Health insurance companies, the Quinn Group and Bupa Ireland face having to pay more than €13 million in risk-equalisation payments to rival VHI for the first six months of the year, according to a new internal report drawn up by the industry regulator.
The new figures mean that the State-owned VHI now stands to receive more than €32 million in risk-equalisation payments from Bupa Ireland and the Quinn Group dating back to the beginning of 2006 if the Supreme Court lifts a stay on payment of the money.
The Supreme Court is expected next month to begin hearing an appeal brought by Bupa Ireland against a High Court decision last year to reject a challenge to the introduction of the controversial risk-equalisation scheme in the health insurance market by Minister for Health Mary Harney.
The Quinn Group took over the business of Bupa Ireland earlier this year in a deal reported to be worth around €150 million. The Government rushed emergency legislation through the Oireachtas last February to close a loophole under which the Quinn Group, as a new entrant to the market, could have avoided having to pay tens of millions of euro in risk-equalisation payments. This is being challenged by the Quinn Group.
Risk equalisation is essentially a compensation scheme under which companies such as the VHI, which has a larger number of older subscribers (who tend to claim more frequently), would receive payments from rivals with a relatively younger membership profile.
The Government believes that the risk-equalisation scheme is necessary to underpin the concept of community rating in the health insurance market under which everyone pays the same amount for similar products regardless of age.
The market is assessed every six months by the industry regulator, the Health Insurance Authority, which sets out in a report to the Minister the amounts each company should pay and receive in risk-equalisation payments.
It is understood that in its latest report the authority has found that VHI should receive €13.5 million for January to June this year.
The new figures are believed to take account of reforms introduced by the Government in April which reduced risk-equalisation liabilities in the current year by 20 per cent. Last year the authority found that VHI should receive €7.7 million for the first six months and €11.1 million for the second half of 2006 in risk-equalisation payments.
However, these figures only represented 50 per cent of the total amount which VHI would have received if the risk-equalisation scheme, triggered by Ms Harney in January 2006, had been fully in operation. Under rules which applied at the time, companies only had to pay half of their total risk-equalisation liability in the first year in which they came within the scope of the scheme.
Bupa Ireland (or the Quinn Group) has not yet had to make any payments under the risk-equalisation scheme as a result of a legal stay put in place by the High Court in May 2005. The issue of the stay is expected to be addressed by the Supreme Court in the forthcoming hearing.
The Quinn Group said last week that from January members would face increases in subscriptions of up to 3 per cent and families would face a maximum price increase of 5 per cent.
However VHI, which recently increased its prices by 8.5 per cent on average, said that Quinn subscribers could see subscriptions rise by 18 per cent.