The Minister for Health, Dr. James Reilly T.D., has welcomed the recent agreement reached with the European Commission, which will resolve the Commission’s concerns that the Voluntary Health Insurance Board enjoys an unlimited State guarantee.
The Government has written to the EU Commission and responded positively to the proposals contained in the Commission’s letter of 25 July 2012, concerning the resolution of the case, which the Commission first raised with the State in 2006.
The case relates to a complaint made to the Commission that due to its legal structure the VHI enjoys an implicit guarantee, alleging that this provided the VHI with a commercial advantage over its competitors. While the State has consistently argued that such a guarantee does not exist, considerable efforts have been made to allay the Commission’s concerns, involving amendments to the VHI’s legislation in 2008 and culminating now in a set of proposals which have been agreed between the State and the Commission.
The proposals will involve the transfer of VHI’s businesses from the existing statutory body to a new corporate structure, which will include a number of subsidiaries incorporated under the Companies Acts. The effect of this change is that VHI’s business will be subject to the same statutory provisions which apply to all Irish companies, similar to its competitors. The transfer of VHI’s businesses will take place on a phased basis and will be completed by 31 December 2013 at the latest.
In addition, both the State and the VHI have exchanged written commitments which have been forwarded to the Commission, regarding the VHI’s financial affairs. These written commitments confirm that no guarantee, expressed or implied, exists or will be in place pending the incorporation of VHI’s businesses by 31 December 2013 at the latest.
VHI’s customers can be assured that this planned change in corporate status will not in any way affect the day to day operation of VHI’s business. Premiums will continue to be written and claims will continue to be paid in the normal way and the change should be seamless from the perspective of VHI’s customers.
Note for Editors
In early 2006, the EU Commission informed the State that it was investigating a complaint which alleged that VHI was in receipt of a State Aid in the form of an unlimited State guarantee.
At that time, the EU Commission took the preliminary view that due to the legal form of VHI as a statutory body, it was not subject to the bankruptcy or winding up provisions which would normally apply to a company registered under the Companies Acts, and therefore enjoyed an implicit State guarantee which could then be used to secure more favourable rates from banks or other creditors.
The State has consistently maintained its firmly held position that this is not the case and that the VHI enjoys no such guarantee. VHI receives no financing from the State and its governing legislation does not provide for the State to underwrite its debts, in the unlikely event that it was unable to pay them. VHI has very significant levels of capital reserves and holds no bank debt whatsoever.
However, in order to allay the Commission’s concerns, an explicit provision was included in the Voluntary Health Insurance (Amendment) Act 2008, to the effect that no State guarantee will be provided to enable the Voluntary Health Insurance Board or any of its subsidiaries to raise or borrow money. This legislation also provided for the business of the Board to be transferred to one or more subsidiaries incorporated under the Companies Acts, at the time of its authorisation by the Central Bank of Ireland. The Commission wanted further reassurance and the Department and the Commission have been engaged in discussions and negotiations in an effort to reach a mutually satisfactory conclusion, in particular in relation to a definitive deadline.
The agreement now reached with the Commission provides for the incorporation of VHI’s businesses as envisaged by the 2008 Act on or before 31 December 2013. This will be subject to final Government decisions in relation to authorisation of the VHI and a decision by the Central Bank of Ireland that it is willing to authorise the health insurance business. The Chairman of the VHI and the Minister for Health have also recently exchanged correspondence regarding the issue and have committed in that correspondence that no guarantee exists or can be relied on by the VHI, pending the incorporation of its business.
The Department has been working with the VHI and the European Commission for some time on the range of inter-related factors which must be addressed in the Irish private health insurance market.
Agreement on this issue has paved the way for the EU Commission to examine other State Aid matters, most notably the new risk equalisation scheme which must be put in place for 1 January 2013. The Minister intends to publish the Bill to give effect to the risk equalisation scheme for 2013 onwards, in the coming weeks.