Vhi warns no risk equalisation leaves firm in poor health
The future viability of Vhi healthcare is at serious and urgent risk, the company claimed today.
Despite increasing its number of members to a record 1.56m, the insurer issued a profit warning for this year due to the absence of risk equalisation.
Its annual results for the year showed it recorded a surplus after tax of just €3.9m, representing a 94% reduction from €62.3m in the previous year.
The company indicated that it is budgeting for a loss in its current financial year after the Minister for Health Mary Harney decided against introducing risk equalisation – a system that would force rivals to pay subsidies to other insurance firms which have older, costlier members.
A total of €750m was paid out in claims by Vhi last year or €3m every day, while 493,000 claims and 1.2m doctors’ invoices were processed.
The company said the deterioration in its finances has arisen directly from the continued absence of risk equalisation.
“In September 2004 the Board of Vhi Healthcare took the decision that the cost of financing community rating should not be borne solely by the members of Vhi Healthcare and funded this cost directly from its reserves, reserves that exist for the protection of members and not for financing community rating,” it said.
“Clearly this is not sustainable in the long-term. If community rating is to survive then the cost of financing it must be spread evenly across the market through the process of risk equalisation.
“The Tánaiste has stated that her motivation in refusing to trigger risk equalisation was to further encourage competition in the health insurance market.
“Vhi Healthcare fully subscribes to vigorous competition but it is the absence of risk equalisation that deprives Irish consumers of beneficial competition in the health insurance market.
“We believe that the introduction of risk equalisation will encourage our competitors to fight for the business of older subscribers and thus create vigorous competition across all age groups.
“In the absence of risk equalisation the continued viability of Vhi Healthcare is now at serious and urgent risk as evidenced by the dramatic fall in profits and the profit warning in respect of the current year.”
Mary Harney has previously announced she had decided against introducing risk equalisation for the time being last month. This followed fierce opposition from Vhi’s rival, Bupa Ireland.
But Vhi’s auditors said it was likely the company would incur further significant deficits in future years should risk equalisation not be introduced.
Vhi chief executive Vincent Sheridan said the company exists solely to service the needs of members and, in a community rated market without risk equalisation, it is simply not possible to discharge responsibility to members while at the same time ensuring the stability of the business.
“The issue of who is going to finance community rating must be addressed without delay,” he said.
“There is widespread agreement that risk equalisation is the only equitable and effective mechanism.
“If the activation of risk equalisation is delayed, irreparable damage will be done to Vhi Healthcare, its members and the private healthcare market in Ireland.
“Quite simply, the activation of risk equalisation as a matter of urgency is essential to the continued viability of Vhi Healthcare. Risk equalisation is also the only way to stimulate real competition right across the market.”
