Minister Reilly announces changes to Risk Equalisation Credits to protect community-rated health insurance for all
The Minister for Health Dr. James Reilly TD today (12 November 2013) announced changes to risk equalisation credits that will apply in the private health insurance market from 1st March next.
Risk equalisation is a vital support to community rating – a core principle of the Irish private health insurance market – which means that everyone pays the same price for the same product, regardless of age or health status. This helps to make sure that health insurance is as affordable as possible for older and less healthy customers.
Minister Reilly said:
“I am determined to protect community rated health insurance as a vital part of our health system. We need community rating now, and we will need it in the future as we move to Universal Health Insurance.”
Under the Health Insurance Acts, the Minister for Health sets the rates for risk equalisation credit and the Minister for Finance sets the rate of stamp duty required to fund those credits.
Different risk equalisation credits apply to ‘advanced’ and ‘non-advanced’ health insurance policies. There is no change to the stamp duty payable on lower cost ‘non-advanced’ health insurance – helping to ensure that the option of lower cost health insurance remains available.
The stamp duty for health insurance products providing ‘advanced’ cover will increase from €350 to €399 per adult and from €120 to €135 per child.
Minister Reilly said:
“Given the cost pressures many households face, I was very reluctant to recommend increases on stamp duties at all, even for products providing ‘advanced’ cover. However, my priority is to direct support where it is most needed and these revised risk equalisation credits will subsidise health insurance for our most vulnerable patients.”
Minister Reilly is committed to improving the effectiveness of the permanent risk equalisation scheme that he introduced last year The Health Insurance (Amendment) Act, 2012 introduced a permanent risk equalisation Scheme (RES) in the Private Health Insurance Market, with effect from 1 January, 2013., and these changes contribute to that goal. The new risk equalisation credits will compensate for:
- 78% of the higher claims costs of people in their 70s (up from 75% this year); and
- 86% of the higher claims costs of those in their 80s (up from 83% this year).
Minister Reilly said:
“I want the private health insurers to be ready for Universal Health Insurance (UHI), which will provide a single tier health system, based on the key principles of fairness, affordability, choice and equal access for all. The steps I am taking today continue the path to UHI by protecting community rating through enhanced risk equalisation and by promoting a sustainable market for competitive health insurance.”
Finally, the Minister said that he will continue to work to address unacceptably high costs in the private health insurance sector. He will shortly receive an independent report from Pat McLoughlin, who he appointed this summer as Chair of the Consultative Forum on Private Health Insurance, which will make recommendations on addressing high costs in the industry. It is critically important that private health insurers take all action necessary to drive down high costs in the Irish healthcare sector, in a well regulated and competitive market. Minister Reilly is committed to working with all insurers to achieve real cost reductions that will benefit consumers.
Note for Editors
The Risk Equalisation Scheme (RES) provides risk equalisation credits (based on age, gender and level of cover) in respect of insured people aged 60 and over. These are funded by stamp duties levied on insurers in respect of insured lives covered. Details of the new risk equalisation (RE) credits and stamp duties and are set out below.
The RES is self-funding i.e. the cost of credits is met by the stamp duties raised. The system is operated by the Health Insurance Authority (HIA), an independent statutory body. The new rates will apply from 1 March 2014.
RISK EQUALISATION CREDITS AND STAMP DUTY LEVY 2014
Risk Equalisation Credits
The table below details RE credits applying up to 28th February 2014 (‘old’) and the new credits applying from 1st March 2014 (‘new’).
As a general proxy for health status, a Hospital Bed Utilisation Credit (HBUC) is also paid for each hospital stay involving an overnight stay in a hospital bed in private hospital accommodation. From 1 January the HBUC will also be payable in respect of patients with private health insurance cover occupying public hospital beds.
For policies effected from 1st March 2014, the HBUC will be reduced from €75 to €60.
The recommended rates of stamp duty required to fund the RE credits are set out below:
Background information on Risk equalisation
Community rating, reflecting the principle of intergenerational solidarity, is a fundamental cornerstone of the Irish health insurance market. It means that the level of risk that a particular consumer poses to an insurer does not directly affect the premium paid. It also means that premiums for younger or healthier lives are typically higher than their expected claims would require, whereas for older or less healthy lives, premiums are typically lower than the expected claims would require.
An effective and robust risk equalisation scheme is an essential support to community rating and is required in order to protect affordability for those who need it most. Risk equalisation is a process that aims to neutralise, in an equitable manner, differences in health insurers costs that arise due to variations in the health status of their members. Without a robust RES there are clear negative implications for older or less healthy consumers. In addition, there are serious potential consequences for the stability of the market and the sustainability of insurers. On the positive side, an effective RES creates an incentive for insurers to focus on innovation, greater efficiencies and improved customer service rather than selecting customers based on risk. This is the kind of competition that is best for consumers.
The Scheme provides for risk equalisation credits (payable from a Risk Equalisation Fund (REF) administered by the Health Insurance Authority) in respect of private health insurance premiums by insured persons aged 50 years and over, based on age, gender and type of insurance cover, and a specified amount per night in respect of each hospital stay involving an overnight stay in a hospital bed in private hospital accommodation. The RE credits are funded by a stamp duty payable by open market insurers in respect of each insured life covered.
- The Scheme provides that health insurers receive higher premiums in respect of insuring older people, but that older people receive RE credits equal to the amount of the additional premium so that all people continue to pay the same amount for a given health insurance product.
- The RES provides for a cost subsidy from younger, healthier people to older, less healthy people. Compensation is provided in favour of the individual consumer and not in favour of any particular insurance company. A company with a worse than average risk profile (and therefore higher claims costs) will be a net beneficiary from the scheme while a company with a greater proportion of younger and healthier people will be a net contributor to the scheme but will benefit from having much lower claims costs.
- The RES encourages efficiencies as it compensates insurers for only a proportion of the higher costs of insuring older and less healthy people.
- The measures contained in the Risk Equalisation Scheme are designed to result in no overall increase of premiums paid in the market. The aim is to spread the risk more evenly between the healthy and the less healthy, as well as between the old and the young.
- With effect from the 1 March 2014 the risk equalisation credits will direct support where it is needed most (those aged 70 and above). For example: the risk equalisation credit for a 73 year old male with advanced cover has increased by €150 (9%) from €1700 in 2013 to €1,850 in 2014. The risk equalisation credit for an 85 year old female has increased even more, by €450 (20%) from €2,275 in 2013 to €2,725 in 2014.
|Age of customer||40 years||70-74 years||85+|
|Net Amount paid by policyholder to insurer (cost is the same for everybody)||€1,200||€1,200||€1,200|
|Risk equalisation credit claimed (from the Risk Equalisation Fund) by insurance company in respect of insuring an older person||Nil||€1,850||€2,725|
|Total amount received by insurance company (excluding any amounts received in respect of hospital bed utilisation credit (HBUC)||€1,200||€3,050||€3,925|
- The stamp duty increase which is effective from 1 March, represents no increase on products providing non-advanced cover (€290). In the case of products providing advanced cover the increase is €49 (14%). This increase is required to take into account the impact of aging of the market and claims inflation as well as fund the improvement in the schemes effectiveness for those who need the support most (overs 70’s).