Press Release

Varadkar announces Private Health Insurance Package to address rising premiums

Varadkar announces Private Health Insurance Package to address rising premiums

Small increase in subscribers in third quarter

Minister for Health Leo Varadkar has announced a series of measures designed to address rising premiums and stabilise Private Health Insurance in the interests of consumers.

The Private Health Insurance Package includes a Reduction in Stamp Duty, special lower premiums for young adults, the introduction of Lifetime Community Rating, and a reduction in the Health Insurance Authority Levy.

It also includes key recommendations set out in the two Pat McLoughlin reports on Private Health Insurance costs, and builds on Budget 2015 which included a freeze on hospital bed charges, and no decrease in the relievable amount for tax relief purposes.

Speaking today, Minister Varadkar said: “These measures are designed to work as a package and make private health insurance affordable again for as many people as possible. We want to try and limit the need for increases in premiums, and even secure some reductions if possible.

“I think the time is right to try a new approach. The economy is growing again and more people are back at work. Following a long period of rising premiums and a severe decline in health insurance cover, the number of policy holders is now showing modest growth. There was a modest increase of 1,000 in the number insured between July and September. I hope these new measures will allow that trend to continue, and I hope the insurance companies will respond favourably.”

Also today, the Department of Health published the second of Pat McLoughlin’s independent reports on Private Health Insurance costs. This was developed with the assistance of private health insurers, the Health Insurance Authority and the Department of Health. Minister Varadkar thanked Mr McLoughlin for his work.

 Key Measures in the Private Health Insurance Package

Reduction in Stamp Duty

The Risk Equalisation Scheme is designed to protect community rating by making it easier for older people to afford private health insurance.  The Scheme is funded by stamp duties levied on health insurance policies, and the money generated is used to pay Risk Equalisation credits to take account of the higher costs of older and sicker people in the market.

The Health Insurance (Amendment) Bills makes provision for:

  • Risk Equalisation credits (based on age, gender and level of cover) payable in respect of members aged 60 and over will be lower than last year;
  • The Hospital Bed Utilisation Credit (HBUC) which acts as a proxy for health status, is increased from €60 a night to €90[1] and is payable in respect of overnight stays for all ages; The combined impact of the HBUC and RE Credits brings the average net claims down to 130% of market average (133% in 2014).
  • The level of stamp duty to fund the Risk Equalisation credits is a 20% reduction in the levy for those aged 17 and under and a 17% reduction for those aged 18 and over, for products not providing advanced cover[2].
  • The adult and child rates of stamp duty for advanced products remain unchanged for the first time (last year it increased by €49).

The net effect of these changes is to further strengthen the risk equalisation scheme in 2015, while increasing the HBUC and lowering the RE Credits.  This improvement is achieved while reducing the level of stamp duty required to fund the RE credits for lower level products and maintaining current levels for products providing advanced cover.

These revised rates will apply from 1 March 2015 and follow the formal advice of the Health Insurance Authority.  The overall changes to the RES in 2015 will mean that the ‘effectiveness’ of the RES (i.e. the extent to which it compensates for the higher costs of older customers) will improve in the older age groups.  Most people over the age of 70 hold products providing for advanced cover. In this category, the revised rates will compensate for 81% of the higher claims costs for those over 70 and 88% of higher claims costs for those aged over 80.

Budget 2015 decisions

There is no decrease in the qualifying amount for tax relief purposes (of health insurance premia)  – the ceiling remains at €1000 for an adult and €500 for a child. Hospital bed charges have been frozen at current rates.

Lifetime Community Rating

LCR regulations were signed in July and will come into effect from 1 May 2015. The Health Insurance Authority will run an extensive communications campaign to publicise this significant change to the health insurance market, to ensure that everyone understands the measure, has enough notice of its introduction, and sufficient opportunity to purchase health insurance before the introduction of loadings.

Reduction in Health Insurance Authority levy

The Minister has decided to reduce the levy which insurers pay to meet the running costs of the Health Insurance Authority, to a nominal rate of just 0.01% of insurers’ premium income for two years, 2015 and 2016. This will result in savings for insurers of €2 million in both years. Thereafter, the levy will be set at 0.09%, a reduction of 25% on current levels.

