The Government has decided, on foot of my recommendations, that the VHI should make an application for authorisation by the Central Bank, subject to further Government decisions to be made relating to capitalisation, once the level of its capital shortfall is clarified. The VHI has been working for some time in preparation for this.
As the Deputy will be aware, the European Commission took a case against the State regarding the VHI's derogation from the EU Non-Life Directives which had exempted it from the requirement to be authorised by the Central Bank. The Court of Justice of the European Union ruled against the State on 29 September last. VHI's regulatory status is bound up in a range of issues relating to the private health insurance market which I have been addressing over the past number of months. In order to be considered for authorisation by the Central Bank, VHI will need to present a sustainable business plan. Due to the current imbalance of the community rated private health insurance market, where the vast majority of claims are paid out by the VHI, the market requires an effective scheme of risk equalisation to address that imbalance. Work is ongoing in my Department to legislate for such an effective, robust and permanent scheme in the coming months, following the Government's recent agreement to my proposals in that regard. The new scheme will need to be cleared at EU level in relation to State Aid rules. In the meantime, on foot of recommendations of the Health Insurance Authority following its analysis of the market, the level of age-related tax credits payable in 2012 in respect of customers over the age of 60 has been significantly increased.
Following the Court of Justice judgment, the Government made decisions on how best to address the Court's findings. The Governments plans and a realistic timetable were outlined to the European Commission on 9 December last. Resolution of the issues will involve a number of steps. The timescale for some of these steps is outside of the State's control and will depend on the time it takes for decisions to be made by the European Commission itself regarding State Aid issues, as well as by the Central Bank.
Once it is clear, following the analysis of the Central Bank and the European Commission, what additional capital the VHI would require in order to secure authorisation and to satisfy any State Aid implications which may arise, the Government will consider the matter and make further decisions in that regard.
It is clear that all of these actions must be undertaken in an orderly and efficient manner but that this will take time. The timescale outlined to the European Commission is intended to allow for these issues to be addressed in such an orderly and efficient way. Officials from my Department remain in contact with the European Commission on an ongoing basis and will work to satisfy the Commission's concerns and to advance the resolution of the regulatory status of the VHI as quickly as possible.