European Court decision on risk equalisation

The European High Court has upheld the Irish risk equalisation scheme in health insurance funding, which requires market leader, the State-owned VHI Healthcare to be subsidised by other insurance providers in respect of the higher age risk profile of the onetime monopoly provider. 

The case taken by Bupa Ireland challenging the European Commission's approval of the Government's risk equalisation scheme has been dismissed. The health insurer sued the commission in 2003 after it approved the policy, which forces private health insurers like Quinn and Vivas to compensate the Voluntary Health Insurance Board for the older age profile of its clientele.

The European Court of First Instance in Luxembourg ruled: "Such a mechanism is a necessary and proportionate means of compensating the insurers required to cover, at the same price, all persons living in Ireland."

The Irish Government says that the risk-equalisation scheme is necessary to underpin the concept of community rating in the health insurance market under which everyone pays the same amount for similar products, regardless of age.

However, Bupa Ireland opposed the scheme, claiming it would force Bupa to make payments of tens of millions of euro to an already profitable larger competitor. The scheme prompted Bupa to sell its Irish business to the Quinn Group last year. It had started operating in Ireland in 1997 after the Government liberalised the private health insurance market.

Chief executive of Vivas Health Oliver Tattan says: "While we are disappointed that the Commission has endorsed a system of subsidisation of the most dominant player in the market and has deemed that this form of state aid is legal the case was just one of many legal investigations underway at a local and European level. The outcome of the other cases may not be known for a substantial period of time. Until all investigations are resolved the market will continue to suffer from a lack of investment and from limited competition. There is a need for urgent action by the Irish Government to address the wide range of issues facing competitors in the health insurance market in Ireland – the most critical of which is the dominance of the VHI. The ongoing implementation of the risk equalisation scheme will only serve to further exacerbate this issue – these issues have been recognised and raised both by the Government commissioned Barrington Report and by the Competition Authority. We are calling on the Government to reform the market regulatory regime; to outline how it plans to ensure that the VHI will achieve its required solvency levels within the next ten months; to set out a workable form of Risk Equalisation that is equitable, fair and sustainable and to develop a plan for reducing VHI's overall market share."

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European Court decision on risk equalisation
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