Young Adult Rates

The Health Insurance (Amendment) Bill to be published tomorrow provides for ‘Young Adult rates’ of premiums. This will address the sudden increase in premium rates that occurs for most young adults after their 21st birthday, where premiums can increase by 100% or more.  Insurers will retain the discretion whether or not to provide Young Adult rates.

Where an insurer chooses to provide them, they must provide the full range of rates within the specified bands. This policy change also removes the requirement for young people to a dependant of an adult policy holder, or a full-time student dependent on parents.

Implement recommendations of Pat McLoughlin’s two reports on PHI costs

The steps outlined above are closely aligned to the recommendations of Pat McLoughlin’s   two-phase report on Private Health Insurance costs.  The first report was published in December 2013 and his second is published today. The reports recommended a scheme of Lifetime Community Rating and discounted rates for young adults which are now being put into place. The second report is being published today.

Further refining the Risk Equalisation Scheme from 2016 onwards

In 2014 the Department and the Health Insurance Authority commenced work on the development of a more refined health status measure using Diagnosis Related Groups (DRGs) by enhancing support for less healthy people of all ages under the Scheme that will operate from 2016 – 2018.

ENDS

Health Insurance (Amendment) Bill, 2014 and other measures to address costs in the Private Health Insurance Market

 Risk Equalisation Credits and Stamp duty levies for 2015

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 are set out below.

The RES is self-funding ie 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 Table below details Risk Equalisation credits and stamp duty levy applying in 2015 (1 Jan 2015 to 28 Feb 2015 and 1st March 2015 onwards)

Age Bands

 

Age-Related Risk Equalisation Credits

 

Non- Advanced

Advanced

Men

Women

Men

Women

1 Jan-

28 Feb

1 Mar onwards

1 Jan-

28 Feb

1 Mar onwards

1 Jan-28 Feb

1 Mar onwards

1 Jan-

28 Feb

1 Mar onwards

50-54

€0

€0

€0

€0

€0

€0

€0

€0

55-59

€0

€0

€0

€0

€0

€0

€0

€0

60-64

€250

€200

€200

€150

€450

€425

€325

€300

65-69

€575

€525

€400

€350

€1,150

€1,075 

€775

€725

70-74

€925

€825

€625

€600

€1,850

€1,750

 €1,200

€1,200

75-79

€1,200

€1,025

€950

€800

€2,500

€2,250

€1,925

€1,700

80-84

€1,575

€1,475

€1,150

€1,025

€3,200

€2,975

€2,250

€2,125

85 and above

€1,975

€1,750

€1,325

€1,125

€4,000

€3,725

€2,725

€2,475

Hospital Bed Utilisation Credit

1 March 2014 – 28 Feb 2015

1 March 2015 onwards

€60

€90

 

Stamp Duty Levy 2015

Age Bands

Non-Advanced

Advanced

1 Jan to 28 Feb 2015

1 March 2015 onwards

1 Jan to 28 Feb 2015

1 March 2015 onwards

17 and under

€100

€80

€135

€135

18 and over

€290

€240

€399

€399

 

Background information

Community rating

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 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 60 years and over, based on age, gender and level of insurance cover. In addition the Hospital Bed Utilisation Credit provides a specified amount per night in respect of each hospital stay involving an overnight stay in a hospital bed by an insured person. 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 strengthening of the RE scheme in 2015 will be achieved primarily by a  50% increase in the Hospital Bed Utilisation Credit (HBUC) from €60 a night to €90[3]  as a proxy for health status.

The RE Credits (payable in respect of age, gender and level of cover) required for 2015 are lower than last year because:

  • For older ages the combination of RE Credits and HBUC brings the average net claims cost down to 130% of the market average claim (133% in 2014).
  • Claims inflation is now much lower than had been projected for 2014.
  • The impact of ageing means that the average age in the market is increasing (which reduces the difference between the average claim and the claims rates for older people).

These changes will apply from 1 March 2015 and follow the formal advice of the Health Insurance Authority.  The overall changes to the RES in 2015 will mean that the ‘effectiveness’ of the RES (i.e. the extent to which it compensates for the higher costs of older customers) will improve in the older age groups.  The HIA calculates the rates of effectiveness for recent years as follows:

70-79 years 80 years +
2013 75% 83%
2014 78% 86%
2015 79%/81%* 87%/88%*

 

*Most people over the age of 70 hold products providing for advanced cover. In this category, the revised rates will compensate for 81% of the higher claims costs for those over 70 and 88% of higher claims costs for those aged over 80.  These changes are in line with the RE Policy Statement announced in November 2013 which sets a target of increasing effectiveness to 85% for those over 70 years and 90% in respect of customers aged over 80 years, by 2016.

