Supreme Court quashes Minister's risk equalisation scheme for erroneous interpretation of community rating provisions.

Subject to Approval

THE SUPREME COURT

Murray C.J. Record No: 2007/17

Denham J.

Hardiman J.

Geoghegan J.

Fennelly J.

Between

BUPA IRELAND LIMTED AND BUPA INSURANCE LIMITED

APPLICANTS / APPELLANTS

AND

THE HEALTH INSURANCE AUTHORITY, MINISTER FOR HEALTH AND CHILDREN, IRELAND AND THE

ATTORNEY GENERAL

RESPONDENTS

AND

THE VOLUNTARY health INSURANCE BOARD

NOTICE PARTY

JUDGMENT of Murray C.J. delivered on the 16th day of July 2008

The Health Insurance Act 1994 was adopted with a view to opening the market for private medical insurance in Ireland to

competition.

The issues in this appeal concern a challenge by the appellant to the validity of s. 12 of the Health Insurance Act 1994, as

amended, and in particular to the validity of a scheme known as a risk equalisation scheme brought into effect by the second

named respondent, the Minister, in 2003 pursuant to s. 12.

The Act of 1994 Act ended the State monopoly on the provision of health insurance on foot of contractual arrangements

with individuals or groups of individuals. Since its establishment in 1957 this had effectively been the sole prerogative of the

Voluntary Health Insurance Board, hereafter the ‘VHI’. The VHI was established as a body corporate by virtue of the

provisions of the Voluntary Health Insurance Act 1957 and was charged with making and carrying out schemes of voluntary

health insurance for defraying the cost to persons paying subscriptions to the Board of prescribed medical, surgical, hospital

and other health services availed of by them or their dependants.

In opening the market in health insurance to competition the Act of 1994 also sought to fulfil the purposes of Directive

1992/49/EC known as the Third Non-Life Directive (TNLD).

With the ending of the effective monopoly enjoyed by VHI in the private health insurance market and the entry of other

operators which would provide health insurance in that market the Oireachtas considered it necessary, in the interests of the

common good, to regulate the market and the conditions under which all undertakings operated, including the VHI.

This was done by means of enacting the Act of 1994 which was subsequently amended by the Health Insurance

(Amendment) Act 2001 and the Health Insurance (Amendment) Act 2003 although nothing turns on the provisions of the

latter. The Act of 1994 is the Principal Act and the three Acts are required to be construed together as one Act.

The long title to the Act of 1994, as enacted and unchanged, states:

“An Act to regulate further, in the interests of the common good, the provision of voluntary health insurance

so as to provide, inter alia, for the establishment of the health insurance authority, for the establishment of

schemes for the equalisation of risks between health benefits undertakings, for a minimum range of cover on

such insurance, for uniformity of the premiums charged by each particular such undertaking in respect of

specified ranges of such cover and for the establishment of a register of such undertakings and to provide for

related matters.”

The Parties

The first named appellant is a limited liability company incorporated in this country where it is a registered insurance

intermediary authorised to sell the products of the second named appellant. The second named appellant is a company

incorporated in the United Kingdom for the sale of products in the private medical insurance market. As indicated, it

operates in this country through the first named appellant. For the purposes of this judgment both appellants are referred to

as BUPA.

The first named respondent is a statutory body established under Part IV of the Health Insurance Act 1994, as amended,

and has the responsibility of carrying out certain functions assigned to it under the provisions of that Act. Although this

respondent had exercised certain statutory functions it was agreed by all parties that the outcome of these proceedings would

not adversely affect the interests of this respondent in a manner distinct from the other respondents. In the circumstances

the Health Insurance Authority was not represented in the proceedings and took no active part in them.

The second named respondent is the Minister responsible, inter alia, for exercising certain statutory powers pursuant to the

Act of 1994, as amended, and pursuant to the provisions of S.I. No. 261 of 2003 adopted for the purpose of giving effect to

the Act. An initial risk equalisation scheme was promulgated by the Minister in 1996 pursuant to the Act of 1994. That

scheme was never operated and was revoked in 1998. Subsequently, again pursuant to s. 12 of the Act of 1994, a risk

equalisation scheme was promulgated in 2003. This scheme consists of that promulgated by S.I. No. 261 of 2003 and as

amended by S.I. No. 710 of 2003. In April 2005 the Health Insurance Authority recommended that the 2003 scheme be

implemented by the Minister from 1st July 2005. It has not been put into operation pending the outcome of these

proceedings. The risk equalisation scheme affects the manner in which the appellants, the VHI and other undertakings

should conduct their private medical insurance business and the nature of such a scheme is referred to in more detail later in

this judgment. The subject matter of these proceedings is the validity of this Scheme and the statutory provisions of the

Health Insurance Act 1994, as amended, pursuant to which such Scheme was introduced.

The fourth and fifth respondents are parties by virtue of their interest, inter alia, in the issues concerning the validity of

certain impugned statutory provisions having regard to the provisions of the Constitution and Community Law.

The notice party, the VHI, was joined as a notice party to these proceedings by reason of the business which the party

conducts in the private health insurance market and its exceptional interest and standing in that market.

The Reliefs Sought:

The appellants in these proceedings have sought the following reliefs:-

(a)A declaration that the risk equalisation scheme introduced by the Minister in 2003 was ultra vires the powers

of the Minister under the Health Insurance Act 1994, as amended, and therefore invalid.

(b) A declaration that s.12 of the 1994 Act, as amended, is invalid having regard to the Constitution of Ireland

and in particular Articles 15, 21, 40.3 and 43 thereof.

(c) A declaration that the promulgation of the 2003 scheme is unconstitutional and represents a non-constitutional

delegation of legislative function.

(d) A declaration that s.12 of the 1994 Act, as amended, is invalid and/or the introduction of the 2003 scheme

represents a breach by the third named respondent of the provisions of Directive 92/49/EEC.

(e) A declaration that the enactment of s.12 of the 1994 Act (as amended) and/or the introduction by the second

named respondent of the 2003 scheme infringes the applicants rights to freedom of establishment and the

freedom to provide services under Articles 43 and 49 of the EC Treaty.

(f) A declaration that the enactment of s.12 of the 1994 Act (as amended) and/or the introduction by the second

named respondent of the 2003 scheme are not authorised by Directive 92/49/EEC.

(g) A declaration that the enactment of s.12 of the 1994 Act (as amended) and/or the introduction by the second

named respondent of the 2003 scheme was not a requirement imposed on respective insurance contracts as

provided for in Article 54 of Directive 92/49/EEC.

(h) A declaration that private health insurance schemes in the State do not operate as or constitute a partial or

complete alternative to health cover provided by ‘a statutory social security system’ within the meaning of Article

54 of Directive 92/49/EEC.

(i) A declaration that the existence of the 2003 scheme and/or any determination on the part of the first named

respondent pursuant to the 2003 scheme would constitute a breach of Article 10 and Article 82 of the EC Treaty

or a breach of Article 86 of the EC Treaty.

(j) An injunction, and if necessary, an interlocutory injunction, restraining the second named respondent from

purporting to impose upon private health insurers in the State, and in particular the applicants, any obligation to

contribute sums of money to other health insurers and in particular to the VHI, whether pursuant to the 2003

scheme or otherwise.

(k) Damages for breach of statutory duty and for breach of the applicants’ rights under the EU law, and in

particular Articles 43 and 49 thereof.”

As is explained later in this judgment the first and most critical issue in these proceedings is that concerning the validity of

the 2003 risk equalisation scheme and that issue turns on the meaning of “community rating” as used in s. 12 of the Act of

1994.

General Background

The provision of medical health care services in Ireland is based on a mix of private and public funding, as the learned trial

judge pointed out. Medical care and services available and so funded under the State system have evolved significantly over

the last four or five decades both in terms of the range of care and services made available and the eligibility of persons to

avail of such services free or, in particular instances, subject to specified or limited charges. In the 1950s a significant

distinction was made between those who were holders of medical cards and those who did not. Generally speaking persons

on low incomes were so entitled whereas those on higher incomes were not. A distinction remains today between those who

are entitled to medical cards and those who are not eligible. Medical card holders are entitled to the full range of services

offered by the State free of charge. Those who cannot avail of a medical card may nevertheless be entitled to some free and

some subsidised services from the State, subject to certain statutory charges the maximum amount of which in any one year

is limited.

A review of the nature and ambit of the public medical services available free or subject to limited charges is not relevant for

present purposes other than to note that the system exists and that side by side with that system there has always existed a

need and a demand for private medical care and services in parallel with those provided by the State through public funds.

