HEALTH Minister James Reilly forced all the country's health insurers to hike charges following a request from the VHI and against the advice of the sector's watchdog, the Irish Independent can reveal.
The move resulted in an estimated 300,000 people on the cheaper health insurance policies paying more for their premiums.
Higher fees for basic insurance plans were introduced late last year, in response to concerns that health insurers would otherwise offer cheaper plans to young people while charging the elderly more.
But the Irish Independent can now reveal the decision was made following the VHI's request – in direct conflict with advice from the industry's regulator.
The rules, which were ultimately passed by Dr Reilly, came after recommendations contained in a confidential letter written by the State-owned VHI. The letter requested an increase to the cost of cheaper policies.
Before receiving the letter, the Department of Health had planned to reduce the levy. Dr Reilly had been advised to do so by the Health Insurance Authority, a statutory body appointed to guide him on health insurance matters.
In a report issued last year, the watchdog said basic policies should be made less expensive to avoid losing younger customers.
Young people have been cancelling their private health insurance in droves in response to spiralling costs.
The report warned that to "apply further increases at this stage could give rise to risks in the context of the sustainability of the market".
But the approach was abandoned by the Department of Health shortly after receipt of the VHI's letter last November.
In the letter, released under the Freedom of Information Act, Declan Moran – who was acting chief executive at VHI for part of 2012 – expressed concern that cheaper policies for younger and less risky people would allow market segmentation, meaning older policy holders would be charged higher premiums.
Dr Reilly changed tack in line with Mr Moran's proposals. The new rules he introduced earlier this year jacked up the cost of basic "non-advanced" policies to €290, only €70 cheaper than the rate charged to policies with much better coverage.
In a statement yesterday, the Department said the measures were "designed to result in no overall increase of premiums paid in the market, rather it is intended to spread the risk more evenly between the healthy and the less healthy, as well as the old and the young."
But Jim Dowdall, boss of new health insurer GloHealth, told the Irish Independent that the watchdog had been proved right – and the new rules had pushed more young people to cancel their health insurance, with the result that policies were now more expensive for everyone.
"We need young people to take out private health insurance so we can spread out risk and make policies more affordable for everyone" said Mr Dowdall.
"But affordability is the huge challenge for the market" he added. "Under-35s are falling out of health insurance faster than any other demographic. We have to be able to offer them cheaper policies."
The Department of Health also made cheaper policies less attractive in line with the VHI's request, by reducing the type of treatments they can cover.
Before Dr Reilly's recent reforms, "non-advanced" policies could cover the costs of day procedures like MRIs, colonoscopies and skin legions in private hospitals.
However the VHI was against this. "We believe this level of benefit is far too generous for categorisation as a non-advanced level of cover," Mr Moran said in his letter to the Department of Health.
Dr Reilly effectively followed this advice. His new rules mean that "non-advanced" policies only cover two-thirds of day procedures – the consumer must cover the rest.