Cheaper premiums for health insurance consumers are still a long way off in spite of this latest reform package, writes Paul Cullen, Consumer Affairs Correspondent

Minister for Health Mary Harney's latest set of reforms for the health insurance sector are as likely to push prices up as down for many customers, at least in the short term.

While the Minister labelled her proposals "pro-consumer" and while they may ultimately attract new companies into the market and thereby drive down prices, the more immediate consequence may be a rise in premiums for some consumers.

The ending of VHI's derogation from solvency requirements by next year means the company will have to find up to €200 million for its reserves. Unless this money comes from Government (unlikely) or through a sale of assets (controversial), it will have to be raised through greater revenues, ie higher premiums.

The company is also likely to argue that the proposed 20 per cent discount in risk equalisation payments will leave a further shortfall that may have to be shored up by its customers.

But the bad news won't just be felt by VHI customers. Ms Harney's proposal to introduce loadings for late entrants to health insurance means higher premiums for the more mature category of new customers of all insurers. Younger people will pay less, but more will be encouraged to join earlier than they might otherwise have done, and so will pay more in premiums over their lifetimes.

The Barrington report, one of three reports that Ms Harney considered before making her recommendations, suggests a formula that could be used to calculate this loading. In its example, a 45-year-old entrant would pay 145 per cent of the rate paid by a 30-year-old joining the same scheme, and a 60-year-old would pay almost double.

The Minister also plans to do away with the ministerial veto on price rises sought by the company. However, none of the fundamental changes proposed for the VHI will take place at this stage, at there isn't time in the current Dáil to move the relevant legislation. In effect, Ms Harney is setting out her stall on competition and deregulation for the election, rather than making a proposal that has a meaningful chance of being implemented.

There are, however, a raft of fringe proposals that are clearly pro-consumer and do not need changes in legislation to take effect. Extending the remit of the Irish Financial Services Regulatory Authority to the health insurance sector makes sense, as does a requirement for renewal notices and new contracts to include a statement of consumer rights.

A proposal that health insurers commit themselves to a "declined cases agreement" will provide reassurance for customers worried about the possibility of being refused cover, while the recommendation for a switching code mirrors developments in the financial services sector. Just 10 per cent of policyholders switched company in Bupa's first 10 years in the Irish market.

Perhaps the proposal that will have the greatest immediate effect is the requirement for companies operating group schemes to put them out to tender every three years and to offer their employees a choice of at least two insurers.