Competition in the health insurance sector was dealt a blow today after the High Court ruled companies with younger customers should compensate rivals with an older customer base.
Mr Justice Liam McKechnie rejected a challenge by British insurer Bupa to the Risk Equalisation Scheme (RES). The decision means Bupa will have to pay around €161 million to the semi-State insurer VHI over the next three years.
Mr Justice McKechnie ruled Bupa entered the market with knowledge of the regulatory environment. Transfers from insurers with lower risk members to those with higher risk members, first appeared in legislation in 1994, he said.
He also accused Bupa company of taking advantage of legislation in the early stages to make a profit.
He acknowledged there was an anti-competitive element to Risk Equalisation but said he scheme was legal under both Irish and European law.
The Health Insurance Authority recommended last year that Bupa make the payments under an internationally recognised system that compensates insurers with older clients because they make higher and more frequent claims.
The system is central to the Community Rating system which provides for equal premiums across age groups.
VHI Healthcare - which enjoys 80 per market share - welcomed today's ruling saying it was an endorsement of RES's role in maintaining Community Rating.
"This decision is good news for health consumers generally and will encourage real and vigorous competition in the private health insurance market.
"VHI's competitors will now be forced by this decision to compete right across the market and become more innovative in terms of cost, product, customer service and provider management," the company said.
But Bupa managing director Martin O'Rourke described the ruling as "a very bad day for Irish consumers and a dark day for Bupa Ireland and its customers".
The company, which ahd challenged the constitutionality of the RES, has yet to make a decision on whether to lodge a Supreme Court appeal. The ruling was complex and would need close reading, Mr O'Rourke said.
The company was forecasting around €65 million in profits over the next three years which means today's decision would make it business unviable; however, it said current policy holders' contracts would not be not affected.
"The judge has acknowledged that we cannot operate under RES without incurring a loss. The elimination of meaningful competition is now avoidable only through Government intervention and we have sought an immediate meeting with the Minister [for Health Mary Harney] to protect competition for consumers," Mr O'Rourke said.
Vivas Health, which has around 100,000 members in groups schemes, said the ruling was bad for competition. Vivas will also have to make payments to VHI.
Vivas chief executive Oliver Tattan said: "The ruling today will have detrimental repercussions for the health insurance sector in Ireland as it will lessen competition in the market, which is ultimately bad for consumers.
He also challenged Bupa to state when it would follow through on its plan to leave the Irish market in the event the RES was implemented.
"It is now time for Bupa to come clean and to communicate its planned timeframe for exiting the market. Our message to our members hasn't changed - Vivas Health is here to stay and we remain 100 per cent committed to our members and to the market," Mr Tattan said.
He also called on the European Commissioner for the Internal Market and Services, Charlie McCreevy, "to urgently intervene".
He added: "It is clear that we need immediate action at EU level to end the current VHI protectionist regime which is damaging to consumers."