Colm’s columns

By Colm Rapple
Irish Mail on Sunday April 29, 2007

Medical insurance premiums are set to soar as a result of the Government decision to force the rapid commercialisation of VHI while significantly weakening the concept of community rating under which all comers, irrespective of age, gender or propensity to illness must be quoted the same premium for a specified level of cover.

Following the publication of the Barrington Report on the sector the measures were pushed through the Dáil in less than an hour setting the wheels in motion for the privatisation of VHI and a major restructuring of the health insurance market that will inevitably mean significantly higher premiums.

There are alternatives, of course, but this latest report doesn’t pretend to have explored them. It’s the work of a group established by Health Minister, Mary Harney a little over three months ago. Given its composition and terms of reference it was inevitable that it came up with recommendations aimed at enhancing the profitability of the privately owned medical insurers at the cost of higher premiums to consumers.

The three person group was chaired by Colm Barrington, managing director of Babcock & Brown, the Irish subsidiary of the Australian based global investment company which acquired Eircom last year. The other group members were Seamus Creedon and Dorothea Dowling. Mr Creedon was a director of KPMG in London and previously the first chief executive of Bank of Ireland’s insurance subsidiary, Lifetime. Ms Dowling is best know for her work in the estabishment of the Personal Injuries Assessment Board of which she is chairperson. She is group liability manager with CIE.

The group was charged with deciding if the medical insurance market as currently structured could provide an adequate return for insurance companies and, if not, what could be done about it.

They concluded that the sector isn’t sufficiently profitable and that the solution is to privatise VHI and curtail the scope of community rating. That’s what their range of recommendations boil down to. In what are likely to be her last days as Minister for Health, Mary Harney has moved to introduce some of those recommendations. She hasn’t mentioned privatisation but that must be the inevitable outcome unless her decisions are reversed.

In line with the Barrington recommendations Ms Harney wants the VHI to become a fully commercial operation by the end of next year. It is currently a statutory body owned by the State and not subject to the solvency requirements imposed on private insurance companies.

Private companies are required to maintain a reserve of at least 40% of their premium income. VHI had been building up its reserves by imposing extra premiums on its members but it began to run them down again a couple of years ago. Lower solvency requirements are expected to be introduced later this year with new EU directives and Barrington estimates that VHI would require an injection of about €100 million to meet the new rules.

VHI was supposed to have until 2012 to reach the target but Ms Harney now wants it reached next year. The best approach, according to Barrington, would be to transfer ownership of VHI to its members effectively privatising it. In the process the extra funding could be raised on the market. Unlike a mutual insurance company or building society VHI is not actually owned by its members so the State could actually sell it and take the proceeds directly into the Exchequer but the Barrington Group believes that a transfer to members would be fairer.

There would be no bonanza involved. It is estimated that each members’s share might be worth €400 or €500.

Undoubtedly that is what Mary Harney would like but she is not saying so. She can’t do it before the election and she may not be there to do it afterwards so she doesn’t have to commit herself.

But its time that the alternative government did. There are other options. The obvious one is to maintain VHI in state ownership and use it as the base for a universal medical insurance scheme for every citizen. That’s the only way to ensure true community rating and to start dismantling rather that enhancing our current inequitable two-tier health system.

The Barrington report admits that community rating “is inherently at odds with an open and free market” and that it will inevitably come under pressure and that eventually a State supported universal insurance scheme will have to be considered. In other words the maintenance of community rating is simply not compatible with the limited, and therefore flawed, free market model that the Barrington report proposes.

It recognises the flaws and comes up with all sorts of ways to limit and curtail community rating. All of the changes are designed to enhance profitability and, in consequence, push up consumer premiums. For instance, it is proposed that community rating would only apply to insurance cover for access to at best semi-private services in public hospitals. As a result low risk groups would get cheaper cover for private hospitals while high risks groups, including the elderly, could end up paying appreciably more.

It is also proposed that an exemption from community rating would apply to certain high risk individuals. Smokers are mentioned but if an exemption is applied to smokers how long would it take before it is extended to people who are overweight. And how long after that before other perceived high risk categories are included and community rating becomes the exception rather than the norm.

Medical insurance is a central prop of our ailing health services and these proposals involve a fundamental shift in its structure pushed by a minister from a minority grouping with a distinct ideological bias. They deserve much more debate. Hopefully it will become an election issue.