It is the term of the week, but what does it really mean? RTÉ.ie Business Editor Andrew Fanning and Business Correspondent David Murphy offer this special guide to risk equalisation.
RISK EQUALISATION AND COMMUNITY RATING
The key to understanding risk equalisation is the concept of community rating. This is designed to benefit consumers by ensuring that private health insurance does not cost more for those who need it most - in particular elderly and sick people.
In other words, the customers who are of higher risk do not necessarily have to pay more money for insurance.
Risk equalisation is designed to support community rating by compensating insurers with a higher proportion of older customers - such as the Vhi. It tries to prevent insurers from cherry-picking younger customers who are less likely to get sick.
In 2003, a new risk equalisation scheme came into effect. This gave a body called the Health Insurance Authority (HIA) the responsibility for deciding whether or not companies should make risk equalisation payments.
It receives financial details from the health insurance companies every six months, and then decides whether the differences between them are enough to trigger risk equalisation payments.
Its recommendation then goes to the Minister for Health, who has the final say. Mary Harney decided two years ago that BUPA Ireland would have to make risk equalisation payments to the Vhi. BUPA decided to pull out of the market after challenging the decision in the courts.
WHY IS IT IN THE NEWS?
The current rules governing risk equalisation offer new companies entering the health insurance market a three-year exemption from making payments under the scheme.
Quinn Group, which recently took over BUPA Ireland, believed that as a new entrant, it was entitled to a three-year exemption. The Government was worried that the third company in the market, VIVAS, would seek to link up with a new financial partner and could claim to be a new entrant to the market.
As a result, the Government rushed through emergency legislation scrapping the three-year exemption. That had the immediate effect of ensuring that the Quinn Group would not have a three-year holiday from paying risk equalisation.
It also means VIVAS will have to start paying the Vhi by the end of this year.
