BUPA Calls for Government Intervention as Irish High Court Rejects Challenge to Risk-Equalisation Scheme

The fractious history of risk equalisation in the Irish health insurance market has reached a conclusion of sorts with the High Court's ruling in favour of the scheme implemented by Minister for Health and Children Mary Harney on 1 January 2006. BUPA Ireland, which will be most hurt by the scheme's compensation arrangements, originally challenged its constitutionality in May 2005, following the recommendation by the independent Health Insurance Authority (HIA) that the government should proceed with the introduction of a levy to compensate VHI for its higher proportion of more costly, older customers.

The plot thickened when the minister subsequently changed her mind and decided not to adopt risk equalisation until the government had started converting VHI from a statutory body to a commercial body under the same umbrella legislation as BUPA Ireland and Vivas. This sparked accusations that Harney had been swayed by lobbying from BUPA (see Ireland: 4 July 2005: Irish Minister of Health Prepared to Make Advice on Health Cover Available). At the same time, VHI warned that it could not keep drawing on its reserves to avoid passing on to its customers the cost of a delay in introducing the Risk Equalisation Scheme (RES). However, a further report from the HIA in October 2005 claimed BUPA Ireland was making excessive profits in the absence of risk equalisation (see Ireland: 2 November 2005: BUPA Ireland Profits Excessive, Irish Insurance Regulator Report Says), and appeared to tip the balance back in the scheme's favour.

BUPA's challenge to the RES rested broadly on two grounds: its compliance with European Union (EU) law; and its compliance with Irish law, including the Irish constitution. The case was delayed by VHI's appeal against a High Court ruling that the dominant health insurer could not be represented as part of the state's defence (see Ireland: 9 August 2005: VHI to Appeal Court Ruling in BUPA's Risk-Equalisation Case) and was finally heard by Mr Justice McKechnie between 7 February and 28 April this year.

According to The Irish Times, Justice McKechnie acknowledged in his 200-page judgment that there was an anti-competitive element to the RES but still upheld the scheme's legality under both Irish and EU law. Since legislation providing for transfers from insurers with lower-risk customers to those with higher-risk members had first appeared in 1994, BUPA was well aware of the regulatory environment when it entered the market, he argued.

Outlook and Implications

While the High Court's rejection of BUPA's challenge clearly vindicates the government's decision to roll out risk equalisation and provides a valuable financial boost to VHI, whether it will ultimately benefit the Irish consumer remains a moot point. VHI claims the ruling will encourage "real and vigorous competition" in the private health insurance market, as its rivals will now have to "compete right across the market and become more innovative in terms of cost, product, customer service and provider management". The High Court's stance is also a "powerful endorsement" of risk equalisation as a back-up to Community Rating, under which subscribers pay the same health insurance premium regardless of their age.

The scheme should certainly curb the kind of excessive profiteering identified by the HIA in its October 2005 report to the government. The report also warned that insurance premiums were being pushed up by "price-following", with BUPA Ireland's price increases identical to those of VHI until the end of August 2005. However, BUPA described the High Court ruling as "a very bad day for Irish consumers and a dark day for BUPA Ireland", repeating its assertion that risk equalisation would make competition nonviable. With the levy to VHI estimated at 161 million euro over the next three years, when BUPA Ireland's profits were expected to reach 64.8 million, the judge had acknowledged that "we cannot operate under RES without incurring a loss", the company said.

BUPA has not given any clues as to whether it will follow through on its threat to pull out of the Irish market if risk equalisation is upheld. The High Court's judgment was "long and complex and we will study it carefully before giving our considered assessment", it commented, adding that the elimination of meaningful competition in the Irish market was now "avoidable only through government intervention and we have sought an immediate meeting with the Minister to protect competition for consumers." In the meantime, it said, members' contracts would not be affected.

Vivas Health, which broke the Irish insurance duopoly when it entered the market in October 2004, also claimed the High Court's decision would stifle competition in the sector, while goading BUPA to "come clean and communicate its planned timeframe for exiting the market." Vivas, on the other hand, was "here to stay." The relative newcomer to the market, which will also have to pay compensation to VHI, called on the European Commissioner for the Internal Market and Services, Charlie McCreedy, to "urgently intervene" and restore balance in the Irish health insurance sector. Condemning the government's "protectionist stance" towards VHI, Vivas said the "range of unfair advantages which the VHI enjoys, including the risk equalisation subsidy, the ability to operate insolvently, exemption from consumer protection regulation and [its] ability to cross-subsidise products in a way no other European insurance company can, are clearly very effective deterrents and are successfully keeping other investors out of the market."

Whether the risk equalisation dispute will now take on a European dimension remains to be seen. With the average cost of health insurance premiums estimated to have doubled over the last eight years, consumers will be looking for some relief.