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Thursday 21 September 2017

Dan White: Why we will all pay dearly for sale of VHI

The Government has issued the shock announcement that it plans to sell the VHI within three years. Here's what the sale of Ireland's largest health insurance company means to you and me.

Q: Why is the Government putting the VHI up for sale?

A: The VHI needs at least €300m of extra capital to meet the Financial Regulator's solvency requirement of reserves equal to 40pc of premiums.

With the Government strapped for cash, it hopes to recoup this money by selling the VHI.

Q: What will a sale of the VHI mean for its members?

A: With over 1.2 million members, the VHI is by far the largest health insurance company in the country.

The Government claims that a sale of the VHI will not push up premiums but with the company set to announce 2009 losses of €70m, further hefty premium increases are inevitable, no matter who owns the VHI.

Q: What does the likely sale of the VHI mean for customers of other health insurance companies?

A: The Government is planning to reintroduce risk equalisation, where companies with younger, healthier and more profitable customers compensate companies, such as the VHI, which have older, sicker and loss-making customers, in advance of any sale.

If the Government can make risk equalisation stick -- its previous attempt was struck down by the Supreme Court in 2008 -- this is likely to mean significant premium hikes for customers of the other health insurance companies also.

Q: What will a sale of the VHI mean for the general public?

A: Unless the VHI, which currently has almost two-thirds of the health insurance market, is broken up, not a lot. All that will happen is that a public-sector quasi-monopoly will be replaced by a private-sector quasi-monopoly.

Or, as the French might say, plus ca change, the more things change the more they stay the same.

Q: What will a sale of the VHI mean for exchequer?

A: Anyone hoping for an Eircom-style bonanza for the exchequer is probably going to be disappointed.

The Government is going to have to put in the money upfront to boost the VHI's reserves in the hope of getting this money back when it is later sold.

In practice any profit for the Government from selling the VHI is likely to be modest.

Q: Who is likely to buy the VHI?

A: In the current climate, a razzle-dazzle, mass-market privatisation is extremely unlikely.

Instead the Government is probably going to seek a single buyer, probably a foreign-owned health insurance company, for the VHI.

Q: What will a sale of the VHI mean for its older customers?

A: Now that's the €64m question. At present the VHI has 94pc of health insurance customers aged over 80 and almost 90pc those aged over 70.

Without community rating, where everyone pays the same price for the same health insurance cover regardless of age or medical history, these customers would be paying three, four or even five times as much for cover as they are currently doing.

The Government is adamant that community rating will continue after the sale of the VHI.

Q: Is this a realistic prospect?

A: You tell me. To survive, community rating needs a risk equalisation system.

The Government delayed introducing risk equalisation for over a decade after first opening up the health insurance market to competition in 1994.

When it eventually did so, the system of risk equalisation it chose was struck down by the Supreme Court.

Can we have any confidence that, with this record, the Government will get it right this time?

I, for one, have my doubts. If I was an older VHI customer I would be afraid, very afraid.

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