A seminal event in the development of the market in private medical insurance was the enactment of the Voluntary Health

Insurance Act 1957. That Act established the VHI, the notice party in these proceedings, with the statutory functions which

are referred to above. Again as the learned trial judge pointed out, the principal reason for the establishment of the VHI with

responsibility of making schemes of voluntary health insurance available to the public was to make available insurance

cover, particularly in respect of hospital costs, to about 15% of the public who at the time were not eligible for public

hospital services. The numbers taking out such cover from the VHI increased substantially over the years. By the late 1960s

the number was over 300,000 with that figure being doubled over the following decade. A similar increase had incurred by

the end of the 1980s. As of 1994 it had reached 1.5m. and by October 2005 it was over 1.9m. As the learned trial Judge

found about 50% of the population now have private health insurance, either with VHI, BUPA or VIVAS (another

undertaking which provides such services).

There were and are a number of restricted members’ undertakings which provided health insurance within certain select

groups such as the ESB and the Garda Siochana. Their operation was licensed by the Minister exercising her statutory

powers but no competitor to VHI was ever licensed. This type of insurance provider is referred to in the Act of 1994 as a

“restricted membership undertaking” and their position or status is not relevant to the issues in these proceedings.

The learned trial judge made certain findings as to the manner and context in which it operated during the period when it

enjoyed an effective statutory monopoly on the provision of private health insurance. This included a finding that “…a

feature of all the major schemes placed on the market by the VHI was that these operated on the basis of applying what

are now referred to as Community Rating, Open Enrolment and Lifetime Cover.” These are important features of

insurance schemes in the private medical insurance sector which will be referred to later, including that they were de facto

rather than defined features of the VHI operation, but the learned trial Judge went on to explain:

“Community Rating must be contrasted with Risk Rating. In very many types of insurances, the premium

charged (or indeed even the offer of cover) is related to the likelihood of risk occurring and the estimated cost

of resulting claim(s). This creates a problem for health insurance. It is an accepted fact that in general older

people are more likely to get ill than younger people. Consequently the older a person gets, certainly over 50

years and onwards, the greater the risk and the greater the frequency of claims (though other factors may also

influence this). Therefore an insurer could entirely refuse cover to a 70 year old or else demand a level of

premium which would make its purchase unaffordable. To operate on this basis would be to risk rate policies.

An alternative to this approach, is to community rate which prohibits any discrimination on the basis of age,

gender or health status, and in principle where premiums for the same level of cover reflect the average cost of

insuring all of the insured population. Disregarding for a moment the correct interpretation of community

rating under the 1994 Act, and despite some lack of clarity in how precisely the process was conducted, I am

satisfied that traditionally the VHI has always community rated their policies across the entire pool of their

insured persons. As prior to competition it was the only provider this meant that its insured persons were

Ireland’s insured persons. And so that was the system operating in this country in the lead up to the 1994

Act.”

As the learned trial judge notes there is a lack of clarity as to how precisely the process of community rating was operated

by the VHI. There was evidence before the High Court to the effect that since the customers of the VHI represented

effectively the entire market for private health insurance the VHI operated a de facto system of community rating without

having to apply a precise or scientific process in doing so.

The importance of having a statutory definition of community rating arose for the first time with the enactment of the Act of

1994 in order that undertakings providing medical insurance to the market could operate by reference to the same criteria.

An important feature of community rating is that it provides a form of intergenerational solidarity in a private health

insurance system. Younger people pay a higher premium than their health risk profile would otherwise require and older

people, with a high risk profile, pay less. This community rating has an important social objective which is in the interests of

the common good. The younger insured in turn benefit from community rating when, with the passage of time, they become

older insured persons. Although the terms intergenerational solidarity does not appear in the Act, it cannot be gainsaid that

some form of community rating is a critical element of the private health insurance market and therefore in the operation of

a risk equalisation scheme.

The two forms of community rating in issue in this case – community rating within the plan or contract across the market

and community rating across all insured in the market achieve intergenerational solidarity although to a different degree and

effect, particularly in the context of a risk equalisation scheme.

Essential buttresses to a community rated system, and referred to by the learned trial judge, are the notions of Open

Enrolment and Lifetime Cover. In general terms Open Enrolment means that the health insurance provider cannot refuse to

effect a health insurance contract for any person. There may be certain qualifications or limitations to this obligation and the

existing qualifications or limitations are referred to below when reference is made to the statutory provisions concerning

Open Enrolment.

Lifetime Cover means that a health insurance provider cannot terminate or refuse to renew health insurance contracts and

while the provider retains the freedom to alter the terms and conditions of a particular plan or contract it cannot refuse a

renewal of the current plan to any customer. There are obvious exceptions to this such as where there has been a material

misrepresentation by the insured or where the insurer ceases business.

As long as the VHI had its monopoly its clients comprised virtually the entire private health insured community in Ireland

(other than those insured with “a restricted membership undertaking”, which I have indicated are not relevant for the

purposes of this appeal) and it applied some form of de facto community rating as well as open enrolment and lifetime

cover.

I should point out at this stage that the function of the VHI was not to make a profit but to fix their subscriptions or

premiums so that taking one year with another the revenue of the VHI should be sufficient, but only sufficient to meet the

charges properly chargeable to its revenue. (See s. 4(4) of the Voluntary Health Insurance Act 1957). The features just

referred to, and in particular the so-called de facto form of community rating operated by the VHI, was a matter of internal

management and operation to meet policy objectives on the one hand and their revenue obligations on the other, taking one

year with another. There is a lack of clarity, as the learned trial judge pointed out, as to how the form of community rating

in the various plans of the VHI or generally operated in practice. While the learned trial judge at one point appeared to form

the view that the de facto form of community rating operated by the VHI was community rating across the full market of all

insured, rather than community rating within the plan, a distinction which is discussed below, BUPA strongly contests any

such conclusion and I do not think that the evidence before the High Court was sufficient to permit a firm conclusion to that

effect. I do not think it necessary to expound further on that point since, in any event and I feel I should state at this stage,

that the adoption by the VHI of some form of de facto community rating during the period when it enjoyed its monopoly is

of historical importance only even though it is an example of a self evident need for some form of community rating rather

than risk rating for this kind of insurance. When the VHI monopoly was abolished and the private health insurance market

opened to competition by the 1994 Act the market had to be looked at by all concerned, including the legislators, and

regulated in a wholly different way. Therefore, other than a contextual background, I do not think that community rating,

whatever its form within the VHI, is relevant in any significant way to determining the meaning of community rating within

the terms of the Act of 1994. As I have already mentioned it was with the introduction of the Act of 1994 that the need

arose to define and/or provide specifically for such matters as community rating, lifetime cover and open enrolment.

Statutory Definitions:

When the Oireachtas legislated in 1994 so as to provide for a competitive market in private health insurance community

rating, open enrolment and lifetime cover were seen as essential pillars of any such system and statutory provision has been

made for them in the Health Insurance Act 1994 as amended by the Health Insurance (Amendment) Act 2001.

I have referred above to the long title of the 1994 Act which sets out, in broad terms, the purposes of the Act and to its

fundamental purpose, although not expressly referred to in the long title, to end the monopoly of the VHI and thus open the

private health insurance market to competition through the provision of private health insurance by multiple private

undertakings.

Section 2 of the Act is the definition section, for the Act as a whole, the most relevant definitions being the following:

· “the Authority” means the Health Insurance Authority established by s. 20;

· “community rating” shall be construed in accordance with s. 7(1)(c); (emphasis added)

· “health benefits undertaking” means a person (including a body established under the laws of a place outside the State)

carrying on health insurance business;

· “health insurance contract” means, without prejudice to s. 2A, a contract of insurance, or any other insurance

arrangement, the sole or principal purpose of which is to provide for the making of payments by undertakings, whether or

not in conjunction with other payments, specifically for the reimbursement or discharge in whole or in part of fees or

charges in respect of the provision of hospital in-patient services or ancillary health services, but does not include - … “ and

goes on to describe certain contracts which are excluded.

· “health services” means medical, surgical, diagnostic, nursing, dental, chiropody, chiropractic, eye therapy, occupational

therapy, physiotherapy or speech therapy services or treatment or services or treatment provided in connection therewith, or

similar services or treatment:

· “ancillary health services” means out-patient services, general medical practitioner services and inter alia services

consisting of the supply of drugs or medical preparations;

· “restricted membership undertaking” means an undertaking which effects health insurance contracts with its members and

the membership of which is restricted to persons and their dependents of a common vocational, occupational or other group

or class;

· “risk equalisation” means the sharing of prescribed costs of registered undertakings between the undertakings (being costs

incurred in respect of payments under health insurance contracts to or in relation to the persons with whom the contracts

have been effected) by means of payments made by or to such undertakings in accordance with the terms and conditions of

a scheme; (emphasis added).

