Is it worth getting private health insurance to beat age deadline?

The countdown has begun. From May 1st, the older you are, the more you will pay for your health insurance – if you have not already taken out a policy.

Under lifetime community rating (LCR), anyone aged over 35 who does not have private health insurance on April 30th will be faced with higher prices if and when they do take out a policy.

But how will it work and is it worth getting private health insurance now to beat the deadline?

What’s behind the move?

As Ireland operates a community-based system of health insurance – as opposed to risk weighted that operates in the US and Britain – everyone pays the same for their insurance regardless of their age, despite the fact that the older you are, the greater the risk that you will claim.

While a health insurance levy is in place to compensate those insurers, mainly the VHI, who predominantly have an older customer base (and which is paid for by the consumer), the levy doesn't do anything to encourage younger people to come into the market.

This is why LCR is being introduced, to encourage more young people to take out private health insurance, thereby helping to spread the costs of older and less healthy people across the market.

It's not a new concept however. According to Jim Dowdall, chief executive of Glohealth, LCR has been on the statute books for more than 10 years.

“I certainly think it should have been introduced earlier,” he says.

Getting young people to take out health insurance is a key concern for Government as the number of people dropping out of the private market has soared by the order of 300,000 over the past six years, the majority of which are younger people.

Austerity means they have decided to take a punt on their continuing good health. And, if they get it wrong, they work their way through the public health system at a cost to the State.

According to health insurance analyst Dermot Goode of Total Health Cover, this puts Ireland's community rating under "serious pressure".

“LCR will give a much-needed boost to the market as you should have a larger base over which to spread the claims burden which should mean lower annual price increases for everyone,” he says.

For Dowdall, LCR may also mean a halt to the constant upward pressure on prices in recent years.

“LCR will help sustain the cost of health insurance and it may result in us not seeing the type of prices increases we’ve seen in recent years.”

Another obvious benefit is that the more people you encourage to pay for health insurance, the lesser the burden on the public system, while one could argue that the current system is inequitable given that a 54-year old who never had health insurance can buy health insurance at the same price as another 54-year old who has paid for cover since they were 24, and may have never claimed.

“With LCR, those who join earlier will be rewarded by avoiding the age loadings,” Goode says.

How will it work?

It means that if you take out private health insurance after the age of 35 the cost of your policy will increase as of May 1st.

For example, a 50-year-old who has held insurance since he or she was 30 will pay the same as a 30-year-old; but a 50-year-old who purchases insurance for the first time will pay significantly more than a 30-year-old.

If you’re 35 and taking out a policy after May 1st that costs €1,000 (net of tax relief at 20per cent), the actual cost to you will be €1,020, based on a loading of 2 per cent. If you’re 40, the policy will cost €1,120 (loading of 12per cent), and €1,320 if you’re 50 (loading of 32 per cent).

The maximum loading that can apply is 70 per cent for someone aged 69 or over.

Broker Irish Health Insurance has a calculator (http://iti.ms/1GXezrK) which will help you work out the impact of the move.

Do I pay loading for the rest of my life?

In short, yes. This means that if you miss the deadline on May 1st, you will be stuck paying an extra 2-70 per cent for as long as you hold on to your insurance. The

additional premium

that will apply depends on your age at the time of taking out a policy – if you’re 40 when you buy health insurance a loading of 12 per cent will apply annually.

Another point to consider is that if you trade up your policy, the loading will increase, while the impact of inflation etc may also see the cost of your cover rise even further due to the loading.

What happens if I want to upgrade?

The loading structure won’t have any impact on upgrading your health cover. However the old rule will still apply which means that if you upgrade to a higher plan in the future, all insurers are allowed restrict your cover for any existing medical conditions to your previous level of cover for at least two years.

“In other words, don’t upgrade your cover when you’ve been diagnosed with a medical problem that you need to get treated now!” warns Goode.

Allowances for

previous

cover?

Yes, if you miss the deadline and take out cover at a later date, your previous periods of cover will be taken into account.

