The Minister is right in saying that this has been on the cards for a while.  As far back as 1999, the then Government, in a White Paper on private health insurance, suggested a capital injection of IR£60m (ah yes, the good old days when the currency was the punt and debts were manageable!) to bring VHI's solvency reserves up to the level required by the Central Bank in Ireland (which is 40% of premium income).  That was put on the back burner until 2008, when the European Commission directed Ireland to unwind VHI's derogation from these requirements.  The Voluntary Health Insurance (Amendment) Act, 2008 made provisions for this to happen by the end of 2008, but that deadline was pushed back a number of times and the Government still hasn't complied - hence yesterday's judgment.

The biggest issue here is where this money will come from.  The way I see it, there are three options - each with potential problems.  The first is for the State to inject the money - in which case one of VHI's competitors could well make a complaint of State aid (notwithstanding the issue of where the Government would find this money, assuming that they got the okay from the EU/IMF/ECB 'troika').  The second is for VHI to raise premiums to bring the money in - but it is already losing customers to its rivals because its premiums are higher to reflect its higher-risk membership base, and it would take time for the money to be raised in this way.  The third is to raise it from private investment - but I would imagine that most private investors would be wary of investing in an insurer with a higher-risk membership profile in the absence of a robust risk equalisation scheme (the third attempt at which is due in 2013).

The Minister is talking about splitting VHI into a number of smaller entities which, assuming some of those smaller entities would be sold off, would reduce the size of any capital injection that might be needed from the State.  However, this too would not be without its problems.  The first of these is that it would reduce the economies of scale currently enjoyed by VHI.  Secondly, it could impinge consumer choice, particularly given that many of VHI's members choose to remain loyal due to long-standing relationships built up over many decades in some cases.  The third is that splitting VHI would not necessarily bring the benefits of competition heralded by the Minister.  As I noted in a previous e-mail to this group, premium inflation has been higher with three competitors than with two, which in turn was higher than when VHI was a monopoly provider.  (That's not to say that competition hasn't brought other benefits such as an improvement in cover.)  However, in the absence of proper regulation - including a standard plan (or a suite of such plans) and a robust risk equalisation scheme - simply increasing the number of insurers is unlikely to produce significant benefits for consumers.

Who'd be a Minister for Health?!

Kind regards,

Brian