State Aid: Commission approves new Irish Risk Equalisation Scheme

Brussels, 21-2-2013 — /europawire.eu/ — The European Commission has approved under EU State aid rules the state compensations to be granted through the new risk equalisation scheme (RES) for the provision of private medical insurance in Ireland for the period 2013 to 2015. The objective of the scheme is to promote intergenerational solidarity by ensuring better risk sharing between health insurers in the Irish PMI market. The Commission has found that the RES is in line with EU rules on services of general economic interest (SGEI).

Commission Vice-President in charge of competition policy Joaquín Almunia said: “The risk equalisation scheme, which aims to ensure solidarity between generations, is a pillar of Ireland’s health policy. The Commission’s decision, which is consistent with its previous decisions concerning the Irish system, finds that the aid to insurers is both justified and proportionate in light of the public service obligations they fulfil.”

The Commission assessed the RES under the EU Framework for State aid in the form of public service compensation adopted in 2012 as part of the new package of rules on services services of general economic interest (SGEI) – the so-called “Almunia” package (see IP/11/1571). In particular, the Commission is satisfied that the RES constitutes necessary and proportionate compensation to insurers for discharging their public service obligations. The RES replaces the temporary tax and levy scheme, which was put in place in 2009 and expired at the end of 2012.

Background

The RES concerns the private medical insurance (PMI) market, which is subject to special regulation in Ireland. Almost half of the population in Ireland has voluntary health insurance in the form of PMI cover, as a complement to the public health system.

PMI operates on the basis of a set of public service obligations:

• insurers are obliged to accept any applicant who wishes to conclude an insurance contract regardless of age or health status (open enrolment);
• they cannot terminate a policy contract against the will of the insured person (lifetime cover);
• they must apply the same premium for a given level of cover regardless of the risk (age, health status) presented by the insured (community rating);
• and policies must offer a minimum benefit level prescribed by law.

As a result of these obligations, insurers cannot risk-rate their policies. This can result in imbalances on the market if their risk profiles are different.

The purpose of the RES is to allow better risk sharing between insurers, by compensating insurers with a worse-than-average risk profile in their portfolio of insured persons. It is designed to partially compensate for the higher costs of insuring an older and less healthy person. The RES operates on the one hand by levying a charge on insurers based on the number of insured persons, and on the other hand by compensating insurers on behalf of each insured person falling into certain specific categories. As a consequence, the scheme decreases the incentive for insurers to avoid the “high risk” section of the population and cherry-pick the “low risk” section of the population. Ireland has put in place mechanisms to ensure that insurers do not receive any overcompensation.

In the current context of the Irish PMI market, due to its worse-than-average risk profile, the state owned insurer, i.e. the Voluntary Health Insurance Board (VHI) is expected to be a net beneficiary of the RES, while its competitors (i.e. Laya, Aviva, GloHealth) are expected to be net contributors. It is important to note that, on the other hand, net contributors, as a consequence of having a greater proportion of younger and healthier people, enjoy lower claims costs.

The RES replaces the previous schemes from 2003 and 2009. As in its previous decisions on the risk equalisation scheme of 2003 (see IP/03/677) and the interim tax and levy scheme of 2009 (see IP/09/961) the Commission recognised that due to its importance in the overall health system and, in particular, the special obligations it is subject to, the provision of PMI qualifies as a service of general economic interest (SGEI).

In line with the jurisprudence of the EU Courts, notably the Altmark judgment (case C-280/00), the Commission concluded that the RES constitutes State aid. The Commission also found that the RES satisfies the conditions laid down in the 2012 EU Framework on State aid in the form of public service compensation. It is therefore compatible with the internal market under Article 106(2) TFEU

The non-confidential version of the decision will be made available under the case number SA.34515 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.