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Risk equalisation should be set aside: Supreme Court

The Government’s risk equalisation scheme for private health insurance is based on an incorrect interpretation of the law and should be set aside, the Supreme Court has ruled.
 Today’s Supreme Court decision has set aside the decision of Justice McKechnie in the High Court in November 2006. That decision found that community rating was in the public interest and that risk equalisation was necessary to support community rating.

With community rating, everyone pays the same premium. Risk equalisation is a scheme that provides for insurance companies with fewer elderly subscribers to compensate other companies who have higher numbers of elderly, and therefore more costly, subscribers. Quinn Healthcare welcomed the outcome of the BUPA Supreme Court appeal. "We fully support a fair and competitive community rated market where access to private health insurance is fully available to all members of society. The Risk Equalisation Scheme previously introduced was clearly neither a fair nor appropriate means of achieving such a market," Quinn Healthcare said.

“The risk equalisation scheme, which has been struck down today, was the financial mechanism to support community rating. Important policy issues now arise for consideration,” Health Minister Mary Harney said. “We will take the time to study in depth the judgment of the Supreme Court in this matter and to assess the policy options that arise.”

Commenting on the Supreme Court decision, Mr Jimmy Tolan, Chief Executive, Vhi Healthcare said: "We will take time to carefully review this decision. Community Rating has always been central to the Irish health insurance system and risk equalisation is necessary to ensure community rating is implemented. Today's decision may have serious consequences for older and chronically ill members of society and it is our goal to try and ensure that private health insurance can continue to be purchased on acceptable terms by our more medically vulnerable customers."

Although the High Court supported the legality of risk equalisation, it noted anti-competitive aspects to the scheme which would penalise Bupa and make it run at a loss.

Brussels is far from enamoured by the effective monopoly posed by VHI. The state insurer is excused solvency and licensing requirements imposed on any competitor. Charlie McCreevy, the EU internal market Commissioner has told the Irish government of the Commission's "strong concerns and worries about the lack of a level playing field" in the Irish market.

These restrictions are thought to have deterred other insurers from challenging VHI. Prior to pulling out of the Irish market, Bupa said the company would have been required to pay €161 million in risk equalisation over the next three years to VHI. This would be far in excess of its estimated surplus of €64 million in this period.

“The unanimous ruling by the five judge Supreme Court is reflective of an extremely serious blunder by Mary Harney and her Department in the interpretation of their own legislation. The private health insurance market depends on striking a balance between the issues of community rating, risk equalisation and competition. It is clear that the Health Minister massively bungled this balance," said Fine Gael Health spokesperson, James Reilly.

The Supreme Court decision on risk equalisation in the health insurance sector effectively spells the death knell of the co-existence of private and public medicine”, SIPTU General President Jack O’Connor said this afternoon.

“The full implications of the ruling are still unclear, but if community rating was to be affected we would be concerned for older people who currently hold policies, those who may wish to take out policies, and older people moving to Ireland,” Age Action spokesman Eamon Timmins said.

“Risk equalisation is a well established feature of the health insurance market throughout Europe and the principle has been upheld by the European Court of First Instance,” said Labour Party Health spokesperson Jan O’Sullivan. “It underpins community rating so that older people who are more likely to need healthcare do not have to pay much higher rates than younger, healthier people.” She called on the Minister for Health, Mary Harney, to spell out immediately how the government intends to respond to this decision.

Posted in Private Healthcare on 16 July 2008
Tags: Vhi