The VHI has warned Tánaiste Mary Harney that it is at risk of going under as a result of her decision not to force its biggest competitor to subsidise it.
The State health insurer's chairman, Bernard Collins, wrote to Ms Harney this month saying her decision not to introduce risk equalization to the Republic's health insurance market has created an extremely serious situation for the VHI and its members.
Risk equalization would have meant that VHI's biggest competitor, Bupa, would have had to pay it an estimated €34 million next year to compensate it for the fact that the State operator's customers are older, more at risk and thus less profitable than Bupa's.
The VHI chairman's letter formally advises Ms Harney that as a result of her decision not to activate risk equalisation "the continued viability of this business is at serious and urgent risk".
According to a Health Insurance Authority (HIA) review of the market, VHI's older customer base cost it an extra €16 million in the second half of last year.
Its chief executive Vincent Sheridan has said that it is funding this cost from its reserves, and cannot continue to do so indefinitely.
The letter states that its auditors have also told it that it cannot continue to dig into its reserves, estimated at €300 million, indefinitely, and invites the Tánaiste to discuss the issue with them.
Risk equalization is intended to fund community-rated charges for health insurance. This means that everybody is charged the same amount for the same level of cover, no matter what their level of risk.
The HIA has told Ms Harney that in order to support a community-rated market, she will have to introduce risk equalization payments. In theory, it should apply to all three players: VHI, Bupa and new entrant Vivas.
However, as the State player has 80 per cent of the market and the biggest number of subscribers aged 49 and over, it is likely to be the only beneficiary of risk equalization payments for some time.
Also, as it can only apply to companies who are three years or more in the market, Vivas, which is only trading for nine months, will not have to make any payments for over two years.
Thus Bupa is the only company that can be forced to make payments under the scheme.
Ms Harney, who is Minister for Health and Children, decided against its introduction on the basis that the Government wants to change the VHI's status from a statutory body to a commercial State company. The Minister said last month that once this process is under way, she would consider introducing risk equalization.
Under the current system, the HIA produces six-monthly reviews of the market, which it then presents to the Minister.
She then has to decide whether or not to mandate the introduction of risk equalization.
She will have another opportunity to introduce risk equalization towards the end of the year.
