Risk Equalisation

Risk equalisation is needed to support community-rated health insurance.

Health insurers receive risk equalisation credits to compensate for the additional cost of insuring older and less healthy members.  The credits are funded by stamp duty levies paid by insurers for each insured life covered. All of the money collected in stamp duty is paid into the Risk Equalisation Fund and redistributed among insurers in the form of risk equalisation credits. The Risk Equalisation Fund is managed by the Health Insurance Authority.

Credits are provided in respect of individual consumers 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 members will be a net contributor to the scheme, but will benefit from having much lower claims costs.

Risk equalisation provides insurers with an incentive 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.

Legislation is required each year to update the risk equalisation credits and the corresponding stamp duty levies necessary to fund them. Every year, the Health Insurance Authority submits a report to the Minister for Health recommending the risk equalisation credits and corresponding community rating levies for the following year. The report takes into account the changing demographic profile of the insured population and market developments. The Minister for Health sets the risk equalisation credits for the following year and the Minister for Finance sets the stamp duty levies required to fund them.

Risk Equalisation Credits with Effect from 1 April 2017

Age-related risk equalisation credits are provided for all people aged 65 years and over, based on age, gender and level of cover. In addition, a utilisation credit of €90 is paid for each overnight stay in hospital and a utilisation credit of €30 is paid for day case admissions to hospital.

The stamp duty levies shown below apply to health insurance contracts that are renewed or entered into after 1 April 2017.

Age Bands 1 Jan – 31 Mar 2017 1 Apr 2017 onwards
Non-advanced Advanced Non-advanced Advanced
17 and under €67 €134 €74 €148
18 and over €202 €403 €222 €444

 

The Department intends to improve the risk equalisation scheme through the introduction of a more robust measure of health status based on diagnostic-related group (DRG) data. This will provide a more effective means of equalising for differences in risk due to differences in health status. This is dependent on access to and the collection and use of DRG data.

The policy objective is to further strengthen the scheme in terms of providing the necessary support to community rating while at the same time ensuring the scheme remains robust, transparent and promotes fair and open competition in the market.