Private health insurance still pulling in the crowds despite increases

The headlines might lead us to believe that the numbers enrolled in private health insurance are plummeting, but the reality is somewhat different.

Despite repeated price rises since 2008, more than two million Irish people still have private health insurance – and this despite high levels of unemployment, austerity budgets and falling incomes.

Indeed, while some 200,000 people giving up their private cover may be a stark statistic, a decline in cover of under 10 per cent is a lot less than one might have expected given the circumstances.

Unfortunately for consumers however, it demonstrates to health insurers just how reluctant we are to rely on the over-stretched, under-funded public health system. Given how “inelastic” demand for health insurance really is, with people apparently willing to stomach a seemingly never-ending stream of price increases, what will make insurers stop putting prices up?

Very little it appears. So far this year, the four health insurers operating in the market have announced price hikes of an average of about 7 per cent each. The reason? The Government’s decision to increase the health insurance levy, by ¤65 per adult and ¤25 per child, from March 31st as part of its revised risk equalisation plans.

Since 2009, the levy has jumped by 119 per cent per adult up to ¤350, and 126 per cent per child up to ¤120.

This means that for those consumers on entry-level plans, the levies now equate to a very high proportion of their overall insurance premium; in some cases, more than 40 per cent.

Imposition of levy
The goal of risk equalisation is to ensure that everyone is charged the same cost for health insurance cover – regardless of their age. In practice this means the imposition of a levy to support the VHI, which has a preponderance of older customers, which in turn pushes up the volume and cost of claims. Indeed, the insurer has a 56 per cent market share, but is paying nearly 80 per cent of claims.

According to the insurer, this puts significant pressure on its cost base. “The vast majority of older and sicker customers in the market are VHI Healthcare customers,” the insurer claims, adding that for every ¤100 it takes in through premiums, it will pay out close to ¤98 in claims.

But if, as the VHI has asserted, the current risk equalisation scheme is “ineffective”, does this mean that from April 1st prices will stabilise at the State-owned insurer once the higher levy kicks in? We’ll have to wait and see.

After all, it’s not just risk equalisation that is pushing insurance premiums up. An increase in charges from public hospitals is also hitting insurers, as the Government increases costs for privately insured patients occupying a public bed.

“Private health insurers have no ability to negotiate with public hospitals over their charges,” asserts a spokeswoman for GloHealth, noting that the insurer “has no ability to control these costs”.

Increased cost of premiums
At a recent Oireachtas committee meeting, Brian Dunne, chairman of Aviva Ireland, went so far as to say that such increases are not just of the "utmost concern" for the insurer, but that it could have implications for the "sustainability of the market as a whole. Any move to re-designate bed charges will inevitably and substantially drive up premiums because insurers simply cannot bear the cost and remain in business," he says.

Indeed Laya Healthcare has increased the cost of its premiums by about 50 per cent since April 1st, 2011, and attributes about half of this rise to decisions made by the Government.

The insurer claims that such policies have “created a price spiral whereby thousands of young, healthy people are being forced out of the private health insurance market due to escalating costs”.

It is this last point that is of particular concern. While people in general may not be deserting health insurance in droves, younger people most definitely are. In 2011 for example, the number of people aged 18-29 with health insurance stood at just 267,629 – a decrease of almost 20 per cent on 2008. If this trend continues, how will the recently revised risk equalisation scheme work if there aren’t enough younger members to support an increasingly ageing population? For now then, it doesn’t appear likely that there will be a slow-down in price increases anytime soon. But how much more can consumers take?

While GloHealth does not “envisage further increases this year”, it notes that the Government’s intention to continue to increase the cost of public beds “will drive further increases next year and beyond”.

So what can consumers do? The advice must be to renew your policy as soon as you can, if possible, before another round of price hikes kick in. Shopping around can also help – Laya, for example, is set to decrease the cost of its Essential Plus product by 17 per cent from April 1st.

Alternatively, consider down-grading your policy, reducing the level of private cover.

Consumers also need to be aware of certain tactics that insurers will use to downplay the extent of price increases. For example, you might find that the cost of your policy doesn’t change – but the cover it provides has been diminished. Similarly, some insurers will try to bring in additional increases to particular plans, away from the spotlight of headline price hikes. Failing that, you can take your chances on the over-burdened public system.