The Minister for Health Mary Harney has told private health insurance companies that she is considering the introduction of a controversial risk equalisation system from early next year.
In a letter sent yesterday Ms Harney said that the she proposed to trigger a risk equalisation scheme from the beginning of January and gave interested parties 21 days to make further submissions on the issue.
The letter to the companies is the first of a two-stage process regarding the introduction of risk equalisation. Ms Harney is expected to make a final decision towards the end of the year.
Six months ago Ms Harney also indicated to the companies that she intended to introduce risk equalisation. However she later decided not to implement the scheme, which could see the country's largest private health insurer, VHI Healthcare, receive around €30 million from its main rival BUPA Ireland.
The regulator for the sector, the Health Insurance Authority (HIA), last month recommended that risk equalisation be introduced. It follows a similar recommended earlier this year from the HIA, which reviews the market every six months.
Risk equalisation is a compensation system under which companies with a larger number of older subscribers (who claim more frequently) would receive payments from rivals with relatively younger memberships.
A number of expert groups have advised the Government that risk equalisation is essential if community rating, where everyone pays the same subscription regardless of age, is to be maintained. In its report to the Minister for Health in October, the HIA claimed that Bupa Ireland was making excessive or super-normal profits. It maintained that the profit margins generated from the subscriptions of Bupa Ireland's 500,000 members was far higher than those of Bupa Insurance in the UK.
The report also maintains that "price-following" is being practised in the health insurance industry in Ireland.
Bupa Ireland contested the charges set out in the report.
Bupa has argued against the introduction of risk equalisation. A High Court challenge launched by the company is due to be heard before the end of the year.
In its October report, which was based on financial returns for the first six months of the year, the HIA said the difference in the risk profiles between companies in the market was getting wider.
It said that the absence of risk equalisation had facilitated Bupa Ireland in making a surplus of 17.3 per cent of earnings from subscriptions last year.
In the same period Bupa Insurance Ltd in the UK had recorded profits of 5 per cent of earned premiums.
The report said that if risk equalisation had been currently in place, Bupa Ireland would have had to make payments of €16.5 million to rival companies.
The authority said that in its view the benefits to the consumer which would accrue from the start of risk equalisation would outweigh any countervailing factors such as a possible reduction of competitiveness in the VHI.
