This is according to confidential documents drawn up by BDO Simpson Xavier, which acted as the expert financial witness for the state in the course of Bupa’s High Court challenge on the legality of risk equalisation, which failed last week.
“There is no way I would comment on premium increases next September,” said Vincent Sheridan, the chief executive of the VHI. “Risk equalisation is not the major issue. There are an awful lot of drivers of cost.”
Under risk equalisation, Bupa must compensate VHI for the dominant state insurer’s older and “riskier” subscriber base.
With the 15% increases, VHI said its premium sales will grow by 42% if risk equalisation goes ahead and by 35% if it does not.
The BDO Simpson Xavier documents also show that VHI believes higher premiums will cause the overall private health insurance market to decrease by 3.3% by 2009, from 2.028m people next February to 1.952m in February 2009, even if risk equalisation is introduced.
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This is at odds with the Bupa position, which is that the market will grow by about 3% in the same period. The companies differ on the amount Bupa will have to pay VHI over the next three years. Bupa says it will have to stump up €161m, but VHI maintains it will receive €83m.
BDO Simpson Xavier also found that VHI will not meet the requirements for it to become a commercial semi-state by 2012, with or without risk equalisation.
In order to operate under similar conditions as other insurers, Mary Harney, the minister for health, told VHI last December to start working towards this deadline immediately. It must be able to put 40% of its premiums towards solvency reserves, as Bupa and Vivas do, but it will only have 33% by 2009 if it receives risk equalisation payments and 24% if it does not.
Bupa has stated it will pull out of the Irish market rather than make risk-equalisation payments and, having lost its case, is scheduled to meet the minister for health on Tuesday. It will be seeking changes to the regulatory structure of the health insurance market.
Bupa needs to move quickly as its parent company in the UK is anxious for a resolution, given that the company is putting aside more than €100,000 a day to meet its risk-equalisation liability.