THE CHIEF executive of the VHI, Ireland’s biggest health insurer, believes that a US-style Medicare entity should be set up by the State to deal with the medical insurance needs of over-65s, the most expensive segment in the market.
“VHI should become that Medicare organisation,” Jimmy Tolan told The Irish Times.
He suggested that the market should be broken into two parts.
This would involve competition in the 0-65 age group between VHI, Aviva, Quinn Healthcare and any other players who might choose to provide services.
This would be regulated and involve community rating where everyone pays the same fee regardless of their age.
However, a separate Medicare-style entity would be set up for the over-65s. This would be largely funded by the State. Under the US model, senior citizens pay a modest premium depending on the level of care they receive.
Mr Tolan suggested the VHI could be separated into two groups to deal with the separate markets.
At the publication of its annual results yesterday, Mr Tolan highlighted his concerns about the impact the ageing of the population would have on its future funding.
At present there are 510,000 over-65s. This is forecast to rise to one million by 2030. VHI insures the vast bulk of this age group, with rivals cherrypicking younger age groups where claims are typically less onerous.
VHI yesterday said it had to fund the healthcare needs of 129,000 customers over the age of 70 while its competitors have 13,000 on their books.
VHI said it faced losses of €100 million on its over-70 customer base, while its rivals would have losses of €8 million on this group.
He said the tax credits set by the Government were not sufficient for it to meet the costs of servicing the needs of over-65s.
VHI announced an after-tax deficit of €3.1 million for 2010, substantially down on the €41.7 million deficit recorded in the previous year.
Its premium income rose by 1.6 per cent to €1.33 billion, while the claims incurred fell by 1.4 per cent to €1.3 billion.
VHI also shaved €2 million off its administration costs, which came to €90.3 million.
This left the company with an underwriting deficit of €25.5 million, roughly one-third of the level recorded in 2009.
Investment income of €22.5 million helped to reduce its deficit for the year to €3.1 million.
“While the financial performance in 2010 was an improvement on 2009, we still incurred significant underwriting losses of €25 million, and we still have to improve our annual performance by €60 million in order to fund our customers’ healthcare needs and also to meet the requirements of the Central Bank and European Commission in due course.”
Mr Tolan said VHI had saved €100 million in consultants’ costs over the past two years.
Earlier this year, VHI pushed through price increases of up to 45 per cent on its policies to bolster its financial position.
Mr Tolan said the increases were necessary because of a 21 per cent increase in the cost of beds in public hospitals, and the fact that tax credits for over 65s were set too low. He said price increases of 7-8 per cent would have been implemented if these issues had been addressed by the last government.
When asked if similar price hikes might be sought in 2012, Mr Tolan said: “I don’t think we’re going to see that.”
He said he earned a basic salary of €297,000 last year.
His contract, signed in May 2008, also includes pension payments and performance-related bonuses.
“I am currently earning 60 per cent of the maximum number in the contract,” he said.
