Some 1.5 million VHI customers will face substantial increases in their health insurance premiums before the end of the year, it emerged yesterday, if the company's demand for a 9 per cent increase is sanctioned by the Minister for Health and Children, Mr Martin.
The VHI refused to comment on its application for an increase. However, the Department of Health confirmed that an application had been received by the Minister, who has until July 27th to decide whether to approve it. If he does, VHI premiums will have increased by more than 100 per cent in the last decade.
This time last year Mr Martin turned down a VHI application for a 9.5 per cent increase, in an attempt to control inflation. The VHI was allowed to increase its premiums by 6.25 per cent last February in response to rising costs. Wage increases of about 10 per cent, including special payments to nurses, radio graphers and ancillary hospital staff, in addition to statutory increases due under the PPF, played a major role in justifying the increase.
According to the VHI chief executive, Mr Vincent Sheridan, who took up his new post in April, there is a need for the immediate introduction of "risk equalisation" in the health insurance market.
Some 2 per cent of every premium increase can be accounted for by its absence, he emphasises. Risk equalisation in effect spreads the cost of high-risk customers among the providers of health insurance in the market.
He says it is the only way to underpin "community rating", which means, in effect, that everyone covered by health insurance pays the same premium, regardless of age or state of health.
The absence of risk equalisation, the VHI maintains, acts as an incentive to other insurers in the market to target healthier, younger and lower-risk customers.
Community rating in the absence of risk equalisation worked in the past, when the VHI was a monopoly, he says, because all insurance claims were equalised within the same company. But with the arrival of BUPA, community rating served to distort the market, and to effect balance risk equalisation must be applied.
In effect, he argues, VHI members pay 2 per cent more every year to create "excess profits" for a multinational, BUPA.
His counterpart in BUPA Ireland, Mr Martin O'Rourke, however, believes risk equalisation would destroy competition and create market uncertainty. If it were introduced, he says, it would mean that BUPA would have to pay around £30 million to the VHI over the next three years.
He rejects the assumption that risk equalisation is necessary to underpin community rating. VHI's fears that without it competition would push out older and less healthy customers, and bring about the collapse of the market, had been shown to be unfounded.