· “scheme” means a scheme of risk equalisation under s. 12.

Some minor amendments were made to this section by the Health Insurance (Amendment) Act 2001 none of which are

material for the purposes of this appeal. In particular the definition of “Community Rating” or “Risk Equalisation” were not

materially amended by the 2001 Act.

Section 3 of the Act of 1994 provides for the powers of the Minister to make regulations in respect of any matter referred to

in the Act as “prescribed or to be prescribed” or to do so generally for the purposes of giving effect to the Act.

Community Rating

Section 7(1) of the Act of 1994, was inserted by s. 5 of the Act of 2001 but it was a re-enactment of the already existing

section with no amendments of consequence to the issues in this case, and provides:

“(a) Subject to subsection (4) and section 7A, the premium payable under any health insurance contract effected

by a particular registered undertaking shall be the same as that payable under every other such contract (after due

allowance has been made in respect of the payment of any premium by instalments) that-

(i) is effected by that undertaking,

(ii) is in respect of the same period as that to which the first-mentioned contract relates,

(iii) relates to the same health services as those to which the first-mentioned contract relates, and

(iv) provides for the same payments by the undertaking in respect of those services as those provided for by the

first-mentioned contract

(b) A registered undertaking shall not effect a health insurance contract that contravenes paragraph (a).

(c) A health insurance contract that complies with paragraph (a) (or which would comply with that paragraph but

for its falling within subsection (4) or s. 7A) shall be known as a community rated health insurance contract and

‘community rating’ shall be construed accordingly.” (emphasis added)

As the learned High Court judge pointed out the requirements of the section are subject to a variety of exceptions and

qualifications but none of these are directly relevant to the issues between the parties.

Section 7(2) provides as follows:-

“(2) Without prejudice to the generality of subsection (1), premiums payable

under health insurance contracts shall not be varied by reference to –

(a) the age, sex, or sexual orientation or the suffering or prospective suffering of a person from a chronic disease,

illness or other medical condition or from a disease, illness or medical condition of a particular kind;

(b) the frequency of the provision of health services to a person, or

(c) the amounts of payments or the number of different payments to which a person becomes entitled under such

a contract.”

The definition of community rating by reference to s. 7(1)(c) is the first and most important point of cleavage between the

approach adopted by BUPA on the one hand and the respondents and notice party on the other.

Open Enrolment

The learned trial Judge helpfully and very succinctly summarised the statutory provisions in relation to open enrolment (s.8)

and in relation to lifetime cover (s.9). I adopt those summaries for the purposes of this judgment.

“(a) Read in conjunction with the appropriate statutory instruments, namely the Health Insurance Act, 1994

(Open Enrolment) Regulations, 1996 (S.I. 81/1996) and also the Health Insurance (Open Enrolment) Regulations

2005 S.I. 332/2005, a health insurance provider, other than “a restricted membership undertaking” cannot refuse

to effect a health insurance contract for any person under the age of 65 or for a person over that age whose

previous health insurance contract expired less than 13 weeks prior to the date of the application.

(b) Accordingly such a person has a right to go and purchase from a provider any health insurance contract on

offer from that provider.

(c) In the case of certain persons however, and in respect of certain illnesses, there are minimum waiting periods

prior to being eligible for benefits. For these under age 55 that period is 26 weeks save in respect of maternity

benefits where a period of one year is specified. For those over age 55 the period is also one year. Moreover for

“pre-existing illnesses” there are waiting periods of five years, seven years and ten years for persons aged under

55, between 55 and 60 and between 60 and 65, respectively.”

Lifetime Cover

“Under s. 9 of the 1994 Act, which again must be read in conjunction with the appropriate statutory instrument, namely the

Health Insurance Act, 1994 (Lifetime Cover) Regulations, 1996 (S.I. 82/1996), a health insurance provider cannot terminate

or refuse to renew health insurance contracts (save with a customer’s consent) other than in circumstances where there has

been a misrepresentation which has or could have lead to that insurer suffering financial loss or where that insurer has

ceased business in the State. A mere change in terms of a policy at renewal date is not to be regarded, on that account only,

as a refusal to renew. In other words, the provider retains the freedom to alter the terms and conditions of a particular plan

but cannot refuse a renewal of the current plan to any customer.”

Minimum Benefits

As an adjunct to the aforementioned three pillars of the system statutory regulations made pursuant to s. 10 of the Act of

1994 provide for certain minimum benefits which must be offered by health insurance providers. Nothing turns on this

requirement in this appeal.

Risk Equalisation Generally

Concomitant with the foregoing elements of a private health insurance regime the Oireachtas considered it necessary that the

Minister should have the power, where certain statutory requirements have been fulfilled, including the appropriate decisions

and recommendations of the Health Insurance Authority, to introduce a risk equalisation scheme to provide for the sharing

of prescribed costs of undertakings providing private health insurance by means of payments made by or to such

undertakings. Section 2 of the Act states that “Risk Equalisation means the sharing of prescribed costs of registered

undertakings between the undertakings (being costs incurred in respect of payments under health insurance contracts to

or in relation to the person with whom the contracts have been effected) by means of payments made by or to such

undertakings in accordance with the terms and conditions of the scheme;”, and “scheme” means a scheme of risk

equalisation under s. 12. Section 12 is recited below and its general import is summarised.

In more general terms the learned trial judge summarised the risk equalisation scheme (RES) stating “Risk Equalisation is a

process which aims to “equitably neutralise differences in insurer’s costs” (H.I.A. Guide to RES – July 03) which result

from variations in the health status of its members. It seeks to spread the claims costs of high risk members amongst all

insurers in proportion to their market share. The complex and detailed calculations, which are formatted in the scheme,

seek to calculate what the claims costs of each insurer would be on the basis that such insurer had the average market

risk profile instead of its own actual risk profile. On making this calculation equalisation is sought to be achieved by the

insurer with the lower risk profile making money transfers, via the HIA, to the insurer who carries a higher risk profile.

In this way it is said that claims costs are distributed across the entire market of health insurance providers.

The State respondents argued that a system of “Risk Equalisation” is a fundamental prerequisite for the effective operation

of Community Rating in that it guarantees that all insurers and the members of their Schemes share proportionately the costs

inherent in Community Rating. The State points out that the risk equalisation scheme is the mechanism to preserve market

stability which is only activated if an imbalance in insurers risk profiles materialises beyond the bounds of acceptability,

determined by reference to objective and transparent criteria.

The risk of destabilisation of the private health insurance market stems, inter alia, from the fact that new entrants to the

market tend to attract their clients primarily from the younger generation and in particular those who are taking out health

insurance for the first time. They will then have a more favourable risk profile. By way of example, Counsel for the State,

referred to an analysis conducted by the Health Insurance Authority which showed that the VHI had, as a proportion of

membership, 20 times the number of customers over 80 years of age of BUPA. Since a new or relatively new entrant to the

market has a more favourable risk profile such an undertaking can provide the same insurance services at a lower premium

than that of an established undertaking with a higher risk profile, and still make a profit. The former undertaking is then in a

position to maintain premiums just below those of the latter undertaking. This is called shadow pricing. Again the State

pointed out that with such a practice the gap in premiums is not sufficient to provide a significant incentive for older

established customers of the undertaking with the high risk profile to leave but at the same time will be more attractive to

persons taking out health insurance for the first time and thus enable the new entrant to maintain its favourable risk profile

as against the established undertaking.

Equally, the State pointed out, the risk of market destabilization in the absence of a risk equalisation scheme would stem

from the ability of entrants to the market to engage in risk selection that is to say fashioning their health insurance products

to attract, as subscribers, persons from those segments of the market with a low risk profile.

The risk equalisation scheme in issue in this case was drawn up on the basis that community rating in s. 12(10) means

community rating across the market of all insured and not that referred to in s. 2 of the Act.

Risk Equalisation – Statutory Provisions

The statutory provisions of the Act of 1994 as amended which make provision for a risk equalisation scheme are relatively

extensive and not without their complexity but it is necessary to recite the relevant provisions in full (although it will not be

necessary to engage in a detailed analysis and evaluation of the application of the risk equalisation scheme in the light of the

conclusion I have reached on the first and most important issue between the parties). I do however later refer to its general

impact, especially on new entrants to the market.

