Some 475,000 Bupa Ireland customers will be told in the coming days that their health insurance contracts are no longer under threat after insurance magnate Seán Quinn took control of the business in a deal speculated to be worth more than €150 million.
The transaction safeguards 300 jobs at Bupa's office in Fermoy, but Quinn Group's claim that it is entitled "as a new health insurer" to a three-year exemption from risk equalisation payments triggered a confrontation last night with VHI, the State-owned health insurer.
Quinn Group and Bupa will immediately write to 50,000 Bupa clients whose contracts were to lapse at midnight last night inviting them to renew their subscriptions. Other clients will be told that the new owners stand ready to renew their subscriptions.
After closing for new business in mid-December, the firm yesterday said it was again accepting new subscriptions. It also promised to freeze all its tariffs for the duration of 2007.
But the takeover by Mr Quinn leaves contentious questions unresolved around risk equalisation, the system to compensate VHI for the higher age profile of its customers.
Bupa's decision in December to leave the Irish market arose out of its refusal to make multimillion-euro payments under the scheme to VHI, arguing that they would make its business unviable.
Quinn Group chief executive Liam McCaffrey said he had "absolute" confidence that its claim for an exemption would withstand any court challenge. "It's a matter of fact and it's a matter of law."
Asked whether the Quinn Group would leave the market whenever it faced risk equalisation payments, Mr McCaffrey said the group had entered the market for the long term. "We feel that there's enough initiatives going on at the moment to ensure that we have an open and competitive market."
Quinn's claim that it was entitled to an exemption drew a swift response from VHI chief executive Vincent Sheridan, who said it was never intended that companies could avoid risk equalisation liabilities through a change of ownership arrangement.
Minister for Health Mary Harney said the Health Insurance Authority, which regulates the sector, would determine the issue. She was unaware of the Quinn deal until yesterday afternoon and said she was sorry to see Bupa leave the market.
The Health Insurance Authority said in a statement last night that the rules governing whether an insurer is entitled to a temporary exemption from risk equalisation payments are set out in legislation.
"While an insurer seeking an exemption must write to the Health Insurance Authority, the rules in the Acts do not allow for discretion on the part of the Health Insurance Authority."
Entrants to the health insurance market are given a three-year derogation from risk equalisation payments. Each previous entrant, however, has been a start-up and there has never been a case where a company was purchased after its derogation period had expired.
Bupa Ireland will become an agent of the Quinn Group under the deal, so the legal structure of that arrangement will be crucial to the authority's determination.
Mr Sheridan said that if the derogation was permitted, then Quinn and Bupa would have driven a "coach and four" through a loophole in the legislation to undermine the policy of community rating, which guarantees uniform tariffs for all clients regardless of age or risk profile. If the authority accepted the Quinn-Bupa interpretation, it would be up to the political system to either plug the loophole or face a risk-related health insurance system. The subscriptions of older people would rise tenfold in such a scenario, he said.