So, for example, if you had cover for five years in your twenties, but then cancelled it, and are hoping to take out insurance now at the age of 50, it will take these five years of cover into account, and you will be charged a similar loading as a 45-year old. Bear in mind however that credit does not apply to periods of cover as a child.

If you stopped your cover since January 1st, 2008, because you became unemployed, you will get a credit, for up to three years. This means that your loading will be calculated on the basis that you had cover for these years (up to three) that you were unemployed.

An allowance is also available for emigrants. If you currently live away from home, but aim to move back at some point in the future, you will also be given a credit, and will have nine months from your time of your return (or arrival for people coming to the State for the first time) to take out health cover and avoid a loading on your policy.

What should I do?

If you are interested in having

private health cover

but have postponed getting it for reasons such as lack of funds or lack of effort, and are approaching the age of 35, it makes sense to go ahead and get cover now.

All of the health insurance companies operating in Ireland have launched low-cost plans as a carrot to get people to sign up before May 1st and it’s worth spending some time going through the various offers before selecting a plan.

As the table above shows, the benefits on offer while broadly similar do vary. For example, Glohealth’s plan may be the cheapest, but it works on a “pay and claim” basis which may mean that you are faced with a hefty bill you have to pay first yourself if you spend some time in hospital.

However, it does give you the option of upgrading – without having to incur waiting periods – to its Initiate plan (€425) in such cases, which pays via direct settlement so you don’t have to put your hand in your pocket for hospital bills.

Remember you get what you pay for when it comes to health insurance, and Goode refers to these plans as being the “yellow pack” option. If you want cover in private hospitals, you’ll have to pay considerably more, of the order of between €800 and €1,000 for a decent policy.

According to Dowdall, it’s “early days” yet in terms of new members, but he would expect to see a lot of momentum building in April as consumers try and beat the deadline, with some estimates putting it as high as 50-100,000 likely new entrants.

If you’re considerably younger than 35, then there is no immediate pressure to sign up. As Dowdall says, its new cheaper plans are “here to stay”.

What about cash plans?

Cash plans provide cash back on a range of medical expenses, such as GP fees to public hospital fees to a maternity grant. Crucially however, they do not offer inpatient cover for costs incurred in hospital as a private patient, which prevents you from skipping the waiting list to see a consultant for private care, even in public hospitals.

In addition, if you have held a cash plan for some time, with a view to upgrading to a full in-patient policy at some point in the future, you need to be aware that having such a policy will offer no relief under LCR. This means that when you go to take out a comprehensive health policy if you are over the age of 35 you will be faced with the same loadings as if you had no private health cover.

On the other hand, if you feel a plan which offers in-patient care will remain too expensive for you, opting for a cash plan will at least offer you some respite on medical expenses.

HSF for example, offers schemes which start at €10.25 a month and there’s no excess. Its FDA scheme costs €56.50 a month (€678 a year) for a family, and its benefits include 100 per cent money back on dental and optical visits up to a maximum €500 per year; €19 back per GP visit (10 payments in any 12 month period); specialists’ consultant fees, health screening, X-rays, scans etc. up to the maximum €1,100 per year; and €80 per night for up to 40 nights in hospital.

Cancelling my cover?

If you have to cancel your health insurance cover for some reason, provided that you take it out again within 13 weeks, your loading won’t be affected. Pass this timeframe, however, and you might face a loading, depending on your age, although credits will be given for the period of time that you did have cover.

According to Goode, employers who pay health insurance for their workforce will need to decide whether they are going to absorb this cost for any new employees they recruit post May 1st who have no cover and are 35 years old or older.

What of

universal health insurance?

When

universal health insurance

(UHI) is introduced, LCR will no longer apply, so it means that you might be inclined to wait and see what happens then.

Under UHI, everyone will be required by law to take out private cover. However, experts suggest that this still five-10 years away, and with a general election coming next year, it may never even materialise. And if it does, the new loadings may still apply.

“Even when it is introduced, there is no guarantee that some level of age loading won’t apply to avoid discriminating against those who join now to avoid the loadings,” says Goode.