Why private health insurance may get cheaper

You pay €3.48 on every bottle of wine, 90 cent on a litre of petrol and € 399 on a health insurance policy, but who does it go to? Not to the vineyard in France, nor to the big oil companies, but to the Government.

It may be galling to realise that the quality of that €7 bottle of wine might not be the greatest, given that the producer will see much less than half of the purchase price, but given the extravagant price hikes the health insurance sector has imposed in recent years, realising that so much of your policy goes to the Government might distress you even more.

What is the levy?

The health insurance levy was introduced in 2009 to compensate insurers for bearing a disproportionate amount of risk by having older, more expensive members.

The money goes into a central exchequer fund and is then redistributed to insurers based on their level of claims under risk equalisation.

So insurance companies that have mostly younger members who don’t make claims aren’t compensated and those with older members are. Given the age profile of its members, VHI is the biggest beneficiary of the fund.

Since its introduction, there have been "colossal" increases in the levy, says Dermot Goode of Total Health Cover. It has jumped from € 160 to €399 per adult, an increase of 144 per cent. Children are levied at a rate of €135 a year.

The levy has put upward pressure on the cost of private health insurance (PHI). The resulting combination of rising prices and a difficult economic environment has led to 250,000 people dropping out of the system.

However, the consensus now is that the rate of decline has slowed, although Goode fears that health insurance numbers may dip below 2 million for the first time since 2002/2003 in the first quarter of this year, reflecting price hikes of between 15 and 20 per cent last year, which people are feeling now as they go to renew their policies.

Students

pay the adult rate One criticism of the scheme is that the levy is imposed at the same rate, regardless of whether the annual premium is €

5,000 or €500, although a reduction is allowable for so-called “non-advanced” policies, which provide cover only for public hospitals.

But it's not the only anomaly, as one Irish Times reader discovered to her dismay when she tried to convert a health insurance policy for her child into its student equivalent and was shocked by the price she was quoted: students pay the levy at an adult rate. "It makes no sense whatsoever," says Goode, who advises parents that there is a way around this.

Indeed, some insurers will offer significantly discounted student rates on certain plans. VHI, for example, is offering half-price rates until February 28th on selected children and students’ plans, even if it at first appears uneconomical to do so. As our table below shows, with a student rate on Laya’s Essential Plus (with excess), the levy actually represents 132 per cent of the cost of the plan, but gaining a family may make financial sense to the insurer in the long run.

So, it pays parents to shop around and find one of these special offers. As Goode notes, this may mean splitting cover with different insurers and putting, for example, one adult and a student on a different policy to the rest of the family.

Change may be on the way as it's understood that Minister for Health Leo Varadkar is open to restructuring how students pay the levy, but that would require European approval.

But, as John Armstrong, European head of health pricing in Aviva Europe, says, the current levy regime expires this year and it will have to be refreshed next year, which may be an opportune time to reassess the contribution on student policies.

Relief

is on the way This year,

for the first time since it was introduced, the Minister has promised there will be no increases to the levy. He has even signalled a decrease for those on non-advanced policies.

“It was quite an important change this year,” says Armstrong, adding that there is a need to achieve a balance around affordability.

If too many PHI members, particularly young people, drop out due to rising prices, the burden of paying for older members rises. The change to non-advanced policies means that the adult rate will fall 17 per cent to €240, and the child rate by 20 per cent from €100 to €80 as of March 1st. However, Goode says only about 15 per cent of the population avail of these plans.

But more changes are on the way in the form of the introduction of the Lifetime Community Rating scheme on May 1st. This will signal significant changes to the health insurance market, one of which is allowing insurers to offer price discounts for people aged between 21 and25, in an effort to stem the flow of young people giving up on private health insurance.

These discounts are discretionary, however.

“There is no guarantee they will do it; they don’t have to pass it on,” says Goode, noting that insurers can already offer discounts to people aged up to 23, but they don’t.

If the insurers do adopt them, they will likely be available only on certain plans, but they could be attractive.

“Watch this space; it may be worthwhile switching to chase the offer,” says Goode.