“Section 12 of the 1994 Act (as inserted by section 9 of the Health Insurance (Amendment) Act, 2001, and as amended by

section 5 of the Health Insurance (Amendment) Act, 2003), states:

“(1) The Minister may prescribe a scheme or schemes of risk equalisation (which or each of which shall be known as a risk

equalisation scheme and is referred to in this Act as ‘a scheme’).

(2) (a) Subject to paragraphs (b) and (c), a scheme shall apply to each registered undertaking and each such undertaking

shall comply with the terms and conditions of the scheme.

(b) A scheme may include a provision specifying that the scheme shall not, at any time on and from the service on the

Minister of the notice hereafter referred to, apply to a restricted membership undertaking which-

(i) was carrying on business in the State before the commencement of section 9 of the Health Insurance (Amendment) Act,

2001, and

(ii) was, on 1st May 2000, a registered undertaking, if, before a date specified for the purposes of this subsection by the

Minister, the undertaking serves a notice on the Minister stating that it does not wish any scheme to apply to it.

(c) A scheme may include a provision specifying that the scheme shall not apply to so much of the activities of a registered

undertaking as consist of effecting health insurance contracts that solely provide for the making of payments for the

reimbursement or discharge in whole or in part of fees or charges in respect of the provision of relevant health services.

(3) (a) A scheme shall include a provision requiring each registered undertaking to make returns (each of which is referred to

in this Act as a ‘return’) to the Authority in relation to such matters concerning its health insurance business as may be

prescribed.

(b) The provision referred to in paragraph (a) shall require a return to be made-

(i) in the case of the first return, in respect of such period as may be prescribed,

(ii) in the case of the second or any subsequent return, in respect of each period of:-

(I) 3 months, or

(II) such greater duration as may be prescribed,

and to be so made not later than such number of days after the end of the period to which it relates as may be prescribed.

(4)(a) A scheme shall include a provision requiring-

(i) the making of payments by registered undertakings to the Authority of such amounts as may be determined by the

Authority in such manner and by reference to such matters as may be specified in the scheme (including the nature and

distribution of insured risks amongst the undertakings),

(ii) the making of payments by the Authority of such amounts as may be determined by the Authority to such registered

undertakings as may be so determined in such manner and by reference to such matters as may be specified in the scheme

(including the nature and distribution of insured risks amongst the undertakings).

(b) the provision referred to in paragraph (a) shall provide that the requirements of the provision shall not have effect until

such day as the Minister determines and appoints for that purpose in accordance with the provision of the scheme referred

to in paragraph (c).

(c) A scheme shall include a provision –

(i) requiring the Authority to –

(I) evaluate and analyse each return made to it (and such an evaluation and analysis shall be made by reference to the

matters that are specified in the scheme for the purposes of the provision referred to in paragraph (a)),

(II) prepare and furnish to the Minister, at such intervals as may be prescribed, a report in relation to-

(A) such an evaluation and analysis in so far as it relates to returns made to it in a prescribed period, and

(B) matters concerning the carrying on of health insurance business and developments in relation to health insurance

generally that the Authority considers ought to be included in the report as a result of that evaluation and analysis,

(III) include in that report a recommendation by the Authority that the Minister ought or ought not (as it considers

appropriate having regard to the best overall interests of health insurance consumers) to exercise the power hereafter

mentioned in this subsection, but no such recommendation shall be so included-

(A) unless it appears to the Authority from such an evaluation and analysis that conditions specified in the scheme related to

the nature and distribution of insured risks among the registered undertakings are fulfilled, or

(B) if the Minister has already exercised that power,

(ii) providing that the Minister shall consider any such report made to him or her under the provision and-

(I) if the report includes a recommendation by the Authority that the Minister ought to exercise the power referred to in this

subparagraph, may, or

(II) if it appears to the Minister that conditions specified in the scheme related to the nature and distribution of insured risks

amongst the registered undertakings are fulfilled, shall (unless it appears to the Minister, having consulted with the Authority

in relation to the best overall interests of health insurance consumers, that there are good reasons for not doing so),

determine that the requirements of the provision referred to in paragraph (a) shall have effect on and from a specified day

and appoint a day for that purpose accordingly,

(5) The provision of a scheme referred to in subsection (4)(c) shall require the Authority, if it appears to the Authority that a

recommendation of the kind referred to in that provision is required to be included in a report under that provision, to-

(a) give notice to each registered undertaking (other than a restricted membership undertaking that has served a notice under

subsection (2)(b)) of the fact that it proposes to include such a recommendation in the report, the nature of that proposed

recommendation and the reasons therefor,

(b) invite, by means of that notice, the undertaking to make, within 21 days from the date of the service of the notice on the

undertaking, representations to the Authority in relation to the nature of the recommendation that, in the undertakings

opinion, ought to be included in the report, and

(c) take into account any such representations made to it within that period before finally deciding what the nature of the

said recommendation ought to be.

(6) The provision of a scheme referred to in subsection (4)(c) shall require the Minister, if he or she proposes to make a

determination of the kind referred to in subparagraph (ii) of that subsection, to-

(a) give notice to each registered undertaking (other than a restricted membership undertaking that has served a notice under

subsection (2)(b)) of the fact that he or she proposes to make such a determination (and the day proposed to be appointed

under that provision accordingly) and the reasons for that proposed determination,

(b) invite, by means of that notice, the undertaking to make, within 21 days from the date of the service of the notice on the

undertaking, representations to the Minister as to why, in the undertaking s opinion, the said determination ought not to be

made, and

(c) shall take into account any such representations made to him or her within that period before finally deciding whether to

make the said determination.

(7) A scheme may provide-

(a) that a registered undertaking which has made a return shall, on request being made of it to do so by the Authority,

furnish to the Authority such information or documents in its possession or capable of being procured by it and forming the

basis of that return as is or are specified in the request and that the undertaking shall comply with such a request not later

than 7 days from the date the request is made,

(b) that a report referred to in subsection (4)(c)(i)(II) shall be in such form, and contain such particulars in relation to the

evaluation and analysis concerned, as the Minister determines.

(8) A scheme may provide that a registered undertaking which has made representations under the provision of the scheme

referred to in subparagraph (i) or (ii) of subsection (4)(c) to the Authority or, as the case may be, the Minister shall, on

request being made of it to do so by the Authority or the Minister, as appropriate, furnish to the Authority or the Minister

such information or documents in its possession or capable of being procured by it and forming the basis of those

representations as is or are specified in the request and that the undertaking shall comply with such a request not later than 7

days from the date the request is made.

(9) A scheme may provide-

(a) for the establishment and maintenance by the Authority of a fund into which all moneys paid to the Authority under the

scheme shall be paid and out of which all moneys paid by the Authority under the scheme shall be paid, and

(b) for the keeping by the Authority of specified accounts in relation to the scheme and the furnishing of copies of those

accounts, as audited by the Comptroller and Auditor General, and copies of the reports of the Comptroller and Auditor

General thereon to the Minister at specified times.

(10)(a) A reference in this section to-

(i) a health insurance consumer is a reference to a person, other than the registered undertaking, who is party to, or named

in, a health insurance contract or likely to be interested in being such a party or being so named,

(ii) insured risks among registered undertakings is a reference to the risks that have been respectively insured by the

undertakings under health insurance contracts, and

(iii) the best overall interests of health insurance consumers includes a reference to the need to maintain the application of

community rating across the market for health insurance and to facilitate competition between undertakings.

(b) The conditions specified in a scheme for the purposes of the provision of the scheme referred to in subsection (4)(c)(1)

(III) may be different from the conditions specified in the scheme for the purposes of the provision of the scheme referred

to in subsection (4)(c)(ii)(II).

(c) The nature and distribution of insured risks amongst registered undertakings to which conditions as aforesaid relate may

be expressed in the scheme concerned by reference to the amounts that would fall to be paid to or by a particular registered

undertaking or undertakings under the provision of the scheme referred to in subsection (4)(a) if the requirements of that

provision had effect at the time of the making of the evaluation and analysis to which the report concerned referred to in

subsection (4)(c)(i)(ll) relates.” (emphasis added).

Impact of the Risk Equalisation Scheme

It is quite clear, and the learned trial judge so held, that the risk equalisation scheme as introduced by the Minister, with its

concomitant version of community rating of premiums across the entire market in the sense argued for by the Minister,

would have serious impact on the economic and trading position of BUPA and potentially for any other recent or new

entrant to the market of private health insurance.

