The Minister for Health Dr. James Reilly has announced changes to the Private Health Insurance system which will help to make Private Health Insurance (PHI) more affordable for older people. With the agreement of the Minister for Finance, Mr. Michael Noonan TD, there will be extra age-related income tax credit for insured persons aged 60 years and over, from 1 January 2012. This credit is provided as a tax relief at source – that is, the cost of the policy is reduced by the amount of the age- related income tax credit. The age- related credit is in addition to the standard rate income tax credit on all health insurance policies. The new rates will be included in the forthcoming Finance Bill.
The measures are designed to result in no overall increase of premiums paid in the market and to spread the risk more evenly between the healthy and the less healthy, the old and the young.
These measures are being taken under the Government’s Interim Scheme of Risk Equalisation.
Minister Reilly said:
Health insurance is becoming harder to afford for older people as insurers increasingly tailor their insurance plans towards younger, healthier customers. The Government is strongly committed to protecting community rating, whereby older and less healthy customers should pay the same amount for the same cover as younger and healthier people. The changes I am announcing will provide further necessary support to community rating.
Community rating of health insurance is at the very heart of our system. It will remain so under Universal Health Insurance. The PHI market has become increasingly segmented over recent years with insurers offering tailored packages to younger people that are designed to be unattractive to older people, while at the same time increasing the price of plans they offer to meet the needs of older people. I am very unhappy about this trend and I have raised the issue directly with the insurers. This measure I am announcing today is designed to support the protection of older, less healthy people.
The Minister said that the action he is taking now is in line with his plans to move to a system of Universal Health Insurance from 2016. Under UHI, everyone will be insured for health care, and the current unfair distinction between public and private patients will be removed. In the meantime, the Minister is focusing on addressing the problems of the current Private Health Insurance market, where insurers have a considerable financial incentive to cover younger, better risks rather than older, poorer risks.
A key concern for the Minister will be to reduce the cost of claims experienced by health insurers, so that we can achieve a more cost effective market with greater competition.
Minister Reilly said:
I firmly believe that health insurers have the scope to reduce their costs significantly, and I am happy to work with them to identify how this can be done. Costs in recent times have been allowed to increase unnecessarily and I want to see these brought back to more sustainable levels in order to keep health insurance affordable for as many people as possible. The Consultative Forum on Health Insurance which I announced last week has great potential in this regard.
The Minister said that the legislation passed earlier this month extended the present Interim Scheme of Risk Equalisation for a further year, into 2012. The increased rates to be applied under the scheme from 1 January 2012, which he is now announcing, will ensure that insurers have greater incentive to offer policies aimed at older customers.
The analysis carried out by the Health Insurance Authority, which makes recommendations on the rates that should be applied each year, estimates that the changes will have only a modest impact on insurance premiums. The increased support for community rating will mean an average rise of approximately €30 for insurers with the better risks in the market and a corresponding fall of some €30 per insured person for those with poorer risks. Any negative impact on premiums paid by the consumer would be further reduced by 20% due to the standard rate income tax credit on all health insurance policies.
The Minister will shortly announce details of a new permanent Risk Equalisation Scheme to be introduced from 1 January 2013. This will build further on the impact of the Interim Scheme to close further the gap between costs in insuring older and younger customers. It will continue the objective of making health insurance more affordable for older people.
The Minister today announced revised rates for 2012 which will increase the support levels in respect of older customers, so that health insurance will be made more affordable for them. Without this support, health insurers have a strong financial incentive to ‘segment’ the market by offering policies targeted at younger people. This has the effect, if unchallenged, of driving a wedge between young and old, the healthy and the less healthy. It means that insurers can make huge profits on younger, healthier lives while charging more and more for the very policies which older people need.
The revised rates have been recommended by the industry regulator, the Health Insurance Authority and they are summarised in the table below. The table shows the tax credits by age group, which are funded by a community rating levy on every health insurance policy.
It is important to emphasise that, even with these changes there is a significant additional cost for an insurer to insure an older person. For example, these measures will reduce the average net claims cost to an insurer for an 80 year old from €1,580 in 2011 to €835 approximately in 2012. Under UHI it would be the intention to ensure that these additional costs are shared as evenly as possible across the population.
The overall impact of the measures is designed to Exchequer neutral.
Vhi Healthcare response to changes to the Levy and Age Related Tax Relief at source
- Welcomes increased support for the healthcare costs of older customers
4th January 2012 - Vhi Healthcare has welcomed the Department of Health’s announcement regarding amendments introduced for 2012 to the levy and age related tax relief at source system in the private health insurance market calling it a step in the right direction to safe-guarding the future of community rating and therefore keeping health insurance affordable for all.
According to Declan Moran Chief Executive, Vhi Healthcare “Today’s announcement, while by no means 100% effective in funding the healthcare costs of older customers, is a step in the right direction towards the implementation of a proper risk equalisation scheme to under-pin the social policy of community rating. Community rating was intended to ensure that the cost of healthcare should be shared proportionately by everyone who was insured. A robust and effective risk pooling system is absolutely essential to protect community rating and support older customers. As the Government moves toward the implementation of a universal health system this is an absolute imperative.”
Recent figures from the HIA show that at the end of September 2011, some 2,174,000 customers or 47.5% of the Irish population had private health insurance. Vhi Healthcare has 1,246,000 customers or 57%; Quinn Healthcare has 458,000 customers or 21%; Aviva Health Insurance has 382,000 customers or 18%; and restricted membership undertakings have 88,000 customers or 4%. Competition remains solely focused on younger lives and the most recent HIA statistics support this view. Vhi Healthcare’s market share has consistently fallen and this has been mainly in the younger age groups. Quinn Healthcare and Aviva Health Insurance combined currently have 47% of market share in the 30 to 39 years age group but only 9% of the over 80s. Vhi Healthcare now has eight times the proportion of members in the over 80 years age group than Quinn Healthcare has and six times the proportion in this age group that Aviva Health Insurance has.
According to Declan Moran, Chief Executive, Vhi Healthcare “In order to have a truly competitive marketplace you need to regulate the market in such a way that it is equally attractive to insure an 80 year old as it is to ensure a 30 year old. It is only then that you will see the market function correctly. As it stands new entrants to the market basically cherry pick younger customers leading to market segmentation and ultimately older customers paying more.“