Madam, - In his column "Heart Beat" (Health Supplement, July 19th), Maurice Neligan provides two reasons why he agrees with the decision not to activate risk equalisation. Neither stands up to scrutiny.
1. "VHI should have made preparation for the future in the past". Presumably this means that VHI Healthcare should have put aside some of the premiums paid by younger members in the past for the present time when they are now elderly. Health insurance is funded on an annual basis - ie, premiums each year must cover claims and expenses of each year. When VHI Healthcare was a monopoly it effectively had an internal risk equalisation mechanism whereby the premiums of younger, healthier members financed the claims of more elderly members. This is the inter-generational support that is the essential feature of risk equalisation.
In the absence of risk equalisation, those who are young are now being asked to continue inter-generational support, except this time they are subsidising the profits of Bupa and thereby the cost of health insurance in the UK.
2. "At some point in the past the reserves were expropriated into the public purse". The reserves of VHI Healthcare were never expropriated. There was one occasion when VHI Healthcare was required to pay a dividend by Government. Such was the outcry from members that the requirement was not repeated. Dr Neligan is quite correct to point out that the reserves of VHI Healthcare were built up entirely by members.
One would have thought Dr Neligan would be consistent and object strongly to these reserves being used to finance community rating rather than financing the cost of community rating evenly across the market through risk equalisation.
VHI Healthcare agrees with Dr Neligan that competition is very positive but competition will not be beneficial for consumers in the health insurance market until risk equalisation is introduced. In the absence of risk equalisation, health insurance premiums are higher than they should be - who is paying for the windfall profits and exorbitant operating costs of Bupa? - and are predominantly limited to one section of the community. - Yours, etc,
BRIGHID SMYTH, Head of Corporate Communications, VHI Healthcare, Lower Abbey Street, Dublin 1.