First of all the learned trial Judge concluded (at paragraph 230 of his judgment) that “This scheme involves some elements

of anti competitive behaviour in that the pricing structure of the market is interfered with and entry is less attractive.

(See the York Report of November 2003). Therefore competition is distorted.”

It is of course the case that such negative impact on competition in the market may be objectively justified and indeed the

learned trial judge found that it was so. It must be for the Legislature in the first instance to determine the extent to which

free competition in the market can properly be interfered with having regard to the objectives of the legislation as therein

defined and to choose the suitable means to achieve those objectives as well as decide on the proportionality of those

means.

I make reference to the potential effects of the Risk Equalisation Scheme on competition in the private health insurance

market not for the purpose of examining the extent of or the justification for such measures but simply for the purpose of

highlighting one of the important and potentially far reaching effects which legislation providing for the establishment of such

a scheme may have. Where the Legislature adopts legislation which has, actually or potentially, such serious implications for

the legal rights of others one would expect that the basis on which such limitations are imposed could be clearly discerned

from the provisions of the relevant Act.

In this context, of even greater importance is the undoubtedly important implications for BUPA’s trading position and

profitability once the scheme is applied to it.

BUPA, of course, have argued that the effect of the scheme would be such as to render their trading position unviable. The

amount of the payments which they would have to make to the authority under the R.E.S. would be such, it claims, as to

make it unprofitable for them to remain in the market. The learned trial Judge did not accept this claim.

However, he did accept that the operation of the R.E.S. would have a substantial effect on the profits of BUPA. He did not

consider it necessary to review exhaustively the detailed evidence on how BUPA’s future profits were likely to be affected

but did arrive at the following conclusions:

“It is sufficient to recall that the independent body, the H.I.A., in the staff report of October 2005, calculated

the repayments that were mandatory for that year, the amount of transfer would be approximately €33m. This

ignored a temporary phasing-in period. The amount compared to a gross underwriting profit of €22m. for the

year ending 2005. Over a three year plan, BUPA estimates a projected liability of approximately €160m. as

against anticipated profits of €60. Even allowing for BUPA’s historical understating of its anticipated profits

and building in capacity for price increasing, which would not unduly affect its revenue generation capacity,

there can be no doubt that on these figures it would be difficult for the applicants, without major structural

changes and with its current business model, to cover payments and also obtain an acceptable return on

capital. Therefore it is likely that in the short term the scheme will have a significant impact on, at least their

profitability, if not also on their reserve fund… The above general conclusions are largely supported by the

evidence called on behalf of the respondents. Their experts in this regard were B.D.O. Simpson Xavier, in the

person of Mr. Hargaden. Over a three year business plan prepared by BUPA to cover the years 2006 to 2008,

B.D.O. made certain adjustments which resulted in a projected profit of €43m. for that period, whereas

payments under the R.E.S. came to about €90m. Making one adjustment to the underlying assumptions used in

this analysis, which was to incorporate the cost of medical inflation, the figures show a resulting loss of €4m.

for this period … I am therefore satisfied that with their current business regime, the financial liability

resulting from equalisation payments will have a significant impact on BUPA.”

The learned trial judge then went on to express the view that there was a prima facie interference with the property rights of

BUPA as guaranteed by the Constitution which the State was bound to justify.

Leaving aside the constitutional issue as such, it is nonetheless evident that the scheme in question, established pursuant to

the provisions of s. 12, would have serious effects on the trading profitability of BUPA and inevitably have implications for

any undertaking considering entering the market in the future. I would add that BUPA have in this appeal argued that on the

basis of the evidence tendered in the High Court the learned trial Judge was bound to conclude, and ought to have, that the

impact on BUPA’s profitability was far greater than that which he found. Again it is not necessary to resolve that issue since

I am drawing attention to the actual and potential implications of a serious dimension, on the basis of the findings in the

judgment of the High Court, which the scheme in question nonetheless has for BUPA and potentially for other undertakings.

These are matters to be taken into account when interpreting s. 12 in the light of the provisions of s. 2 and s. 7 since the

form of Community Rating is an essential element to the Risk Equalisation Scheme.

Again, where the Legislature is enacting provisions, however sound the reasons for them may be, which have potentially

serious implications for legal rights, including constitutional rights, of persons or corporations, one must expect that the

intended ambit or application of such provisions will be expressed in the legislation with reasonable clarity.

I consciously refer to potential impact on constitutional rights, as I do not think it is necessary, for present purposes, to

determine whether such rights have actually been limited and if so whether such limitation is justified.

The Critical Issue: The Meaning of Community Rating:

The interpretation to be given to the term community rating in s. 12(1)(a)(iii) which refers to “the need to maintain the

application of Community Rating across the market for health insurance” is the first and crucial issue in these proceedings

and this appeal. It was so described by the learned trial Judge who said “the correct definition of that term is the single

most important issue in this case.”

The appellant’s rely on s. 2 with its reference to s. 7(1)(c) as establishing that community rating has only one meaning in the

Act namely the meaning that is expressly given to it by s. 2. In brief BUPA says that community rating always means

community rating within a plan or in other words each insured person within a given policy must be charged the same

premium irrespective of their risk profile, as for example, their age.

On the other hand the respondents to the appeal and the notice party contend that for the purposes of s.12 the references to

community rating across the market in that section means that the community which must be rated for the purposes of risk

equalisation is not a community within a plan but rather is a community which comprises the entire insured population

within the private medical insurance sector.

As the learned trial judge also commented “This distinction for the purposes of the Risk Equalisation Scheme is what

separates the parties on this crucial issue.”

Counsel for BUPA in their submissions stated that the meaning of the reference to community rating in s. 12 of the Act is

critical to all aspects of these proceedings.

This is because, as the State contends, the risk equalisation was made by reference to the objective of supporting a form of

community rating which is not the form of community rating referred to in s. 7 of the Act.

Indeed the notice party also described this issue as being critical in the case. “If BUPA is correct in its submissions with

regard to the interpretation of the 1994 Act” concerning the meaning of community rating “then BUPA must succeed in

the appeal.”

In short it is common case that if the Minister is wrong in law in adopting the risk equalisation scheme on the basis of

community rating across the market for all insured rather than within the plan across the market, that the scheme is invalid.

The Meaning of Community Rating in s. 7

I would recall that s. 2 provides that “In this Act …community rating shall be construed in accordance with s. 7(1)(c)”

(emphasis added).

Section 7(1)(c) provides that a health insurance contract which complies with paragraph (a) of s. 7 “shall be known as a

community rated health insurance contract and ‘community rating’ shall be construed accordingly.”

Paragraph (a) of S. 7(1) provides that “…the premium payable under any health insurance contract effected by a

particular registered undertaking shall be the same as that payable under every other such contract… that:

(i) is effected by that undertaking,

(ii) is in respect of the same period as that to which the first mentioned contract relates,

(iii) relates to the same health services as those to which the first mentioned contract relates and

(iv) provides for the same payments by undertakings in respect of those services as those provided for by the

first mentioned contract.

Subsection 2 of s. 7 provides that premiums payable under health insurance contracts shall not be varied by reference, inter

alia, to the age, sex or sexual orientation or the suffering or prospective suffering of a person from a chronic disease, illness

or other medical condition nor shall it be varied by reference to the frequency of the provision of health services to a person

or the amounts of payments or the number of different payments to which a person becomes entitled under such a contract.

Subsection 3 provides for the amounts of payments provided by health insurance contracts in respect of the health services

to which it relates shall not be varied by reference to the age, sex or sexual orientation of a person to whom those services

are provided.

This means that an insurer must charge the same premium for a particular policy or plan to all consumers, regardless of

profile. Community rating means community rating within a plan.

A particular health insurance contract which is offered to the public must not only be community rated but, by virtue of the

provisions of s. 8 and 9 of the Act, is also subject to requirements as to (a) open enrolment and (b) lifetime cover.

There is at least one matter on which all of the parties are agreed and that is the meaning of “Community Rating” as

defined by s. 7, namely community rating within the plan or contract. Section 2 says that community rating must be

construed in accordance with s. 7(1)(c).

