Solidarity between young and old must remain a key element of health insurance

Opinion: Due to late arrival of competition in the market one company has the vast majority of older customers

Older people obviously will tend to make greater demands on the health service than the young.

Older people obviously will tend to make greater demands on the health service than the young.

Tue, Nov 19, 2013, 00:01

At the heart of our strategy for private health insurance is keeping it as affordable as possible for everyone. I recognise that the increased cost of health insurance over the last few years at a time of financial crisis has made it too big of a burden for many households to carry. I am determined that we can have a competitive, well-regulated market and drive costs down to the benefits of consumers. But we also have to continue to get the basics right.


Sense of fairness
In Ireland, we have fundamentally observed the principle that everyone pays the same for their particular plan regardless of age, health status or gender. I believe that Irish people, who have a deep sense of fairness and a high regard for the older generations who built this country, want this approach continued. Most people are aware of health insurance markets in other countries, notably in the US until recently, which evolved so that people who couldn’t afford insurance were simply blocked out of the healthcare system. Often these were the most vulnerable people and most in need of care. Not only do we not want to even contemplate such a situation in Ireland, we want to evolve to an even fairer system of universal health insurance.

This will move us away from the unfair, two-tier system to a single-tier healthcare service with the patient at the centre.

We have taken the first steps on the path to that goal, but there’s a long way to go. In the meantime, we have to preserve the principle that people pay the same regardless of their particular circumstances.

And we must maintain the solidarity that younger people in the health insurance market, who are generally well, show towards older people, who may be less well and need more care. That’s what community rating is all about.


Risk equalisation
Underpinning community rating is something called risk equalisation. It is the system which balances how younger health insurance holders subsidise older people on the understanding that these younger people will themselves be subsidised by the generations that succeed them. The aim of risk equalisation is to look at the market as a whole, and to distribute fairly the differences that arise in insurers’ costs due to the differing health status of all of their customers. This way, older people pay less than they would in what is known as a “risk-rated” system, which could see many older people find health insurance totally unaffordable.

This is particularly relevant in the Irish market where competition arrived relatively recently so that one company has been dominant and has the vast majority of insured older people among its customers.

In order to allow cost-sharing between the generations which hold insurance, risk equalisation operates a system of health credits and stamp duties. The health credits apply to insured people over 60 and means their premium is discounted by an amount appropriate to their age so that the cost is lowered and community rating is maintained. The stamp duties are levied on health insurers to fund these credits.

Recently, I announced changes to these credits and stamp duties, in order to ensure that health insurance continues to be subsidised for our most vulnerable patients. I am pleased that we were able to keep the stamp duty for cheaper plans unchanged at €290 per adult and €100 per child. This will help to ensure that the option of lower cost health insurance remains available.

We have had to increase the stamp duty plans providing advanced cover (from €350 to €399 per adult and from €120 to €135 per child) to help target support where it is needed most – for older, more vulnerable patients who would otherwise not be able to afford health insurance. In effect, the stamp duty for advanced plans will increase by €49 for adults and €15 for children. This does not mean that each plan will increase by these amounts. It is up to the health insurers to decide their own pricing plans. Insurers can reduce their outgoings under the scheme by taking on a fairer share of older customers.

There is plenty of evidence that this is not happening. For example, for those aged over 80, VHI holds 89 per cent of the market share in this age group. This is compared with only 6 per cent held by both Laya and Aviva. Similarly, in the 70-79 age group, VHI has 78 per cent of the market, compared to 12 per cent for Laya and 9 per cent for Aviva.

I would also remind everyone again that insurers do not have to pass on the cost of the changes we have had to make. As I have said many times, they must look to their own cost base. I have commissioned an independent report on the high costs in the industry and I expect to receive it soon. I will continue to pursue all measures to drive down costs.


Affordable protection
The last thing we want is for health insurance to become a luxury that existing customers can’t afford. That is why we are considering a number of possibilities including lifetime community rating, where premiums rise depending on the age at which you first sign up for health insurance. This provides an incentive for younger generations to take out affordable protection at an early stage.

We are making progress towards our ultimate goal – that single-tier, patient-centred, system of universal healthcare for all. But the maintenance of a healthy and functioning private health insurance market is an essential step in the transition to a market-based universal health insurance system. The changes made during the last week ensure that we continue to protect our fair system of community-rated health insurance, which we need now, and will continue to need as we move to a fairer and better health system in the future.


Dr James Reilly is Minister for Health

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