The Department of Health has said it will consult its legal advisers before responding to a letter from the European Commission that sounded warnings on the introduction of risk equalisation in the Irish health insurance market.
The commission has given the department a month to respond to its letter and provide it with additional information on the scheme, which the State's main insurer, the VHI, has vigorously fought for and its competitor, Bupa, has staunchly resisted.
Risk equalisation is a scheme whereby the earnings from young, profitable health insurance subscribers are used to offset losses from older customers, who are more likely to make claims on their insurer. If it was introduced here, Bupa, which has a large proportion of young subscribers, would have to hand over an estimated €30 million a year to the VHI, which has a large number of older people on its books.
In its letter, details of which were published in The Irish Times yesterday, the commission says the amount that would have to be paid under the scheme risks being "disproportionate".
It said: "We would be inclined to take the view that a requirement to pay under the risk equalisation scheme an amount so significant that it would force an operator to exit the market would seem to discourage other operators from entering the market and does, in any event, seem disproportionate".
Bupa has threatened to pull out of the Republic if the scheme is introduced. Minister for Health Mary Harney decided in June not to introduce risk equalisation for the moment. The decision can be revisited every six months.
Yesterday the VHI said the European Commission had accepted in 2003 that the introduction of risk equalisation is necessary to secure the community-rated private health insurance market in Ireland. Under community rating, customers are charged the same amount for the same level of cover, irrespective of the risk they pose.
VHI added the commission had always said risk equalisation payments must be proportionate.
The latest insurer to enter the market, Vivas Health, said it was very interested to learn the European Commission has written to the Government to warn it could be in breach of EU rules if it were to trigger risk equalisation.
"Vivas Health has continually argued that the introduction of risk equalisation would restrict competition in the Irish market and would increase the barriers to entry for any new potential entrants," it said.
Bupa said that without seeing the letter it would prefer not to comment. However, it said its opposition to risk equalisation has always been based on the basis it would kill competition.