up to €20 million per annum because the profile of BUPA's policy holder is younger and less at risk. BUPA has opposed to the move and lodged an objection with the European Commission.

However, this was over-ruled by the Commission which says it has no objection to the introduction of the scheme. Detailing its decision the Commission said the move "is in line with EU rules on state aid. With their risk equalisation scheme, the Irish authorities aim to prevent new entrants in the market from 'cherry picking' good risks."

The measure also aims to enhance competition with respect to administrative costs, profit margins and conditions of the insurance offered, it said.

The Commission concluded that risk equalisation is justified as it underpins the principles that concern the private medical insurance market; community rating; open enrollment and that health insurance companies must accept anyone under 65 years of age.

Mr Martin O'Rourke, Managing Director of BUPA Ireland said: "BUPA Ireland will do everything that is necessary to protect our position in Ireland so that Irish consumers will continue to enjoy the benefits of competition in health insurance and the best value products".

The Minister for Health can now bring health insurance regulations to the Dail. These are subject to the approval of the Health Insurance Authority (HIA).

The authority's chief executive Mr Dermot Ryan told ireland.comthat if introduced, risk equalistion would "stablise the Irish health insurance market". He added that this may make the market more appealing to other insurance companies considering entering the market.

The authority would be in charge of collecting and disbursing any funds under the risk equalisation scheme.

A study carried out by the HIA found that 46 per cent of VHI's customer base over 45 years old. This compares to 29 per cent of BUPA's customers.