Reports and Papers

The learned trial judge, before addressing the first substantive issue concerning the meaning of community rating as used in

the Act, separately surveyed and summarised in a comprehensive and erudite manner various materials extraneous to the

text of the Act itself. He did this in that part of the judgment headed “Consultative and Reporting Process”. These were

the Report of the Advisory Group, known as the Harvey Report, presented to the Minister in April 1998, a technical paper

produced by the Department of Health in January 1999, a White Paper published in September 1999 and a Health

Insurance Authority Consultation Paper published in February 2002. All of these form part of what the learned trial judge

described as an extensive, consultative and reporting process which took place between 1998 and 2002. That is to say after

the Oireachtas had passed the Act of 1994 containing the provisions of s. 2 and s. 7(1)(c) which prescribe how the term

community rating shall be construed, and the process continued after the passing of the Health Insurance (Amendment) Act

2001 which, inter alia, inserted s. 12 the provision in contention and in particular subsection 10(1)(iii) of that section which

refers to “community rating across the market.” Although the learned trial judge did not rely directly on these Reports for

the purpose of interpreting the relevant sections concerning the meaning of community rating within the terms of the Act

they were considered as particularly relevant contextual material especially as regards the contextual meaning of community

rating in s. 12 and the importance of the meaning of that concept with regard to a risk equalisation scheme designed to

prevent certain factors such as shadow pricing destabilising the market in private health insurance.

The approach adopted in the judgment of the High Court

I will come to address the relevance and effect of these reports and papers at a later point in this judgment since the starting

point for the interpretation of the provisions of any enactment is the text of the statute itself. In this respect the learned trial

judge properly focused on the relevant provisions of s. 2, s. 7 and subsection 10 of s. 12 which have already been referred

to. In addition he addressed first of all the long title of the Act as an aid in construing those provisions as concerns the

meaning of community rating.

On this interpretative issue the learned trial judge set out the interpretative principles which he would follow in construing the

Act in question. In doing so he cited a passage from my judgment in Crilly –v- Farrington 2001 3 I.R. 251 which I do not

think it is necessary to repeat. Essentially these, uncontroversial, principles outlined by the trial judge were that the task of

the Courts is to ascertain the objective intent of the Legislature and that intent is to be ascertained on the basis of the text of

the Act adopted and promulgated as law by the Oireachtas. In construing a particular or particular provisions of an Act the

Courts, of course, may look at the Act as a whole and interpret the particular provision or provisions in the light of other

provisions and also have regard to its long title. (Paragraphs 82 and 83).

The Long Title

One of the first matters considered by the learned trial judge in this context was the long title to the Act of 1994 which is

cited in full above.

In examining the long title of the Act the learned trial judge correctly referred to it as setting out the general purpose and aim

of the Act. Having identified (at paragraph 100 of the judgment) the different matters recited in the long title he went on to

observe that in addition to a reference to a Health Insurance Authority “the title sets out to make provision for two key

points which would appear to be inter related but also separate.” These two points were the “equalisation risks between

health benefit undertakings” and what he described as, “the uniformity of premium within contracts” (although the word

“contract” does not appear in the long title). I think it is going too far to say that the long title makes provisions for specific

matters. That would be to accord a long title an unprecedented status of a substantive provision.

The long title to an Act is intended to set out in general terms the purpose and scope of the Act, reflecting the origins of such

a title as a parliamentary procedural device governing the scope of a Bill before parliament and within which any proposed

amendments must fall. (See Bennion Statutory Interpretation, Fourth Edition page 620).

Undoubtedly the long title may be an aid to the construction of an Act or a section of an Act in certain circumstances

particularly having regard to the purposes or objectives of an Act which in turn may provide a useful context within which to

construe it.

The long title in this instance acknowledges that the Act of 1994 was to provide, inter alia, for the establishment of schemes

for the equalisation of risks between health benefits undertakings, and also for uniformity of the premiums charged by each

particular such undertaking in respect of specified ranges of such cover. It appears to recite that the Act will make provision

for a risk equalisation scheme and the kind of community rated health insurance contracts referred to in s. 7 (same premium

for all contracts complying with s. 7(1)(a) according to which community rating is to be construed).

Apart from other considerations, it is difficult to see how the long title can be a source for a unique interpretation of the

phrase community rating as it is found in s. 12, as inserted by the Act of 2001, and different from the meaning of that term

as it was used in the Act of 1994 itself, since both Acts must be construed as one, the 1994 Act being the principal Act.

Neither is there anything in the 2001 Act to affect the long title of the 1994 Act.

In any case the Act of 1994, in its original and, which remains the same in its current amended form, contains express

provisions as to how the phrase community rating should be understood or construed. Where there are such express

provisions regarding the construction of terms or phrases in an Act the meaning to be attributed by those express provisions

must, at least as a general rule, take precedence over any nuance which might be extracted from a long title which, by its

nature, is invariably expressed in very general terms and has a limited function. Section 2 of the Health Insurance Act 1994,

as amended, contains an express provision as to how the phrase community rating should be construed in the Act. The

fundamental issue between the parties in this context is whether community rating as used in subsection 10 of s. 12 can have

a different meaning from that given to it in s. 2 by reference to s. 7(1)(c).

On one view the reference in the long title to the uniformity of premiums in respect of specified ranges of cover could be

taken as a reference to community rated contracts and to favour the approach adopted by the appellants, BUPA, but in

reality I feel that the terms of the long title in this case, particularly in the light of the express provisions contained in the Act,

do not lend themselves to resolving this particular issue either way. At best, from the respondents’ point of view the long

title does not preclude either interpretation and does not dictate one or the other.

I therefore turn to the actual provisions of the Act as relied upon by both parties namely s. 2, s. 7(1)(c) and subsection 10(a)

(iii) of s. 12.

Section 2, s.7(1)(c) and s. 12(10)(a)(iii)

Of course it was contended by the State and the Notice Party that the meaning attributed to community rating in s. 2

(“Community rating shall be construed in accordance with s. 7(1)(c)) did not mean that for the purposes of s. 12. In

support of that contention the State and the Notice Party relied on a key section of the learned trial judge’s judgment,

namely paragraphs 102 and 103 of that judgment, where he analysed the meaning and effect of the phrase community rating

referred to in s. 2 and s. 7. and why it has a different meaning in s. 12. The specific paragraphs relied upon by Counsel in

this context read as follows:

“102. Community rating is said to be “construed” in accordance with the meaning of a community rated

health insurance contract (s. 2). Immediately one notices the choice of legislative words. The phrase,

“community rating”, is not “defined” either in s. 2 or in s. 7, but rather its meaning must be construed in

accordance with both. Section 7 contains a unique mixture of freedoms and obligations. Gone is the ex-ante

regulatory regime. In its place the provider can offer a menu of plans with a variety of benefits and can set

whatever premiums it wishes. It has a considerable choice in this regard. However it must disregard, amongst

other things, age, gender, sex, sexual orientation and the health status (both current and prospective) of an

individual when setting a premium and it must of course charge each person who wishes to avail of a

particular plan the same premium. Taking the community as comprising a pool of insured persons who avail

of any such plan, it can be said that this is a form of community rating within plan, suspecting as one might

that the premium would reflect the average claims costs of that pool. It is therefore not in the slightest

surprising that s. 7(1)(c) refers to such a contract as a “community rated health insurance contract”.

103. Immediately after so describing such a contract, the section says that “community rating” shall be

construed accordingly. Again it must be noted that the section does not say that community rating “means” or

that it is “a community rated health insurance contract”. The section in my view must be understood as

meaning that by reference to what is known as a community rated health insurance contract the words

community rating must be interpreted accordingly. Community rating is therefore a sharing within a

community, which in a contractual sense is a sharing of costs/risk within that particular community of

subscribers. But if used in a different context I can see nothing in s. 7 which would prohibit the “community”

part of this phrase from comprising a class different to the class within a given plan. Accordingly there is in

my view no reason in principle why the phrase “community rating”, even with a singular meaning, cannot be

qualified by the context of its use either as in a contractual sense or as s. 12 says “across the market

generally”.

The learned trial judge’s conclusion in the latter paragraph appears to have left out of account the definition of community

rating in s. 2(1) which, I would recall, says that in the Act the phrase “shall be construed in accordance with s. 7(1)(c).”

He appears to have inverted the sense and effect of s. 2. What this section does is provide that reference to community

rating shall be construed as meaning a contract known as a “community rated health insurance contract” which in turn

means a health insurance contract that complies with paragraph (a) of s. 7(1)(c).

While the learned trial judge was correct in stating that s. 7 refers to a form of community rating within a plan I do not agree

that the phrase community rating is not “defined”, as he puts it, in either s. 2 or s. 7. Nor do I consider that there is a viable

distinction between a provision which says that a particular phrase “means” something and one which requires that a

particular phrase “be construed” in a particular sense.

