Private health insurance still pulling in the crowds despite increases

The headlines might lead us to believe that the numbers enrolled in private health insurance are plummeting, but the reality is somewhat different.

Despite repeated price rises since 2008, more than two million Irish people still have private health insurance – and this despite high levels of unemployment, austerity budgets and falling incomes.

Indeed, while some 200,000 people giving up their private cover may be a stark statistic, a decline in cover of under 10 per cent is a lot less than one might have expected given the circumstances.

Unfortunately for consumers however, it demonstrates to health insurers just how reluctant we are to rely on the over-stretched, under-funded public health system. Given how “inelastic” demand for health insurance really is, with people apparently willing to stomach a seemingly never-ending stream of price increases, what will make insurers stop putting prices up?

Very little it appears. So far this year, the four health insurers operating in the market have announced price hikes of an average of about 7 per cent each. The reason? The Government’s decision to increase the health insurance levy, by ¤65 per adult and ¤25 per child, from March 31st as part of its revised risk equalisation plans.

Since 2009, the levy has jumped by 119 per cent per adult up to ¤350, and 126 per cent per child up to ¤120.

This means that for those consumers on entry-level plans, the levies now equate to a very high proportion of their overall insurance premium; in some cases, more than 40 per cent.

Imposition of levy
The goal of risk equalisation is to ensure that everyone is charged the same cost for health insurance cover – regardless of their age. In practice this means the imposition of a levy to support the VHI, which has a preponderance of older customers, which in turn pushes up the volume and cost of claims. Indeed, the insurer has a 56 per cent market share, but is paying nearly 80 per cent of claims.

According to the insurer, this puts significant pressure on its cost base. “The vast majority of older and sicker customers in the market are VHI Healthcare customers,” the insurer claims, adding that for every ¤100 it takes in through premiums, it will pay out close to ¤98 in claims.

But if, as the VHI has asserted, the current risk equalisation scheme is “ineffective”, does this mean that from April 1st prices will stabilise at the State-owned insurer once the higher levy kicks in? We’ll have to wait and see.

After all, it’s not just risk equalisation that is pushing insurance premiums up. An increase in charges from public hospitals is also hitting insurers, as the Government increases costs for privately insured patients occupying a public bed.