Irish Health Insurance:The Minister for Health and Children, Mary Harney, T.D. today announced a series of measures including a per capita levy, decided by the Government to support the cost of health insurance for older people. Quinn Healthcare said it is "extremely disappointed by the measures."

The Government has taken advice that, after the Supreme Court decision which struck down the Risk Equalisation scheme on July 16th last, there was a real risk that older people would effectively face significantly higher premium costs than younger people.

Accordingly, on the joint proposal of the Ministers for Finance and Health and Children, the Government has decided to put forward two major steps as interim, three-year measure to stabilise the health insurance market.

There will be additional tax relief for health insurance starting for people aged 50 and over and increasing for higher age groups:

• 50-59: €200

• 60-69: €500

• 70-79: €950

• 80+: €1,175

There will be a new Community Rating levy on companies in relation to each person they insure:

• €160 for each adult

• €53 for each child (under 18)

The implementation of these measures is subject to approval by the European Commission. A formal submission has been made to the Commission.

Outlining the proposed measures, the Minister for Health and Children said, ‘We believe the measures we are proposing today are fair, reasonable and proportionate. Older people will benefit by the price of their policies not rising massively based on their age. But it is not just older people who will benefit. Those under 50 who look forward to continuing their health insurance as they get older need to know it will continue to be affordable, and will not rise in price just because they get older.

‘By supporting the principle of intergenerational solidarity, younger subscribers will benefit from affordable health insurance as they in turn become older.

‘Our society benefits from having clear, explicit measures to support solidarity between the generations in health insurance.

‘Solidarity between each generation has been a long-standing feature of private health insurance in Ireland. This principle needs structural support drawn from the entire population who have health insurance.

‘Since the Risk Equalisation scheme was ruled ultra vires (illegal) by the Supreme Court last July, there has been a pressing need for a replacement support.

‘The Government took the view that leaving the market without such a structural support for the cost of health insurance for older or sicker people could lead to massive increases in prices or reductions in benefits for them. If that happened, the chances we could ever re-establish a community rated market would have been severely diminished.

‘The Government remains committed to the maintenance of a community rated health insurance market. The collapse or erosion of this principle can only have one result: the exclusion of older customers and customers who suffer ill health.

‘We will also make sure that consumers are fully informed of their rights, for example, to switch policies upon renewal without penalties and regardless of age and health status, and not to be tied into to other products with their health insurance.

‘The tax relief and the Community Rating levy, like the existing tax relief at source on health insurance, will be administered through the health insurance companies. The companies then price their policies for customers. We believe that these measures will give companies the incentive to compete to win older as well as younger customers and to keep health insurance affordable across all customers.

‘The additional tax relief and the Community Rating levy are interim measures. The Government has also asked for substantial work to be done on a new risk equalisation scheme that will be robust, transparent and effective. This work is highly technical. In the meantime, we are proposing to introduce the new measures.’

The new measures will be implemented through new health insurance legislation, to be presented to the Oireachtas before the end of the year. The legislation will also contain measures to incentivise people to take out health insurance earlier in life and not to leave that decision until they are older.

Vhi Healthcare welcomed the announcement and it said the interim solution announced treats all insurers on an equal footing.

In particular Vhi Healthcare is pleased that the Government initiative significantly increases the level of tax relief at source for older members of society thus ensuring that they can continue to access health insurance on the same terms as younger members of society. The changes to the tax relief at source announced today recognise the fact that there is a direct connection between a person's age and the cost of meeting medical needs for that person.

Commenting on the Government response Jimmy Tolan, Chief Executive, Vhi Healthcare said “We welcome this initiative and when implemented will ensure that the current system of community rating remains intact; it will help bring stability to the health insurance market while also helping to ensure that health insurance remains accessible to as many people as possible. It should also over time increase competition and product innovation for all customers across all ages.”

Quinn Healthcare (formerly BUPA Ireland) said: "We are extremely disappointed by the measures announced as they are merely reinforcing the dominant position of the VHI and could have serious implications on the level of competition in the market which is not in the interests of health insurance consumers.