Section 2 in combination with s. 7(1)(c) requires the phrase community rating to be construed as meaning a health insurance

contract which complies with s. 7(1)(a) or would comply but for subsection (4) or s. 7A. Paragraph (c) says such a contract

shall be known as a community rated health insurance contract and community rating shall be construed accordingly.

Section 7(1)(a) sets out the criteria to be complied with in its introductory part and in four subparagraphs (i) – (iv). Thus

community rating means a health insurance contract where there is community rating within the plan or contract. The one

phrase community rating in s. 2 is in the nature of what Bennion (Fourth Edition at 487) describes as a labelling definition.

“A labelling definition uses a term merely as a label to denote some more complex concept. Instead of the drafter having

to keep repeating the description of the concept, the label alone can be used.” Similarly in referring to the general purpose

of definition sections in Statutory Interpretation in Ireland (David Dodd, Tottell Publishing 2008 at 276) the author states “

The purpose is to aid the interpreter and drafter by reducing the need for a laborious repetition of text in the operative

sections of an enactment.” Thus rather than repeating the phrase “A health insurance contract that complies with

paragraph A (or which would comply with that paragraph but for its falling within subsection (4) or s. 7A)” the

Legislature has chosen the label “community rating” and that is what it says it means.

Section 7(1)(c) is quite clear and all parties are agreed, that in that section community rating means community rating within

the plan or contract.

Section 2 is equally clear when it says what it means . Section 2 commences with the words “In this act…” followed by the

various definitions including that for community rating. In short s. 2 intends that community rating be understood in a

stipulated sense wherever that is used in the Act. That is the purpose of s. 2, a definition section, and to treat the stipulated

interpretation of community rating as having no application to those terms simply because they appear in a different section

or even in a different context is to deny the very purpose of the section. Section 2 thus requires that community rating be

construed in accordance with s. 7(1)(c) throughout the Act.

The foregoing conclusion flows from the ordinary and natural meaning of the phrase “shall be construed” as found in both

s. 2 and s. 7. It is hardly necessary to refer to a dictionary definition of the verb to construe but as a matter of interest I

would add that the New Oxford Dictionary defines the verb in the following terms: “(often be construed), interpret a word

or action in a particular way:” (emphasis in dictionary).

Nor I do not think that the word “community” can be isolated in the way that the learned trial Judge did from the full phrase

“as defined”, for the purpose of concluding that community rating can be interpreted in another section without regard to s.

2. Moreover s. 20(2) of the Interpretation Act 2005 provides that “Where an enactment defines or otherwise interprets a

word or expression, other parts of speech and grammatical forms of the word or expression have a corresponding

meaning.”

It seems to me that the learned trial Judge did not attach sufficient importance to s. 2 in concluding that there was “nothing

in s. 7 which would prohibit the “community” part of this phrase from comprising a class different from a class within a

given plan” when used in a different context.

Section 2 is manifestly a definition section defining, inter alia, community rating and the learned trial Judge erred in not

treating it as such.

Since s. 2 requires that the phrase community rating be construed uniformly throughout the Act, the mere fact that it may

occur in different sections or indeed in a different context cannot render nugatory the effect of s. 2.

It is for all these reasons that I conclude that the learned trial Judge was incorrect in discarding s. 2 as a definition section for

the phrase community rating and holding that s. 7 did not “prohibit the “community” part of this phrase from comprising

a class different to the class within a given plan” when simply used in another section and another context. It was the key

and probably necessary conclusion if a different meaning was to be given to community rating in s. 12 from what is

provided for by s. 2. That conclusion wrongly purported to unshackle subsection 10 of s. 12 from the intended effect of s. 2

and clearly governed the learned trial Judge’s approach to his interpretation of the paragraph in s. 12 itself.

Accordingly, community rating in s. 12(10) must, prima facie, be construed as meaning community rating within the plan

across the market in order to conform with the construction specified in s. 2 by the Oireachtas.

The only scope for construing community rating in s. 12 in a manner different from that required by s. 2 is on the basis of

the general proviso contained in s. 2 in respect of all the definitions in it, namely, that a different meaning may only be given

to the terms defined if the “context otherwise requires” (emphasis added). This is reflected in the provision of s. 20(1) of

the Interpretation Act 2005 which provides that “Where an enactment contains a definition or other interpretation

provision, the provision shall be read as being applicable except insofar as a contrary intention appears in” the

enactment itself.

Having adopted a permissive approach unrestrained by s. 2 the learned trial judge at no stage concluded that s. 12 required

another meaning in that sense.

The question nonetheless remains as to whether the context in which community rating is used in subsection 10 of s. 12

requires that it be construed in a fashion different from that stipulated by s. 2.

In addition to the analysis of the text of those sections the learned trial judge referred to a number of other matters

extraneous to the text of the Act (other than the preamble which I have already addressed) which tended to corroborate or

support his interpretation of community rating in s. 12 as meaning community rating across the market, as contended for by

the Respondents and the Notice Party, rather than community rating within the plan across the market as contended for by

the Appellants, relying on s. 2 and s. 7.

I will address those other considerations in due course but first I think I should turn to the text of the relevant provision in s.

12 where the phrase community rating occurs.

Section 12(10)(a)(iii)

Section 12 inserted in the 1994 Act by s. 9 of the Act of 2001, is the section which enables the Minister to prescribe a

scheme or schemes of risk equalisation.

Subsection 4 provides that a scheme shall include a provision requiring the making of payments by registered undertakings

to the Health Insurance Authority of such amounts as may be determined by the Authority in such manner and by reference

to such matters as may be specified in the scheme (including the nature and distribution of insured risks among

undertakings). It also must make provision for the making of payments by the Authority to registered undertakings as may

be determined in such manner and by reference to such matters as may be specified in the scheme (including the nature and

distribution of insured risks among undertakings).

Furthermore, the same subsection requires that the scheme should include a provision requiring the Health Insurance

Authority to prepare and furnish to the Minister at prescribed intervals a report, inter alia, in relation to its evaluation of

certain returns made to it by registered undertakings and in relation to matters concerning the carrying on of health insurance

business, developments in relation to it generally, and other matters which the Authority considers ought to be included in a

report as a result of its evaluation and analysis.

Again according to the subsection, the Health Insurance Authority may be required to include in such a report a

recommendation by it that “the Minister ought or ought not (as it considers appropriate having regard to the best overall

interests of health insurance consumers) to exercise” a power referred to in that subsection. (emphasis added).

Subsection 10(a)(iii) provides an inclusive definition of the phrase “best overall interests of health insurance consumers”

used, inter alia, in subsection (4) the terms of which are for convenience, set out again:

“A reference in this section to: : …

(iii) “the best overall interest of health insurance consumers includes a reference to the need to

maintain the application of community rating across the market for health insurance and to

facilitate competition between undertakings.”

It might well be the case that if there was no stipulated meaning of community rating in s. 2 by reference to s. 7 for the

purposes of the Act one might indeed come to the conclusion which the learned trial judge did, on a purely contextual basis

when considered in isolation. But such an isolated and contextual approach is not permitted, as I have already concluded, by

virtue of s. 2.

Accordingly the reference to maintaining community rating across the market must be interpreted, in accordance with s. 2 as

meaning community rating within the contract or plan across the market.

In the light of the conclusion on the meaning and effect of s. 2 what the Court must do is examine whether the context in

which community rating is used in subsection 10 requires that it be given a different meaning than that otherwise stipulated

by s. 2.

It seems clear to me that there is nothing in the text of s. 12 or indeed the Act as a whole which would require that a

different meaning, let alone one as radically different as that advocated by the Respondents and Notice Party, be given to

community rating than that required by s. 2 by reference to s. 7(1)(c). Indeed it would be difficult to see the purpose of

giving a statutory construction to community rating in s. 2 by reference to s. 7(1)(c), if it did not also govern s. 12 since the

latter section is the only section other than sections 2 and 7 which contain that expression.

Earlier in the judgment I referred to the impact which the scheme, with its concomitant component of community rating,

would or potentially would have on undertakings which recently entered or would enter the private health insurance market.

These were the serious impact on the trading position and trading profitability of BUPA and potentially other undertakings,

the potential interference with constitutional property rights and its non competitive effect. Although BUPA argued that the

learned trial Judge had underestimated these effects, at least in some respects, the respondents did not challenge those

findings although they argued against some of their implications and said they were in any event objectively justified.

Justified or not, from any point of view a scheme based on community rating across the entire market has actual and

potentially serious implications for undertakings in the market.

