Deferring the introduction of risk-equalisation into the Irish health insurance market for another six months was unlikely to have "a materially adverse impact", the Minister for Health, Mary Harney, was advised before she announced last week she was not triggering the scheme for the moment.
In the wake of sustained criticism of the Minister's decision, particularly by the State's largest health insurer, the VHI, Ms Harney yesterday published the advice she had received from the Department of Health's actuarial advisors, Mercer, and officials in her health insurance unit.
The Mercer report, dated Monday, June 27th - the day Ms Harney announced her decision not to introduce risk-equalisation - said it was "not fully convinced that the Minister should make a determination at this time to commence risk-equalisation payments".
It referred to evidence of an upward trend in the extent of risk differences between players in the market. This had increased from 3.5 per cent in the first six months of 2004 to 4.7 per cent in the latter half of 2004. However, Mercer said 0.7 per cent of this could be attributed to "random statistical variations".
It said, given the extent of these variations, the Minister "would probably benefit from having at least one further corroborating data point to provide further confirmation in relation to the underlying market trends". She will receive another report from the Health Insurance Authority (HIA) in this regard in six months.
"Given that the HIA has not indicated that a threat to stability is imminent, then deferring a decision for another six months is unlikely to have a materially adverse impact," Mercer added. Yet it said it was of the view that, in the long term, risk-equalisation was a necessary support to the community-rated health insurance market and therefore it was probably a question of when, not if, it should be triggered.
Community rating means everybody pays the same amount for the same cover, no matter what their individual risk. The introduction of risk-equalisation would have meant the VHI's biggest competitor, Bupa, would have to compensate VHI for the fact that its customers are older, more at risk and therefore less profitable than those of new insurers. Bupa said the scheme would cost it €34 million this year alone in transfers to VHI.
Meanwhile, the advice from the Health Insurance Unit of the Department of Health to Ms Harney, also published yesterday, is dated June 29th, two days after Ms Harney announced her decision. A spokesman said this was a typographical error.
Their report states: "Given the issues raised by the department's actuarial advisors on the movement of the MEP [market-equalised percentage] . . . and the broader competition issues, the department is not completely satisfied that is it necessary to commence the articles of the risk-equalisation scheme that would result in the transfer of funds from 1st July, 2005."
Ms Harney has said she decided against introducing risk-equalisation as a result of these two reports and because she wanted to wait until the Government had begun the process of converting the VHI from a statutory body to a commercial company.
Meanwhile, the decision by the VHI to seek average 12.5 per cent increases in premiums from September was criticised by Siptu yesterday.