The Sunday Times - Money Comment 19/04/09

Posted by Jill Kerby on April 19 2009 @ 21:57

Last December when the Health Insurance Levy Bill was introduced, the Department of Health, which owns the Vhi and for whose benefit this bill was created, expected that it would be passed and enacted by the deadline the Dail set for it: Easter weekend.  


Sadly for the Vhi, but thankfully for private health insurance members, the bill, which had to be sent to the EU for a ruling to ensure that it wasn’t just a state price subsidy or loss compensation scheme, didn’t get the rubber stamp the VHI and Department of Health wanted.  


Instead, it seems that the people in Brussels who monitor European competition laws don’t think that this levy – which the Vhi says was to prevent them from having to jack up the premiums they charge to older members despite the presence of community rated premiums for everyone – is at all straightforward.  


In it’s present form, €160 per adult member and €53 for child members to be paid by the insurers and virtually all the money going straight to the Vhi, the levy certainly looks like a subsidy to the government owned insurer.  Some health insurance analysts believe the delay in approving the bill at EU level is about the unfairness of this transfer.  The Vhi, they say, is not only the dominant player in the three player Irish market, but it still isn’t under the financial supervision of the Financial Regulator, (as Quinn Healthcare and Hibernian Vivas Health are) and it is still not setting aside the full 40% of its premiums into a reserve fund as it is required to do so after an earlier EU ruling.


The impact of the back-dating of this levy to January 1, 2009 – without the EU go-ahead – is bad enough in that it will result in the transfer of about €35-€40 million from Quinn and Hibernian to Vhi in a full year.  But the cash transfer didn’t stop the Vhi from also increasing its premium charge by a whopping 23% from January, but not for corporate clients who appear to be receiving subsidies from ordinary members now.  This premium hike is more than twice the estimated medical inflation; the consumer price index meanwhile is -2.6%. 


The consequences of this levy proceeding are already well known to the cabinet, the Health Insurance Authority and the Competition Authority:  membership is already falling due to unemployment, but the higher premiums could eventually cause up to a 20% further fall in membership. 


All the people forced to give up their private health insurance - perhaps as many as 400,000 – this levy could end up being a very expensive way to preserve the Vhi’s status quo, but at the expense of the public health service. 



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Last week’s enthusiastic reporting in the Irish media of President Obama’s declaration that the first signs of recovery were appearing in the United States just shows you how desperate we are for some good news here. 


I don’t buy it for a second.  US unemployment is still soaring at about 660,000 people a month; yes, house sales rose in January and February but the delinquency growth rate among prime and Alt-A (slightly less than prime) mortgages has more than doubled; commercial property debt is exploding and personal bankruptcies were up 38% in March compared with the same time last year.  

And on the same day that President Obama was at his most hopeful, the Department of Commerce announced that US wholesale prices fell 1.2% in March, bringing the producer price index (PPI) down 3.5% year over year -  its steepest 12-month decline since 1950. US retail sales figures also fell by 1.1% last month and are down 1.2% for the entire first quarter, prompting the New York Times to comment about the “fragility” of the President’s glimmers of hope. “If consumers had turned the corner in January and February, they apparently did not like what they saw and quickly reversed course in March,” the Times quoted Richard F. Moody, chief economist at Forward Capital.

I was, however, very glad to see that RTE’s business reporter Christopher McKevitt didn’t let the Wall Street cheerleader (and securities analyst) who was brought onto the News at One to put even more spin on the President’s uplifting remarks, to entirely lose the run of himself. 

“So, in other words, all the money the US government has printed to stimulate the economy has had an effect?” asked McKevitt after all the cheering.    

“Uh, yeah,” the analyst replied. 


There’s a big difference between cash printed out of thin air having a short term effect on expectations, and money earned by hard work, prudent saving and investing and careful allocation to real businesses and industries (created by real entrepreneurs and not political hacks) producing a genuine recovery. 


President Obama insisted last week that if the US consumer will not or cannot keep spending money they don’t have or don’t wish to risk, then the US government must do so on their behalf, with money it doesn’t have either but will borrow, print or confiscate.  (If our government could have done the same, rest assured, they would have.)


If anyone can really spell out for me how the world’s salvation lies with such a plan, or in our own case, the taking on of €80 billion worth of overpriced property and land, which looks like it might cripple my grandchildren with debt, do let me know.   


I’m as keen as the next person to see a light at the end of the tunnel, a glimmer of hope, a green shoot.  

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