In these circumstances one would have expected that if community rating in subsection 10(a)(iii) of s. 12 were intended to

have a meaning radically different from that given to it in s. 2 of the Act that the Oireachtas would have explicitly said so. It

is unconvincing to suggest that the Oireachtas would have left such a different meaning to be somehow detected inferentially

from the use of the phrase in a subparagraph of a paragraph of a subsection of a section. In short if the Oireachtas intended

a different meaning, with all the implications involved, to be given to community rating in that subparagraph it would have

said so.

Counsel for the State and the notice party also argued that to construe community rating in s. 12 in accordance with s. 2

would lead to an absurdity on the grounds that the broader interpretation is essential if a Risk Equalisation Scheme was to be

effective in dealing with the mischiefs, such as shadow pricing, which could for example arise from the fact that different

health undertakings had different age profiles and therefore risk profiles, which in turn could lead to a destabilising of the

market.

It is difficult to reconcile that argument with the fact that the Act of 1994 expressly provided for the introduction of a risk

equalisation scheme without a corresponding provision regarding community rating as introduced by the Act of 2001 and

now relied upon by the State respondents and the notice party for a broader interpretation.

Indeed Counsel for the respondents and the notice party expounded in significant detail, both in written and oral

submissions, as to the importance if not the necessity of the risk equalisation system embracing or being accompanied by a

form of community rating which was across all the insured within the private health insurance market and not just

community rating within the plan. Support for that view, although contested by BUPA, is certainly to be found in, and the

learned trial Judge acknowledged that to be the case, the various reports and papers commencing with the Harvey Report in

1998 and culminating with the Paper of the Health Insurance Authority in 2002. These Reports and Papers were, to

describe them in general terms, analyses of the private health insurance market with a view to advising the best policies to be

adopted. They all post date the definition of community rating as first set out in the Act of 1994. Also, Counsel for the

notice party placed some emphasis on paragraphs 104 and 105 of the learned trial judge’s judgment which referred to

reasons for choosing a form of community rating in the broader sense. But these were policy considerations arising from the

various reports rather than the Act and the learned trial judge appears to have conflated the views of State policy-makers

with those of the Oireachtas. This was done on the assumption that the provisions of the s. 2 of the Act had no bearing on

the term community rating in s. 12 which, as I have explained above is not the case.

However the task of the Court is not to determine what is best policy or simply to implement best intentions of policy

makers, however well founded, but to determine the meaning of the Act having regard to the intent of the Oireachtas as

expressed in the Act itself.

It may well be that the best and most effective, and perhaps even the only effective, means of achieving certain policy

objectives is to provide by statute for a form of community rating across the whole market of insured persons and one

which is not confined to community rating within the plan. That is a choice for the Oireachtas to make particularly when it

has to be balanced with other policy considerations such as the admitted anti-competitive effects of a scheme based on such

a form of community rating.

If it were intended that community rating in s. 12.10, as inserted by the Act of 2001 should have a different meaning in the

Act to that specified in s. 2 it would have taken a simple provision to say so. On the contrary what the Oireachtas did in the

2001 Act was to re-enact s. 7(1), so far as it is material to this issue, in the Act of 2001 by reference to which s. 2 says it is

to be construed throughout the Act. If the Court was to construe the term community rating in the manner advocated by the

State respondents and the notice party it would be engaged in legislating and doing so in a manner contrary to what the

Oireachtas provided by way of s. 2.

In any case having regard to the clear terms of s. 2 of the Act which specifies the interpretation to be given to the phrase

community rating when used in the Act I am satisfied that there is nothing in s. 12 or in the Act as a whole which requires

that a different meaning be attributed to that phrase as it occurs in s. 12.

For the Court to determine that community rating had the meaning argued for by the respondents and the notice party

simply because such an interpretation is thought necessary from a policy point of view for the effective implementation of a

risk equalisation scheme would be to usurp the function of the Oireachtas.

Accordingly, the plain intent of the Act is that the reference to the maintenance of community rating across the market in s.

12 must be interpreted as meaning the maintenance of community rating within the contract across the market.

Having come to the conclusion that neither s. 2 nor s. 7 provided any form of definition of the meaning of community rating

for the purposes of the Act the learned trial judge proceeded to give a free contextual interpretation of community rating as it

appears in s. 12 subsection 10(iii). In doing so he was at least in part strongly influenced by the policy considerations

reflected in the various Reports and Papers to which I have referred earlier as providing a logical and rational basis for

interpreting community rating in s. 12 as meaning community rating across the entire insured population in the private health

insurance market rather than community rating within the plan.

This approach to the interpretation of s. 12 by the learned trial Judge reflected the arguments of Counsel for the respondents

and the notice party in the High Court and much of the submissions which they made in this Court.

For reasons already outlined this approach of the interpretation of s. 12 contained a fundamental error. It ignores and leaves

out of account the fact that s. 2, for the purposes of the Act of 1994, as amended, defines the meaning of community rating.

This excludes giving it some other meaning by way of implication for some contextual reason.

That reason alone is sufficient ground in my view for concluding that the interpretation given to s. 12 in the judgment of the

High Court and the submissions advanced in support of that interpretation, are wrong.

Nonetheless I think I should also add, that insofar as Counsel for the respondents and the notice party and the learned trial

judge relied on the various Reports and Papers referred to above, it cannot be assumed that their views and

recommendations reflected the intention of the Oireachtas in the Act of 1994 as amended unless those views and

recommendations are reflected in the Act, which they are not, for reasons I have already pointed out.

At paragraph 99 of his judgment the learned trial Judge stated:

“Whilst these reports all post date the passing of the 1994 Act, they were evidently in existence prior to the

amendments in 2001 which effectively continued the general principles of private medical insurance, as these

had previously existed in the Irish market. Together with the evidence of Mr. Barrett, Mr. Shannon and Mr.

Armstrong, I am satisfied that at all times the State intended to make provision for a risk equalisation scheme

and to have that scheme form an integral part of the overall structure of the market in this jurisdiction.

Equally so I am satisfied that the State also had an understanding of community rating which was not confined

to the four corners of a given plan but rather extended to all the insured population.

Given these circumstances it could never have been the State’s intention to isolate any scheme from the

established pillars.”

Leaving aside the submissions of BUPA that there were other quite contrary conclusions to be drawn from those Reports

and Papers, at least in certain important respects, even if the learned trial Judge is correct in attributing those views to “the

State” the State here can only mean the Department for Health and Children or perhaps even the Government to which

those Reports were either submitted or may have been brought to its attention. The issue before this Court is not the

intention of the State, or State bodies but the intention of the Oireachtas as the legislature. As the learned trial judge himself

pointed out at an early stage in his judgment the objective intent of the Oireachtas can only be imputed to it on the basis of

the text of an Act as promulgated in law.

The Act of 1994, as amended, does not in any sense, for the reasons outlined above, express or reflect an understanding of

community rating which extended to all of the insured population in the private health insurance market. The Act is

concerned only with community rating within the plan as s. 2 so provides.

Conclusion

Accordingly, since s. 2 of the Act of 1994, as amended, specifies that the term community rating shall be construed in that

Act in accordance with s. 7(1)(c) the correct interpretation to be attributed to the phrase community rating in s. 12 of the

Act, is community rating within the plan across the market.

Therefore, it is in that sense that the best overall interest of health insurance consumers must be construed for the purposes

of a risk equalisation scheme.

Community rating within the plan means that such community rated contracts provide an element of intergenerational

solidarity, not obviously to the ambit as would flow from community rating across the entire insured population, side by side

with the other pillars to which the learned trial judge adverted to namely open enrolment, lifetime cover and minimum

benefits which, as he pointed out, are provided for in sections 8, 9 and 10 of the Act respectively.

It follows from all of the foregoing that the scheme of risk equalisation adopted by the Minister in 2003 was founded upon

an erroneous interpretation of subsection 10(iii) in s. 12. That is to say the scheme was introduced on the basis that

community rating meant community rating across the entire insured population and not as defined in the Act.

The risk equalisation scheme having been introduced on the basis of or having regard to a matter which was erroneous in

law the scheme must be considered ultra vires the powers of the Minister (as indeed all parties acknowledged would be the

inevitable consequence if such an error of law was so found) and therefore should be set aside.

In the light of the foregoing conclusion the other issues raised in the proceedings do not require to be addressed.

Accordingly I would propose that the appeal be allowed and that the Order of the High Court be substituted by an Order

quashing the decision of the Minister and the relevant statutory instruments which introduced the risk equalisation scheme.