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EU approves Irish risk equalisation move

Wednesday, February 20 11:36:38

The European Commission has approved the new risk equalisation scheme (RES) for the provision of private medical insurance in Ireland for the period 2013 to 2015.

Risk equalisation involves financial transfers between different insurers to take account of their differing costs arising from the age or health of their consumers.

It operates to protect community rating, whereby older and sicker people can buy health insurance for the same price as younger and healthier customers. Most of the levy goes to the VHI.

The objective of the scheme is to promote intergenerational solidarity by ensuring better risk sharing between health insurers in the Irish private medical insurance (PMI) market.

The Commission has found that the RES is in line with EU rules on services of general economic interest (SGEI).

Commission Vice-President in charge of competition policy Joaquin Almunia said: "The risk equalisation scheme, which aims to ensure solidarity between generations, is a pillar of Ireland's health policy. The Commission's decision, which is consistent with its previous decisions concerning the Irish system, finds that the aid to insurers is both justified and proportionate in light of the public service obligations they fulfil."

The RES concerns the private medical insurance (PMI) market, which is subject to special regulation in Ireland. Almost half of the population in Ireland has voluntary health insurance in the form of PMI cover, as a complement to the public health system.

PMI operates on the basis of a set of public service obligations: Insurers are obliged to accept any applicant who wishes to conclude an insurance contract regardless of age or health status (open enrolment); they cannot terminate a policy contract against the will of the insured person (lifetime cover); they must apply the same premium for a given level of cover regardless of the risk (age, health status) presented by the insured (community rating); and policies must offer a minimum benefit level prescribed by law.

As a result of these obligations, insurers cannot risk-rate their policies. This can result in imbalances on the market if their risk profiles are different, the EU Commission said.

"In the current context of the Irish PMI market, due to its worse-than-average risk profile, the state owned Voluntary Health Insurance Board (VHI) is expected to be a net beneficiary of the RES, while its competitors (i.e. Laya, Aviva, GloHealth) are expected to be net contributors. It is important to note that, on the other hand, net contributors, as a consequence of having a greater proportion of younger and healthier people, enjoy lower claims costs. The Commission assessed the RES under the EU Framework for State aid in the form of public service compensation adopted in 2012. In particular, the Commission is satisfied that the RES constitutes necessary and proportionate compensation to insurers," it said.