It’s no secret that the Vhi and the Department of Health have been at odds over the effectiveness of the new measures brought in under the Health Insurance Amendment Act 2012 to create an effective risk equalization fund.  

Indeed the Central Bank was perplexed to find this out at a recent meeting between the two where Vhi stated that they felt the new (RE) scheme was only 45% effective while the State argued 75% effective rate.

This problem, Vhi states, is not with the new levy to be collected from all private health insurance customers, but the Age Related Tax Credit amounts to be credited back to the insurers. They feel that the amount set is too low. Our understanding is that if it is too low, the figures can still be reviewed and adjusted over time.

While there may be disagreements over the overall effectiveness of the scheme, the crucial thing now is that the Vhi are fully regulated by the Central Bank by the end of this year. Failure to do this will in our opinion undermine the commercial viability of the organisation. This is a deadline they have failed to meet time and time again and comes after the company’s biggest effort to segment it’s book of business by way of the largest premium increases since deregulation as well as the introduction of restricted benefits, new waiting periods and early exist penalties into the market. This was all done before this legislation came into law last year for fear the legislation was not as effective as they had hoped. So in some ways the Vhi have already hedged their bets.

The idea of behaving in the most commercially ruthless manner on one hand and then suggesting that the Government need to push beyond independent actuarial calculations in order to save guard them from the commercial realities of competition seems a bit like wanting to have your cake and eat it.

Importance of Regulation

Apart from requiring the Vhi to operate with a level of solvency expected of the rest of the financial & insurance sector it crucially obliges them to adhere to the only piece of financial legislation that is designed to protect the consumers interests, The Consumer Protection Code.

It remains unclear how the cost of adhering to this Code will affect the Vhi’s profitability and indeed to what degree this cost has been factored in to the business model going forward. Most companies this size will have whole Compliance Departments with some financial companies declaring the cost at as much as 20% of their budget.

Patrick Brennan

Director

Irish Health Insurance