Press Release

Minister Reilly welcomes EU approval of new permanent Risk Equalisation Scheme in the Irish Private Health Insurance Market

Dr James Reilly TD, Minister for Health today (20th February 2013) welcomed the official announcement by the EU Commission approving the new Permanent Risk Equalisation Scheme in the Irish Private Health Insurance Market. The new scheme came into effect from 1 January, 2013 when it replaced the previous Interim Scheme and fulfils the Programme for Government commitment to put a permanent scheme of Risk Equalisation in place.

The maintenance of a healthy and functioning private health insurance market is an essential step to facilitate the transition to a market-based Universal Health Insurance system, and the new Risk Equalisation Scheme is a crucial step towards achieving this. The scheme helps to keep private health insurance affordable for older and less healthy people.

Minister Reilly said “This new scheme puts in place, for the first time in this country, a permanent and robust system of Risk Equalisation. The scheme is budget neutral and has no overall impact on the costs in the market. It supports competition by encouraging insurers to move their focus away from avoiding older, less healthy customers and towards innovation, achieving greater efficiencies and improved customer service. This is the kind of competition which is best for consumers. I am pleased that the Commission continues to support the Government’s efforts to maintain community rating in the Irish health insurance market ”

Ends

Background note for Editors

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.

Risk Equalisation

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 Health Insurance (Amendment) Act, 2012 provides for the introduction of a permanent Risk Equalisation Scheme (RES) in the Private Health Insurance Market, with effect from 1 January, 2013.

The key measures in the Act are

  • firstly, the provision of risk equalisation credits ( payable from a new Risk Equalisation Fund (REF) administered by the Health Insurance Authority) in respect of
    • the payment of private health insurance premiums by insured persons aged 50 years and over, based on age, gender and type of insurance cover.
    • €75 payment per night in respect of each hospital stay involving an overnight stay in a hospital bed in private hospital accommodation
  • secondly, the 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 encourages efficiencies as it compensate insurers for only a proportion of the higher costs of insuring older and less healthy people
  • The RES provides for a cost subsidy from younger, healthier people to older less healthy people and the 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 considerably from having much lower claims costs.
  • The measures contained in the new Risk Equalisation Scheme are designed to result in no overall increase of premiums paid in the market, rather it is intended to spread the risk more evenly between the healthy and the less healthy, as well as the old and the young.
  • With effect from the end of March 2013 the risk equalisation rates will increase substantially over 2012 levels for higher risk groups, particular men aged 70 and above. For example: the risk equalisation credit for a 75 year old male with advanced cover has increased by €400 (20%) from €2,025 in 2012 to €2,425 in 2013. The risk equalisation credit for an 85 year old male has increased even more, by €675 (25%) from €2,700 in 2012 to €3,375 in 2013.
  • The Levy increase effective from 31 March, represents an increase on a non-advanced product of €5 for a child or an adult. In the case of an advanced product the increase is €25 in the case of a child and €65 in the case of an adult. This increase is required to take into account the impact of aging of the market and claims inflation as well as fund the increased rates of RE credits being provided.

Risk Equalisation Credits 2013

Age Bands Age-related risk equalisation credit

from 1 January 2013 to 30 March 2013 *

Age-related risk equalisation credit with effect from 31 March 2013
Non-Advanced Advanced
Men Women Men Women
59 and under €NIL
60-64 €600 €375 €250 €425 €275
65-69 €975 €900 €650 €1,050 €775
70-74 €1,400 €1,450 €975 €1,700 €1,150
75-79 €2,025 €2,050 €1,550 €2,425 €1,800
80-84 €2,400 €2,850 €1,925 €3,375 €2,275
85 and above €2,700 €2,850 €1,925 €3,375 €2,275
85 and above €2,700 €2,850 €1,925 €3,375 €2,275

Stamp Duty 2013

Age Bands Stamp duty from

1 January 2013 to 30 March 2013 *

Rates of Stamp duty with effect from 31 March 2013
Non-Advanced Advanced
17 and under € 95 €100 €120
18 and over € 285 €290 €350

* The same rates for credits and stamp duty which applied in 2012 under the Interim Scheme will be retained until 31/3/2013 under the new scheme.