The VHI board has not sought a meeting with me on the matter raised. However, the chief executive of the VHI wrote to my Department on 6 May 2004 concerning the recommendation of the Health Insurance Authority about the commencement of transfers between insurers under the provisions of the risk equalisation scheme 2003. The recommendation was included in the authority's first report, submitted to me pursuant to Article 10 of the risk equalisation scheme 2003. Having carried out its evaluation and analysis of returns received from insurers in respect of the period 1 July 2003 to 31 December 2003 and having consulted with insurers in that regard, the authority decided to recommend that transfers ought not be commenced. The authority's next report is due to be made before the end of October and this will be based on its evaluation of data received from insurers for the period 1 January 2004 to 30 June 2004.
Provision for risk equalisation is now a feature of the health insurance market and it may be introduced if the circumstances are considered to warrant it. The authority has a central and independent role to play in any such determination. In that regard, the Deputy may be aware that the risk equalisation scheme 2003 was the subject of extensive consultations with the EU Commission's competition directorate general as regards compatibility with EU state aid rules. The scheme has been formulated having regard to the fundamental principles of proportionality and necessity laid down in EU law. Its implementation followed receipt of a positive decision by the EU Commission that it was compatible with state aid rules. That decision is currently the subject of a legal challenge by BUPA before the European Court of First Instance.
The risk equalisation scheme provides that: risk equalisation transfers cannot be commenced where the difference in the risk profiles of the insurers is less than 2% of the market equalisation percentage; risk equalisation transfers can only be commenced with a positive recommendation from the authority where the percentage is between 2% and 10%; the Minister is obliged to consult with the authority on a decision to commence risk equalisation where the percentage is greater that 10%. Furthermore, the scheme provides that, in formulating its recommendation, the authority is to have regard to the best overall interests of health insurance consumers, which concerns both the need to maintain the application of community rating across the market for health insurance and to facilitate competition between insurance undertakings.
The Health Insurance Authority was established on 1 February 2001 in accordance with the provisions of the Health Insurance Act 1994. Having regard to its statutory functions, the authority engaged in public consultations to inform the exercise by it of its key functions with regard to any commencement and implementation of risk equalisation transfers between insurers prior to the risk equalisation scheme 2003 taking effect.
The authority's evaluation and analysis of the first set of returns made by insurers show the market equalisation percentage to be between 2% and 10%. Its report states that the authority's recommendation is made in the context of the evidence currently available to it and that it should not be understood as an indication that the authority will not, in the future, recommend the commencement of risk equalisation transfers. It also confirms that the authority remains of the view that, in the appropriate circumstances, the best overall interests of health insurance consumers in a community rated market could be served by the commencement of risk equalisation transfers and that further data will soon become available and will inform future deliberations.
Given the circumstances I have outlined, there was never any basis for a view that risk equalisation transfers would automatically follow on from the commencement of the scheme. Also, the circumstances I have outlined regarding the formulation of the scheme indicate that changing the statutory arrangements either for the independent role of the authority or the criteria for the commencement of risk equalisation transfers, as notified to the EU Commission, is not a tenable proposition. Under the legislative provisions in place, the matter now rests pending consideration by the authority of returns to be made by insurers for the period 1 January 2004 to 30 June 2004.
