Saturday 16 December 2017

Medical insurance costs set to jump yet again

Charlie Weston Personal Finance Editor

PRIVATE health insurance customers face the prospect of higher premiums in the wake of EU orders on the future of the VHI.

At the moment, the VHI is guaranteed by the State and does not have to meet strict rules on money it keeps in reserve to cover a spike in claims.

But now the EU Commission has said this guarantee must end by next year -- meaning the VHI must raise up to €300m.

Experts predict that the burden would be spread across all 2.2 million people with private health cover. This means each premium could rise by up to €135 a year, finance experts said.

EU lawyers ruled yesterday that close links between the State and the VHI gives the insurer "undue financial advantage" over its competitors.

The guarantee means the VHI cannot go bankrupt or be wound up. This means that it can get loans on preferential terms as lenders know the State will be left to pick up the tab should the VHI default.

This gives it an unfair advantage over Laya, Aviva and new operator GloHealth.

But health insurance experts said that separating the VHI from State ownership will mean pumping between €200m and €300m into it to boost its reserves.

Dermot Goode of said the funds may end up being raised by sharing out the cost with all 2.2 million people who have health cover.

This is despite the fact that health premiums at the VHI, Laya (which used to be called Quinn) and Aviva went up three times last year.

Across the market, premiums have risen by around 50pc in the past 18 months.

If the VHI is to detach itself from the State and operate on the same basis as its rivals, it will have to set aside 40pc of its income in its reserves, Mr Goode said.

This would allow it to be regulated by the Central Bank, instead of falling back on a de facto state guarantee.

Regulated insurance companies need high reserves to cover an unexpected higher level of claims or a surge in costs.

The money to boost the VHI's reserves could end up being raised by introducing a formal risk equalisation scheme in place of the health insurance levy.

Risk equalisation is a system whereby companies with more older and expensive customers are compensated by the companies with younger customers.

As the VHI has the majority of older, and more expensive, customers, it would end up getting financial transfers from the other players.

This could end up pushing up premiums for everyone with private health cover.

The VHI is the largest player in the market, with around 1.2 million customers.


Health Minister James Reilly welcomed the ruling by the Commission that the State address the unlimited guarantee for the VHI.

The VHI said it was a strategic imperative for the company to be regulated and that it would be in the best interests of its customers.

It said Central Bank authorisation would allow it more commercial freedom to diversify its product range, offer customers more choice and help it maximise opportunities to boost profits from different markets.

However, the VHI said it will have to satisfy the Central Bank that it has a sustainable business case over the next three to five years, and the introduction of a robust risk equalisation scheme was a prerequisite to that.

The EU Commission said that if the Government fails to act on its recommendation, it will launch a probe into health insurance in Ireland.

Irish Independent

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