The Government’s reform plans for the private health insurance market can be seen as an attempt to stabilise a sector which has been in turmoil over recent years .
Since the market reached its peak in 2008, when almost 2.3 million people were covered, the numbers with private health insurance have fallen by about 280,000.
This has huge implications for the Government and the public health service, which will have to cater for potentially hundreds of thousands of people who previously had their health needs taken care of by the private sector.
More worryingly for the market, there has been a disproportionate fall-off in the numbers of young people in the profitable 18-29 year age group with private health insurance. Since 2008 about 100,000 in this age bracket have dropped their cover altogether.
The recession, unemployment and emigration played a part in the fall-off in the numbers covered by private health insurance. However almost certainly a succession of often steep price rises in recent years also pushed people out of the market.
In 2008, for example, the average premium paid per person was €728.20. By last year, this had risen to €1,150.
Official Department of Health statistics given to Minister for Health Leo Varadkar estimate that average premium prices increased by 10 per cent between 2012 and 2013 and rose by 58 per cent between 2008 and last year.
Medical inflation tends to run at a faster rate than general inflation, direct actions by the Government – particularly in increasing the cost of private facilities in public hospitals – has also been responsible for the price rises.
Consumers were also hit by a cap on health insurance tax relief introduced by the Government in the budget last October.
The Government has responded to criticism over the relentless rise in premium costs in recent years by urging insurers to control their costs.
Last year the then minister James Reilly commissioned former health board chief Pat McLoughlin to work with the industry and the Department of Health to draw up a report on cost reductions that could be introduced in the market.
The first phase of his report, containing 32 recommendations, was published last December. The second phase is due shortly.
Recommendations
One of the recommendations in the first McLoughlin report was the introduction of the concept of lifetime community rating as an incentive to encourage younger people to purchase health insurance.
In essence this would allow insurers to charge people who take out health cover later in life higher premiums and to provide financial incentives to younger people. At present most insurers provide discounts for students up to the age of 21.
However the Department of Health is concerned that on renewal after their 21st birthday, premiums for young people can rise by 100 per cent or more.
Dr Reilly suggested earlier this year that a sliding scale of discounts could be provided to young people up to the age of 24 years.
Mr Varadkar now plans to put in place both these initiatives but also intends to go further and seek a deal with insurers that would link a freeze on Government stamp duty to insurers holding off on further price increases.
In essence stamp duty levies paid by insurers on all health insurance plans go into a risk equalisation fund which is used to compensate companies who have a larger proportion of older – and relatively less profitable – subscribers.
The Government has argued that risk equalisation is vital to underpin the concept of community rating in the market where everyone pays the same for identical products regardless of age.
