There have been two notable developments in the health insurance sector in recent weeks.
State aid approval for funding scheme
The European Commission has authorised a scheme of levies and tax designed to replace the risk equalisation scheme annulled by the Supreme Court in 2008.
After receiving commitments from the Department of Health that overcompensation of insurers will not occur, the Commission authorised the scheme relatively quickly as it satisfied the conditions laid down in the EU framework on State aid in the form of public service compensation.
The mechanics of the scheme are set out in the Health Insurance (Miscellaneous Provisions) Act 2009. Essentially, the scheme will provide additional tax relief on health insurance premiums for individuals aged 50 or over on an incremental basis as they get older. To offset this, a levy will be charged to health insurance companies for each of their adult and child customers. This accords with the principle of providing community rated health insurance in Ireland as it ensures that older people will be able to afford health insurance.
The net effect of the scheme is that the insurance of older people will become cheaper for insurance companies and the opposite is the case for their younger customers. The VHI, having a worse than average risk profile due to its large number of ageing customers, stands to benefit the most from the scheme.
Ireland referred to ECJ over VHI exemptions
The European Commission has referred Ireland to the European Court of Justice on the grounds that the VHI continues to benefit from exemptions under the Non-Life Insurance Directives. The Commission believes that the exemptions, originally granted back in the 1960s, are no longer valid as significant changes have been made to the VHI’s business model since then.
Replying to a reasoned opinion received from the Commission in 2008, the Government stated that the Voluntary Health Insurance (Amendment) Act 2008, which is due to take effect from 1 September 2009, would remove the exemption afforded to the VHI. Nonetheless, the Commission has decided to proceed with its action.
The exemptions permit the VHI to operate without meeting various obligations and in particular the amount of its minimum guarantee fund and solvency levels which all other insurance companies competing with the VHI must meet. If the exemptions are withdrawn the VHI will have to meet solvency levels of 40%, which is likely to require a significant capital injection.
