Saturday, December 20, 2008

The heavy levy!

In November the Government announced a new package of measures in the private health insurance market. This was in response to the surprise decision of the Supreme Court in July to quash the existing risk equalisation scheme that was a key part of our private health insurance market. Up to then there were a number of basic principles underpinning the private health insurance system here, such as community rating, risk equalisation, open enrolment and lifetime cover, (explanation of these terms here). Once the risk equalisation scheme was declared illegal, one leg of the stool was gone and the Government had to come up with a solution.

The Government claimed that the abolition of the risk equalisation scheme would lead to a massive increase in premia for older people. Obviously no one would be in favour of that, but I don't really know how that could be the case. Most older people are insured by VHI, they have 99% of the over-80s, and 90% of the over-60s in the market. Also I know the Government was in turmoil following the medical card fiasco, but looked more like a manufactured crisis to me. Yes companies could design schemes that were more attractive to younger people, but they could not refuse to allow an older person to join and as far as I know all schemes have basic entitlements. So rather than coming up with a solution that would have ensured the viability of the market overall and protected the sector from the collapse of one company, the Government in my view has come up with a scheme designed to protect the state company VHI, allow it to maintain its dominant position, stifle competition and most importantly drive up costs for consumers and indeed force some people to give up on private health insurance.

Do you talk "Insurance Jive"?

The Government response was two-fold, the three companies VHI, Quinn Healthcare and Hibernian Health will have to pay a levy of €160 on all adults over 18 and €53 on all on children insured by them. It is being claimed that this levy will fund additional tax relief for the over 50s. Basically the three companies will receive money from the state for the tax relief (as this is given at source) and will have to pay the levy on all their customers. It has been claimed that because VHI has a higher number of older customers it will receive more than it has to pay in the levy, some claim up to €30m, while the other companies will pay more to the state that they will receive in tax relief payments. So in effect this is risk equalisation by the back door.

When she made the announcement the Minister for Health Mary Harney T.D. stated that she hoped the levy would not be passed on to the consumer. Some chance of that, we can see what has happened, VHI and Quinn have increased their premiums by 23% and 16% respectively and Hibernian yesterday also increased their premiums. The end result of all this is that younger people, many with families may have to cancel their policies and are less likely to take it out in the first place, because the prices are going up and they are getting no additional tax relief. This is especially so in the current economic environment. That is not good news because stated Government policy has been to encourage people to take out health insurance as early in life as possible. In 1999 the Government promised to introduce lifetime community rating, the idea that those joining later in life could be charged more and also I believe would have to include provisions for reductions for those who have been members for a long period. Nothing happened, although they are promising to introduce it now again ten years later. At the moment a person joining at 60 will pay the same premium as a person who joined at 30 and has been paying the premium for 30 years. The only difference is that as you get older the period you need to wait to be covered after joining increases from 6 months for those under 55, a year for those 55 to 64 and 2 years for those over 65.

The new scheme will apply retrospectively from January 1st 2009 once the legislation is published and passed in next legislative session. Hibernian Health has launched an "Axe the Levy" campaign and both they and Quinn have stated they are considering their legal options. Its unlikely the Government will change their mind now, although they may accept some adjustments to the promised legislation. They also say this is a temporary 3 year measure to allow time to come up with a comprehensive plan for the sector. Could we be going the route of universal health insurance as promised by Obama in the States?

We definitely need a well thought out plan for the future of the sector in Ireland, that meets our health needs and is competitive and affordable. If a universal plan can do that, I say yes. In the meantime we are stuck with a levy and a plan that appears designed to prop up a state company, where consumers and patients are the main losers.

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