Brussels, 13 May 2003
Green light for the introduction of a risk equalisation scheme in the Irish health insurance market
The Commission decided today not to raise objections to the introduction of a risk equalisation scheme in the Irish health insurance market. By introducing this scheme, the Irish authorities aim to prevent new entrants in the market from « cherry picking » good insurance risks. According to the Commission's investigation, the risk equalisation scheme is necessary for the stability of the health insurance system chosen by the Irish authorities. This choice implies a market relying on uniform tariffs for different insurance products. Furthermore, the scheme has been designed to ensure that the envisaged equalisation payments, to be administered by the Irish Health Insurance Authority, are limited to the minimum necessary to neutralise differences in health insurers' risk profiles. Therefore, the risk equalisation scheme is in line with the EU rules on State aid.
The Commission decided today not to raise objections to the introduction of a risk equalisation scheme in the Irish health insurance market. Risk equalisation aims to neutralise differences in health insurers' costs that arise due to variations in their risk profiles. In this respect, the public Health Insurance Authority will administer disbursements collected from insurers with healthier than average risk profiles in favour of those with less favourable risk profiles.
With their risk equalisation scheme, the Irish authorities aim to prevent new entrants in the market from « cherry picking » of good risks. The measure also aims to enhance competition with respect to administrative costs, profit margins and conditions of the insurance offered.
The Irish authorities notified the Commission of their intention to introduce the risk equalisation scheme because it involves a fund financed by compulsory contributions. A public authority, the Health Insurance Authority created by the 1994 Health Insurance Act, controls disbursements from the fund. As there is competition and trade in insurance coverage across Member States, a public fund disbursing funds to a selected group of insurance providers fell to be assessed under the EU State aid rules.
However, in today's decision the Commission concludes that the risk equalisation scheme is justified as it is necessary to underpin the principles enforced by the Irish authorities that concern the private medical insurance market. These principles are (1) community rating: the same charges paid by all adults for the same level of benefits. (2) open enrolment: health insurance companies must accept anyone under 65 who wishes to join, regardless of age, sex or health status; and (3) lifetime coverage: contracts can not be renounced by the insurer. These obligations aim to ensure a minimum level of private medical insurance to all persons living in Ireland, at affordable price and on similar quality conditions.
The Irish authorities aim to achieve this objective by a uniform tariff for all policyholders irrespective of their health status, their age or sex. As a result, the premiums are fixed at a higher rate than that younger people would have to pay in a risk rated private medical insurance market and premiums for older or sicker people are much more affordable. Solidarity among policyholders supposes a cross-subsidisation of the premiums paid by the older and sicker people through the premiums paid by the younger and healthier.
However this solidarity could not function if certain insurers were specialised in attracting the good risks. If risk selection arises, it would be expected that per capita claims costs would spiral for those insurers who are left with a higher proportion of less healthy individuals. This would lead to significant instability and erosion of public confidence and would undermine solidarity between policyholders.
The risk equalisation scheme aims to ensure that risks are shared across the market. It aims to create a level playing field in respect of the particular constraints of the Irish system (community rating, lifetime cover and open enrolment).
Health care issues come primarily under the responsibility of the Member States. This implies that national governments are in principle free to impose regulations with view to promote the public good. In the Irish authorities' view, the risk equalisation scheme is necessary for the stability of their health insurance model.