Tánaiste decides against introduction of risk equalisation in health insurance market at this time
The Tánaiste has, today (Monday 27th June), decided not to trigger risk equalisation payments in the health insurance market, at this point in time.
The Government is committed to the maintenance of community rating and the Tánaiste reaffirms her view that risk equalisation is a necessary support, in certain circumstances, in a community rated market such as ours.
The Irish private health insurance regulatory system, incorporating community rating is designed to benefit consumers by ensuring that private health insurance does not cost more for those who need it most. Community rating relies on inter-generational solidarity, which means that the younger, healthier people effectively subsidise older people, who have higher claims, the underlying premise being that they (the younger people) themselves will be subsidised by future generations.
However, the Tánaiste said an introduction of risk equalisation payments at this time would be premature in advance of a Government decision regarding the commercial status of the VHI. She intends to bring proposals to Government in this regard shortly. She also said that deferring a decision would allow time for further corroboration of trends both in risk profile and competition in the market, and in this regard she looks forward to receiving the Health Insurance Authority’s next report.
The Tánaiste thanked the Authority for its thorough and comprehensive review of the current position of the market and for the discharge of its statutory duties in a very considered and responsible manner.
Note for Editors:
The Current Regulatory Structure
- The key principles of community rating, open enrolment, lifetime cover and minimum benefit have played a crucial role in making private health insurance cover accessible to a substantial proportion of the Irish population and, in particular, to higher risk groups such as the elderly and the chronically ill.
- Community rating means that the level of risk that a consumer poses to an insurer does not affect the premium paid. In other words, everybody is charges the same premium for a particular plan, irrespective of age, gender and the current or likely future state of their health.
- Open Enrolment is a practice whereby all applicants for private health insurance must be accepted by a health insurer regardless of their age and risk status, subject to prescribed waiting periods.
- Lifetime Cover guarantees health insurance consumers the right to renew their policies irrespective of factors such as age, risk status, or claims history. Under normal circumstances, an insurer is obliged to renew an insured person’s policy and may not terminate the policy.
Minimum Benefit Regulations introduced in 1996 ensure a level of benefit that must be provided by all insurance contracts that provide cover for in-patient hospital services.
Risk Equalisation is a process that aims to equitably neutralise differences in insurers’ costs that arise due to variations in the health status of their members. Depending on the extent of the variation, risk equalisation may result in cash transfers from insurers with lower risk members to insurers with higher risk members. Provision for the operation of risk equalisation is concomitant to the policy of a community rated health insurance market.
Origins of Risk Equalisation in the Irish Market
The original 1996 Risk Equalisation scheme was signed into law on 28th March 1996 and was therefore in place when BUPA announced its entry to the Irish market the following month, and applied for entry onto the Register of Health Benefit Undertakings in October 1996. The original scheme, in draft form, had been made available to BUPA in 1994 and 1995, and it had held discussions with the Department of Health and Children on the matter as early as December 1993.
In order to carry out a more thorough examination of the necessity of risk equalisation and to ensure that the provisions of any future scheme were proportionate and did not unduly affect the opening of the PHI market to competition, the 1996 scheme was revoked in 1998 in the context of the preparation of a White Paper on Private Health Insurance.
Following widespread public consultation the 2001 Health Insurance (Amendment) Act was enacted amending the risk equalisation provisions of the ’94 Act, principally as follows;
The enhancement of the role of the independent Health Insurance Authority
Revision of the criteria by which risk equalisation may be triggered from an automatic triggering when the market equalisation percentage exceeded 2%, as provided for in the original scheme to a broader 2% to 10% discretion on which the Health Insurance Authority may form its recommendation, taking other factors into consideration such as the best overall interests of health insurance consumers.
It is interesting to note that the first two market equalisation percentages were 3.7% and 3.5%, i.e in excess of the original trigger as provided for in the 1996 scheme, yet on both occasions the Authority decided against recommending that risk equalisation be introduced.
EU Commission’s decision on Risk Equalisation
In January 2003, Irish authorities formally notified the EU Commission of the scheme. This notification was on foot of a complaint made by BUPA Ireland to the EU Commission that risk equalisation constituted an illegal state aid.
The Directorate General for Competition of the European Commission notified the Irish Authorities in May 2003 that it had decided not to raise objections to the scheme on state aid grounds.
This decision is being appealed by BUPA to the EU Court of First Instance.
The current state of the market
Total Premium Income at the end of 2003: €978.2 million
Total Insured Persons for the same period: 2 million
Membership / Latest Annual Claims Paid
- VHI: 1,550,000
- BUPA Ireland: 400,000
- Restricted Memberships (Gardaí, Prison Officers , ESB): 80,000
PHI as a % of the total population in Ireland, a community rated market: 50%
PHI as a % of the total population in the United Kingdom, a risk rated market: 12%