Health insurance Q&A: All about Lifetime Community Rating

Calls to health insurance companies have increased by as much as 500 per cent as people scramble for cover before the introduction of Lifetime Community Rating (LCR) later this week.

The deadline for people aged over 34 to take out health insurance for the first time without being penalised on age grounds is midnight on Thursday and all four companies in the private health insurance market – VHI, GloHealth, Laya and Aviva – have reported a massive surge in people making contact.

I don't have health insurance and am hearing talk of a deadline. Should I be concerned? It depends on how old you are and whether or not you ever intend to take out private health insurance.

Explain. If you are in you mid-20s and don't really want health insurance then the arrival of LCR won't make much difference to you. If, however, you are 34 or older, then LCR could make a massive difference to the affordability of private health insurance now and for a very long time to come. And unless you do something before midnight on Thursday you might find the cost of your premiums in the future rocketing.

Remind me what LCR is. Under the new LCR regime which starts on May 1st, anyone aged over 34 who does not have private health insurance will have to pay higher prices if and when they do take out a policy.

How much higher? That depends on how much older than 34 they are. For each year a person goes over that age, they will have to add 2 per cent to the cost of the annual premium. So if , after the deadline, a 35-year-old takes out a policy that costs €1,000 they will have to pay €1,020 – the actual price plus a 2 per cent age-related surcharge. If they are 40, the policy will cost €1,120 and €1,320 if they are 50. The maximum loading is 70 per cent for someone aged 69 or over. That means the €1,000 policy would cost €1,700 for a 70-year-old who takes out insurance for the first time.

But that's just for the first year, right? Wrong. If a person misses the deadline they will be stuck paying an extra 2-70 per cent for as long as they hold on to the insurance. This means that a 70-year-old who takes out a €1,000 policy after the deadline and lives to be 100 will pay €21,000 more over the course of the policy than someone who takes out the policy before the deadline.

That's a lot of money. Why are they doing this? Actually, for good reasons. We have a community-based system of health insurance – as opposed to the risk-weighted system they have in the US and Britain. This means we pay the same for our insurance regardless of age or state of health – the likelihood of us needing medical care is not a factor in the cost. This keeps costs down for an older cohort but the community-based system relies on inter-generational solidarity. Younger people are needed in the market to keep costs for older people down. They have been leaving the market in recent years which has put the system under pressure.

So what do I need to do? If you have put off getting cover and are 35 or older then seriously consider getting it now.

But health insurance is very expensive, right? It can be but all of the health insurance companies have launched low-cost plans in recent weeks to get people to sign up before the deadline. The cost of some annual policies is now less than €400.

Are they any good? Well, when it comes to health insurance you get what you pay for. The cheap as chips cover does not cover rooms in private hospitals but does cover some consultant care. You'll have to pay at least €800 for a decent policy.

So there is no point in getting the cheapest option? There is. The new structure won't impact on upgrading your cover so you could pay for a cheap policy now and upgrade later. Existing rules restricting your cover to your previous level of cover for up to three months or up to two years for existing medical conditions will stay in place.

I had insurance but stopped it two years ago, where do I stand? Previous periods of cover will be taken into account. If you had cover for five years in your 30s, but cancelled it, and take out insurance now at 50, these five years of cover will be taken into account. The credit does not apply to periods of cover as a child.

Anything else? If you stopped your cover on or after January 1st, 2008, because you were made unemployed, you will get a credit, for up to three years. This means your loading will be calculated on the basis that you had cover for a maximum of three years if you were unemployed.