The decision by Bupa, the second largest health insurer, to challenge the legality of risk equalisation is not unexpected.
The company has long made its opposition to the scheme clear and has already taken a case in Europe challenging it. More recently it told the Health Insurance Agency (HIA) - which regulates the market - that it would leave the Irish market if the Government proceeded to implement the scheme.
While Bupa is entitled to take any legal step to defend its business, its opposition to risk equalisation here is somewhat disingenuous. When Bupa entered the Irish market almost 10 years ago it clearly understood that the health insurance market operated on the socially desirable principle of community rating, under which insurers cannot discriminate between customers on the basis of age or any other factor.
It was equally clear that any market that operated on this basis would not be efficient and would need some sort of mechanism - such as risk equalisation - to level the playing field.
The problem arises because community rating encourages new entrants to focus on the younger and more profitable segment of the market, potentially undermining the stability of the established player who needs a significant number of young healthy members to cover the cost of older and less healthy members.
Risk equalisation compensates for this by requiring the company with the higher concentration of young members to make a financial contribution to the company with the older age profile. The payments are triggered once the HIA decides the imbalances are such that the stability of the market is threatened. It has now reached that conclusion and made its report to the Minister for Health, who must now decide whether to proceed with the process.
It is clearly a decision that Ms Harney does not relish. If Bupa's threats are to be taken seriously she risks forcing a genuine competitor from a market dominated by a State- owned former monopoly by implementing the scheme. But if she does not approve the scheme she can expect a request from the VHI in the near future for a hefty increase in its rates. She will find it hard to turn down the request in this context.
Bupa's decision to seek a judicial review means that the decision is now postponed. If Bupa is successful she will be faced with a fresh problem, and if the legality of the scheme is upheld then the original decision and associated dilemma will arrive back in her in-tray. The question of health and social policy is important here.