VHI says its future at risk without risk equalisation

VHI Healthcare said today that its future was at serious risk because of the absence of risk equalisation in the health insurance market in the Republic and said it expected losses this year.

The company achieved a surplus after tax of just €3.9 million for the year ending February 28th, a 94 per cent reduction from the surplus of €62.3 million it recorded last year.

In a statement released with its annual report this afternoon, the company said it was budgeting for a loss in its current financial year despite the fact that its membership grew to more 1.56 million members last year.

The company says the deterioration in its finances "has arisen directly from the continued absence of risk equalisation in a community rated market".

Last month Tánaiste and Minister for Health Mary Harney announced she would not introduce risk equalisation into the Irish health insurance market until the Government had at least started the process of converting the VHI to a commercial State body.

Risk equalisation would see rival health insurer Bupa having to make payments to the VHI of about €30 million a year. Equalisation seeks to compensate the VHI for the older profile of its customer base; other companies in the market such as Vivas would also have to make payments to the VHI.

VHI chief executive Vincent Sheridan today said the company existed solely to service the needs of its members, but he said in a community rated market without risk equalisation, it was "simply not possible" to achieve that aim while ensuring the stability of the business.

"The issue of who is going to finance community rating must be addressed without delay," he said.

"There is widespread agreement that risk equalisation is the only equitable and effective mechanism. If the activation of risk equalisation is delayed, irreparable damage will be done to VHI Healthcare, its members and the private healthcare market in Ireland."

In its absence, VHI said the company will be at serious and urgent risk "as evidenced by the dramatic fall in profits and the profit warning in respect of the current year".

Despite the bleak outlook, however, the company said it remained one of the most efficient insurance companies in the world with an operating expense ratio of 8.6 per cent

Membership of its primary healthcare product "HealthSteps" increased by 34 per cent, and sales of Global, the company's health insurance product for people taking long overseas trips, exceeded targets by over 36 per cent.

Sales of its LifeStage Choices plans from October 2004 to the end of February 2005 were some 46 per cent above targets.