On 12 February, the Court of First Instance (CFI) issued its judgment in Case T-289/03, dismissing an application by BUPA to annul a decision of the European Commission (the Commission) in respect of a risk equalisation system for the private medical insurance sector in Ireland.

The Irish scheme, set up after the liberalisation of the private health insurance market in 1997, is administered by the Health Insurance Authority (HIA) and is designed to compensate those insurers undertaking 'above average' risk work (e.g. in the case of old and chronically sick patients) by providing them with the proceeds of a levy collected from those (such as BUPA) undertaking 'below average' risk work. BUPA objected to having to pay the levy and claimed that it had been imposed in breach of European state aid rules.

However, the Commission decided that the Irish scheme did not amount to state aid on the basis that it was compensation for a service of general economic interest (SGEI) within the meaning of Article 86(2) of the EC Treaty. The Commission based its decision on the criteria set out in the ECJ's Altmark judgment (C-280/00). The Altmark ruling set out four criteria for assessing whether a compensation scheme falls outside the state aid regime:-

  1. There must be a public service obligation (PSO) to discharge, and that obligation must be clearly defined.
  2. The parameters of the basis on which the PSO compensation is to be calculated must be established in advance in an objective and transparent manner to avoid conferring an economic advantage on the recipient.
  3. The compensation cannot exceed what is necessary to cover all or part of the costs incurred in discharging the PSO, taking into account relevant receipts and a reasonable profit for discharging the obligations.
  4. Where the undertaking discharging the PSO has not been chosen by competitive tender, the level of compensation should be determined on the basis of an analysis of costs which the typical well-run undertaking would have incurred in discharging those obligations, taking into account receipts and a reasonable profit for discharging the PSO.

In the Commission's opinion, the income provided by the levy arrangements was compensation for the PSO obligations imposed on those operating in the Irish private medical insurance market. These obligations were designed to make sure all people in Ireland (irrespective of age, sex or health status) would receive a minimum level of private insurance services at an affordable price and on similar equality conditions. The levels of compensation were also proportionate and, as the Commission noted, only covered a limited class of payments made by insurers to their customers (e.g. excluding payments for 'luxury' medical treatments). The scheme also took account of the average costs of those eligible for levy payments (with insurers able to keep the benefit of their own efficiencies) and provided encouragement to insurers to promote shorter hospital stays, early detection and best practice generally.

BUPA brought an action before the CFI for the annulment of the Commission's decision. It argued, amongst other things, that the Commission had been wrong to conclude that the Irish scheme fell within the parameters of the Altmark ruling. The court comprehensively rejected this claim and, in doing so, provided some useful guidance on the approach it would take were any similar challenges brought in future.

Discretion to define SGEI

According to the CFI, Member States have a wide discretion to define SGEIs. The Commission may only question a Member State's designation of a service as an SGEI where there is a manifest error of assessment. In this case, the Commission had considered whether Ireland's assessment of the relevant service as an SGEI and the consequent imposition of the relevant PSO was vitiated by manifest error and had decided that this was not the case.

1st Altmark criterion

The CFI considered that the legislation setting up the Irish scheme set out a clear and precise definition of the relevant PSO. The CFI did not consider that there was a requirement that each insurer should be separately made subject to the PSO by an individual act or mandate.

The applicants had argued that the fact that the services provided by the insurers were not universal and compulsory in nature meant that there was no PSO in this case. The CFI disagreed. According to Community law, the court stated, the concept of universal service does not mean that the service in question must respond to a need common to the whole population or be supplied throughout a territory. Thus, PSO obligations which have only a limited territorial or material application or which relate to services enjoyed by only a relatively limited group of users are not necessarily prevented from falling within the 1st Altmark criterion.

2nd Altmark criterion

It was argued that the discretion of the Irish authorities to set the parameters for compensation payments led to a breach of this criterion. Again, the CFI disagreed. The relevant legislation set out a robust and transparent process for determination of payments, based on evidence submitted by insurers, and this was in itself sufficient. There was no need that the actual level of payments be prescribed by the relevant legislation.

3rd Altmark criterion

The CFI was clear that its ability to review the Commission's decision as to the necessity and proportionality of the compensation payable under the Irish scheme was limited to considering whether the Commission had made a manifest error of assessment in its decision, or whether it had acted contrary to its duty to give reasons, made an error of law, or misused its powers.

The CFI was satisfied, in this context, that the Commission's analysis on necessity and proportionality was adequate. The Court also observed that, although the Irish scheme was funded in a different way than the scheme at issue in Altmark (i.e. it did not involve compensation for actual costs incurred in discharging the PSO), it nonetheless met the requirements of the 3rd criterion by comparing the actual risk profile of an insurer and the average market risk profile.

4th Altmark criterion

The court was also satisfied with the Commission's approach on this final point. It was not necessary, in the CFI's view, to draw a comparison between the costs of a potential recipient of a compensation payment and an efficient operator. Instead, the Commission had to satisfy itself that the compensation did not entail the possibility of offsetting costs that might result from inefficiencies on the part of an insurer subject to the scheme.

The Commission had expressly found that the scheme took account of the insurers' average claim costs so that insurers were not allowed to keep the benefit of their own inefficiencies.