The applicable RE credits are payable to the insurer directly and therefore the net amount payable by all policyholders remains the same. For example:-

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 €1,750 €2475
Total amount received by insurance company  (excluding any amounts received in respect of hospital bed utilisation credit (HBUC) €1,200 €2950 €3,675

 

Effective from 1 March, the stamp duty for products providing for advanced cover will be maintained at 2014 levels (adult €399, child €135) and the stamp duty for products providing non-advanced cover be reduced from 2014 levels to adult €240 (€290), child €80 (€100), representing a reduction of 17% and 20% respectively.

This can be facilitated because of a combination of reduced rate of historical and projected claims inflation, the projected impact on rate of ageing of the introduction of LCR in 2015.

Risk Equalisation Scheme from 2016 onwards

In 2014 the Department and the Health Insurance Authority commenced work on the development of a more refined health status measure using Diagnosis Related Groups (DRGs) to enhance the risk equalisation scheme by enhancing support for less healthy people of all ages. The HIA carried out an analysis of international regimes and submitted a Report to the Minister on incorporating DRGs into the Risk Equalisation Scheme.  This Report is under review in the Department and will inform policy development in the next year.

Background on Lifetime Community Rating

LCR is a modification of community rating to reflect the age at which a person first takes out private health insurance. Its primary purpose is to encourage people to purchase health insurance at a younger age.  This spreads the costs of older and less healthy people across the market, helping to support affordable premium levels for all. Those who take out private health insurance earlier in life, and retain it, will pay lower premiums compared to those choosing to join when they are older.

The Health Insurance Authority will run an extensive communications campaign to publicise this significant change to the health insurance market, to ensure that everyone understands the measure, has enough notice of its introduction, and sufficient opportunity to purchase health insurance before the introduction of loadings.

From 1st May 2015 there will be ‘late entry loadings’ for those aged 35 and over who purchase private health insurance for the first time, or are renewing after a break in cover of more than 13 weeks.

The loadings are set at 2% per year starting at age 35, up to a maximum loading of 70% at age 69 and over.

There is a grace period until 30th April 2015 –  to allow as many people as possible to take out health insurance while no penalties will apply.

Background Young Adult Rates

The Health Insurance (Amendment) Bill, 2104 to be published tomorrow, provides for ‘Young Adult rates’ of premia. This will address the single very large increase in premium rates that occurs for most young adults after their 21st birthday, where premiums can increase by 100% or more.  The new rates are age-based rather than student-based and are designed to graduate the premium payable between the Child rate and a full Adult rate. Insurers will retain the discretion whether or not to provide Young Adult rates. Where an insurer chooses to provide them, they must provide the full range of rates within the specified bands:

Age                  % of full adult rate

18-20                   up to 50%

21                          51%-60%

22                         61%-70%

23                         71%-80%

24                         81%-90%

25                         91%-100%

26                           100%

This policy change also removes the requirement to be a dependant of a policy holder or a full-time student dependent on parents.

Open Enrolment Regulations

Open Enrolment is one of the principles underpinning our community rated Health Insurance market. The Regulations were made under the 2001 Health Insurance Act, and have not been updated since 2005. The Minister will shortly amend the Regulations to provide for:

 

  • Standardised waiting periods for all periods regardless of age. At present there are longer waiting periods for cover if you are older.
  • Oblige insurers to apply the same waiting periods to all individuals purchasing the same contract. This will ensure fairness in the market.

In defining pre-existing illnesses, it is proposed to provide a definition, similar to that used in Australia, based upon signs and symptoms rather than on the onset of the condition itself.  A clearer definition of a pre-existing illness will improve confidence in the market and may result in fewer claim disputes.

To view the Report & Submissions, click here


[1] HBUC is a proxy measure for health status and is payable to insurers in respect of patients who stay overnight in a hospital bed.

[2] Non-advanced plans cannot provide more than 66% of the full cost of hospital charges in a private hospital.

[3] HBUC is a proxy measure for health status and is payable to insurers in respect of patients who stay overnight in a hospital bed.