A DISPUTE has erupted over the impact of a 40 per cent increase in the Government levy on private health insurance, announced yesterday. While the Government insists it will make the system more equitable, an insurance provider says it will make health insurance unaffordable for thousands of cash-strapped consumers.
The increase will see the levy, in place since 2009, increase from €205 to €285 for an adult and from €66 to €95 for a child, a rise that could mean a family of two adults and two children end up paying €220 more for health cover annually if companies pass on the increases.
However, this is by no means certain. The VHI, with more than 1.3 million subscribers, said it would not pass on the increase, while Aviva said it would absorb it for now. Quinn Healthcare said it would be difficult to absorb and claimed it would be “families and those on the lowest level of cover that will be most affected”.
The State provides age-related tax credits for older people to help meet the higher cost of health insurance and to ensure they pay the same amount net of these tax credits for their health insurance as younger adults pay. These credits are funded by a levy paid by health insurers.
Minister for Health James Reilly said yesterday’s move would make insurance more affordable for older people and he insisted the increases had been designed to result in no overall increase of premiums paid in the market.
“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,” Dr Reilly said.
He pointed out that the health insurance market had become increasingly segmented, with insurers offering younger people tailored packages that were designed to be unattractive to older people, while at the same time increasing the price of plans that met 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.”
Dr Reilly reiterated that health insurers had the scope to reduce their costs significantly and said he was “happy to work with them to identify how this can be done”.
He added that costs had been allowed to increase unnecessarily. “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 VHI claimed the levy was set up by the Department of Health to be cost-neutral.
“Money effectively moves between younger and older customers and does not cost the industry any additional money,” a spokeswoman said. “The measure does not favour one company over the other – all health insurers are treated equally. If other insurers are cherry-picking younger customers, it may impact them.”
Quinn Healthcare, which has about 400,000 customers, most of whom are in a younger demographic, expressed its extreme disappointment at the Governments decision and described it as “bad news for consumers”.
Its customers would now continue “to subsidise the inefficiencies of the unregulated VHI and those customers on the lowest-level schemes continue to carry a disproportionate burden of the health levy”, Quinn Healthcare said.
Managing director Dónal Clancy said: “Such dramatic changes to the health levy were not anticipated and, as usual, it is families and those on the lowest level of cover that will be most affected.”
He said Quinn Healthcare worked hard “to ensure that costs are kept as low as possible; however, such significant increases are difficult to absorb.
“Undoubtedly,” he added, “even more people will be forced into a public health system which is already buckling under intense pressure.”
Q&A
The cost of health insurance is going up again – surely not?
It may as the Government has increased the levy it imposes on all health insurance policies by 40 per cent with immediate effect.
Will premiums increase?
The VHI has said it will not pass on the increases to its customers, Aviva says it will absorb them for now, while Quinn Healthcare says the levy increases will be difficult to absorb.
What is the health insurance levy anyway?
Government policy is based on community rating across the health insurance system which means people are not unfairly targeted with higher premiums because of their age. The levy is a sticking plaster for a broken health insurance system. In simple terms it was introduced in 2009 to make healthcare more affordable for older people and to act as a disincentive for companies to exclusively target younger healthier and consequentially more profitable customers after a risk equalisation scheme collapsed following a long legal challenge by Bupa (remember it?)
How does it work?
Age-related tax credits are provided to older people to help them meet the higher cost of their health insurance – the older you are the more credits you get. But rather than funding these tax credits from exchequer funds, it makes the health insurers pay for them and process them on behalf of their customers.
Why is the VHI delighted and Quinn Healthcare furious?
The VHI has a disproportionate number of older customers when compared with its two rivals in the market, Quinn Healthcare and Aviva. As a result its costs are much higher. Unless there was some mechanism in place to address this, then VHI premiums would probably sky-rocket and leave many older people without cover.
But do companies not have to charge the same for a policy irrespective of the age of an applicant?
Yes, but they are not stupid and they quickly worked out how to adopt community rating while still targeting the more profitable end of the market.
Health insurance has become increasingly segmented over recent years and insurers now offer tailored – and frequently cheaper – packages to younger people that are carefully designed to be unattractive to older people.
They then increase the price of plans they offer that meet the needs of older people so they quickly become unaffordable.
So this move by the Government is good news then?
Well, it depends on whom you believe or how the story is dressed up. The increase could mean a family of two adults and two children will have to pay as much as €220 more for health cover annually if their insurance company passes on the increases – and some companies will pass on the increases – but it will also stop older and more vulnerable people being pushed out of the private health insurance net at a time when they most need the protection they have been paying for over many years.
Who gets the levy when it is collected?
Imagine €100 million is collected each year in levies. The age profile of the three companies in the market is examined and then the levy is divided up among the insurers based on the percentage of older people they have on their books. If the VHI has 85 per cent of the customers over 60, it gets €85 million back, while its two rivals only get €15 million. So, effectively, the two companies with the younger, more profitable policy holders end up subsidising the VHI.
This is why the State's largest insurer was delighted, while Quinn Healthcare was fuming. CONOR POPE