Minister for Health Mary Harney said today she will close all legal loopholes in the health insurance market to ensure the survival of the risk equalisation scheme.
Her comments follow confirmation from Vivas that it would follow the initiative taken by Bupa's new owners, the Quinn Group, which is looking to avoid paying subsidies to the VHI by claiming it is a new entrant.
Vivas chief Oliver Tattan
Bupa was taken over by Sean Quinn last week after it announced it was pulling out of the Irish market over risk equalisation.
The new owners immediately claimed they are entitled to a three-year derogation before becoming liable for risk equalisation.
Bupa had said the scheme - which involves newer insurers paying subsidies to the VHI, which has an older and potentially sicker client base - would cost it €160 million.
Following that, Vivas said by changing its underwriter it would also be seen as a new entrant and be able to avoid the payments.
Oliver Tattan, the chief executive of Vivas said: "Whatever mechanism is required [to secure a derogation] we will do exactly the same."
He said the situation showed that the regulatory environment for health insurers leaves an awful lot to be desired. "It is not an environment that is conducive to normal business," he told Morning Ireland.
Mary Harney
But Ms Harney said she was committed to closing these loopholes and would be bringing in new legislation to tighten rules on risk equalisation. "You can't rush in legislation today because I don't know what will be required," she said.
"I want to make sure that on the one hand we will have appropriate legislation that there is no lacuna in the legislation to allow owners to switch every three years.
"If that were to be the case then clearly we would never be able to have community rating because as soon as the three-year period is up companies would switch ownership - that is unsatisfactory."
Ms Harney said she accepted that there was a worry that VHI was in a more privileged position than other insurers, but she insisted the Government wanted to see balance restored to the market.
"Clearly there is the concern that the largest player in the market, the VHI, does not have to compete at the same basis as its competitor. In other words VHI don't have to put the same monies aside for solvency requirements, and that is a huge issue," she said.
"The Government wants to commercialise the VHI as quickly as possible, and that legislation is being drafted so there are several loopholes that have to be plugged," the Minister said. Ms Harney said she had not been made aware of the loopholes.
Latest figures show 50 per cent of the Irish population - 1.9 million people - hold private health insurance cover, with the ten-year-old Bupa Ireland covering 460,000 customers.
Additional reporting PA