The new scheme reinstates a version of the old Risk Equalisation Scheme which was overturned by the Supreme Court in July. The scheme fails to take account of the dominant position and significant pricing advantage enjoyed by the VHI and simply makes it much more difficult for VHI’s competitors to compete.

Our main concern relates to the €160 levy per member. This levy is due per member irrespective of the level of cover a member has plan (i.e is 50% levy on lower plans and only 8 % on high level plans) and this ultimately means that less well-off people on lower plans are subsidising those better off who can afford premium plans. This is totally unfair.

The Government and VHI claim that this scheme is required to protect community rating and intergenerational solidarity. This is simply not true. The health insurance market in Ireland does not need VHI to be compensated to maintain community rating. Despite no compensation ever being paid to the VHI it has remained profitable since competition entered the market and community rating is not under threat.

It also appears that the scheme will generate revenue for the Government – ie the levy is greater than the cost of the additional tax relief. In essence, this is an additional tax on health insurance consumers.

We are very disappointed that the government continues to be more concerned with protecting the position of the VHI rather than implementing the reforms outlined in three separate reports (e.g Barrington Report) to ensure fair competition. Therefore we have no option but we will have to review these new measures with our lawyers. However we remain committed to this market for the longer term and will continue to provide our members of all ages with excellent cover at the most competitive prices possible."

Background

Community-rating has been the policy of successive Governments for the Irish health insurance market. This means that the price of health insurance for all persons should reflect the principle of intergenerational solidarity, i.e. that all should contribute towards the higher costs of claims for older people and sicker people. The outcome should be that the cost of health insurance to an individual does not rise as one becomes older or based on one’s claims or health status.

In July the Supreme Court allowed an appeal by BUPA Ireland against the 2003 Risk Equalisation Scheme. The Court found that the scheme was ultra vires because it was introduced on the basis that community rating meant community rating across the entire insured population and not community rating within a specific health insurance plan.

In other words, support from younger to older insured persons was to take place within each insurance policy, but not across all policies or across the market.

The decision raised a series of complex legal and health policy issues which required careful scrutiny and study. Since July the Minister has sought legal and actuarial advice on the implications of the Court’s decision and on the steps that might be taken to support long standing Government policy in relation to the operation of the health insurance market. The Minister has had the benefit of advice from the Health Insurance Authority and has held meetings with the three insurers presently operating in the market.

The Government says it is universally accepted that a community rated market requires the support of some risk equalisation or loss compensation scheme which spreads the higher costs of treating older people across the entire market.

The Government has decided that the market needs a structural support for community rating. However, the Government recognises that this objective cannot be achieved without considerable technical work over some years.

In the interim, the Government is determined to use whatever instruments of policy are available in order to prevent the emergence of a de facto risk-rated market.

The Government has decided that the most effective means of achieving this objective in the short term is to use the existing system of tax relief to support the principle of intergenerational solidarity.

At present tax relief at source at 20% is allowed to all health insurance customers. The effect of the operation of this relief is that customers only pay the net premium after the tax relief has been applied to the gross premium set by the insurers. The value of the tax relief is paid directly by the Revenue to the insurance companies.

Proposed Additional Tax Relief

Additional tax relief will now be introduced according to age of each customer. The effect of the tax reliefs on different age bands is set below:

• Age 0-17: Tax Credit: Nil

• 18-49: Nil

• 50-59: €200

• 60-69: €500

• 70-79: €950

• 80+ years: €1,175

Proposed Community Rating Levy

Legislation will be introduced to provide for the introduction of a levy on health insurance companies in respect of all individuals covered by the health insurance policies issued by them. The levy will apply to all policies from 1 January 2009 and subsequent years.

The initial levy will be €160 per insured adult and €53 per insured child up to the age of 18. The charge will accrue to the Exchequer.

The obligation to pay the charge will be imposed on the health insurance companies. It will be a matter for the companies (based on their individual commercial considerations) as to whether, and to what extent, they pass the cost of the charge on to their customers.

The Government hopes and expects that the health insurance industry will respond to this initiative by continuing to market community rated products which meet the health needs of all segments of the population.

Exchequer effect

The measures are designed to be Exchequer neutral in their overall effect. About €300 million will be raised by the new charge, with the cost of the additional tax relief expected to be roughly the same.