Premiums May Rise in Wake of Vhi Solvency Requirements
By Jenkin | Published July 27, 2012
As the European financial situation becomes more uncertain with each day passing, Vhi Healthcare, Ireland’s largest health insurance company must raise €300 million (US $368.55 million) which could affect the premiums of over 2.2 million Vhi policyholders.
Vhi, short for Voluntary Health Insurance, is generally referred to as “The VHI” by residents of Ireland and is traded under the brand Vhi Healthcare. With headquarters in Dublin, Ireland, VHI is a state-controlled corporation which has been accused of being given preferential treatment above its primary competitors. It is regulated by the Health Insurance Authority which is the private health insurance regulatory board, monitoring activities in Ireland.
The issue at hand is that Vhi Heathcare is guaranteed by the State, meaning that it is not required to keep specific reserve amounts on hand in the event there is a spike in the number of claims. In addition to the guarantee, it cannot be declared bankrupt.
Competition experts and analysts say that preferential treatment towards Vhi needs to end in order to restore balance to the private healthcare market.
The preferred status for Vhi has allowed to it borrow funds at advantageous rates, in addition to the lack of need to keep a reserve balance. Lenders are happy to oblige to Vhi’s requests as the loans were essentially risk free due to the fact that the government would pick up the bill if Vhi defaults. However, the likelihood of Vhi defaulting and going bankrupt is almost impossible as it is a statutory body.
The European Commission has called for an end to the preferred status of the company, and has proposed that the government end the guarantee by the end of 2013. Vhi Healthcare was receptive to the proposal; however it made note that a risk-equalization plan will need to be implemented.
Initially, there had been plans to privatize Vhi Healthcare back in 2010. However, the new coalition government decided to retain Vhi when it entered office, making it a pillar of the universal health insurance system which is scheduled to be rolled out in 2016. Under this plan, all citizens will be required to purchase health insurance from an insurance provider, not exclusively Vhi, and the government would provide a subsidy of some sort for those who meet the low income criteria.
Currently, Vhi is required to raise €300 million (US $368.55 million) in capitalization and one of their options to do so include raising the premiums of its 2.2 million clients. This €300 million (US $368.55 million) is to increase the solvency ratio of Vhi, ensuring the insurance company has enough money on hand to cover any unexpected spike in claims. Should Vhi decide this is the best way for it to raise capital, clients of Vhi can expect to see their premiums to be raised by up to €135 (US $165.85) this year. Moving forward, Vhi will have to retain 40 cents to the euro in income to safeguard itself as per regulations.
Meanwhile, competitors welcomed and encouraged the move to abolish the guarantees and preferential treatment for Vhi. Specifically, Aviva stated that the clients of Vhi should not be negatively affected by the increase in premiums due to an external cause from the government. Aviva called on the government to provide more details as to how it plans to handle the solvency requirements of Aviva.
In related news, the government of Ireland has recently hired a new CEO for Vhi. The coalition government, however, breached the salary limitations which are imposed on maximum salary limits for new CEO’s of Vhi. Vhi’s new chief is John O’Dwyer, and his annual income will be €238,727 (US $293,276.12); this represents almost €50,000 (US $61,425) more than the limit.
Despite the limits in place, Minister Brendan Howlin stated the need for exceptions in specific cases, especially in the case of Vhi due to some of the substantial changes that are about to take place.
This comes at a time full of volatility for the European financial industry. With Euro prices falling and shrinking, or failing, economies, Vhi’s deregulation will need to be handled with care. If safeguards are not in place, many individuals who hold policies may no longer be able to afford their current plans. If they choose to move away from their current plans, they may not receive adequate coverage as competitors may not want to offer the same plan for the same price, which could cause greater uncertainty into the lead up to the introduction of the universal health insurance system.
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