ANALYSIS:Relief for older people could come at the cost of higher premiums for all subscribers, writes MARTIN WALLIndustry Correspondent
UNDER ITS planned new health insurance reforms, the Government is to provide €300 million in additional tax relief which will effectively subsidise the cost of health insurance subscriptions for persons over the age of 50.
The Government maintains this will mean the net cost of subscriptions for older people will remain the same as that for younger members. There had been fears older subscribers could face significant hikes in health insurance costs following the decision of the Supreme Court in July to strike down a controversial risk equalisation scheme in the industry.
To pay for this additional tax relief, the Government is to impose a levy on all health insurance companies in the market.This has been set at €160 per adult subscriber and € 53 for each child. The key issue is whether this levy will be passed on to subscribers by the insurance companies.
Minister for Health Mary Harney said yesterday that she hoped the cost of the levy would not be passed on to consumers.
"We believe that there is a lot of scope for the companies to subsume some of this, if not all of it," she said. The Minister said that in a very competitive market the health insurance companies would be able to compete not just for younger people but for older customers. "It will make older customers attractive."
However, there are already indications that the cost of the levy will be passed on, at least in part, by some companies.
Quinn Healthcare said yesterday it was concerned at the implications of the Government move, especially for those on lower-price insurance premiums.
It warned that "at this stage increases are inevitable".
Quinn Healthcare general manager Colin Morgan told The Irish Timesit was too early to assess the full implications of the levy on subscription rates. However levies by their nature tended to end up ultimately with the consumer. He said he did not see how the Minister could suggest the move would not impact on price.
The country's largest health insurer, the VHI, said that while its prices will rise early next year, this will be due to rising demand and medical costs rather than the impact of the levy.
Some informed sources said companies could decide to meet the cost of the levy by a mix of changing benefits, amending the excess levels that subscribers have to pay themselves and adding to the subscription bill.
The Government's new initiative represents its response to the collapse of its risk equalisation scheme and is, in effect, another attempt to deal with the thorny question of how the escalating costs of providing treatment for older people should be addressed.
Just as younger drivers were traditionally asked to pay higher costs for motor insurance on the basis that they were a higher risk, in a "pure" health insurance market older subscribers would face larger bills as they tend to become ill more frequently.
However, for more than 50 years all Irish governments have operated a policy known as community rating where everyone paid the same amount for the same cover regardless of age. The principle behind this system was that younger people paid a little more than required on an actuarial basis and in turn they were subsidised as they became older.
From the early 1990s when the market was liberalised, the Government determined that a risk equalisation scheme was required to underpin community rating. Risk equalisation was effectively a compensation scheme under which companies such as the VHI, which had a larger number of older subscribers, would receive payments from rivals with a relatively younger membership profile.
However, following a lengthy legal battle, the Supreme Court ruled that the introduction of a risk equalisation scheme by Harney in December 2006 had been based on a wrong interpretation of the law and should be set aside. It found that community rating under the legislation was defined as applying across individual plans rather than across the whole population of insured people.
The Government feared this could have led to the emergence of a range of new health insurance plans targeted at younger rather than older people which would centre on offering products such as sport injury treatment, maternity or laser eye treatment. Sources said this could lead to younger people migrating from the traditional plans which, in their absence, could become more expensive for older people, even though the official ban on price discrimination on age grounds would remain.
The Cabinet was told by the Department of Health and the Department of Finance that if nothing was done following the Supreme Court ruling there would be no protection for older people against premiums for plans they needed being set at a much higher level.
The departments forecast that 60-year-olds could see the cost of their existing insurance plans doubling from € 600 to € 1,200, while the bill for an 80-year-old subscriber could rise to €2,400. Under the Government's new proposals older people will still, in theory, be charged more for their cover. However, the additional tax relief will effectively offset the higher cost, meaning that they will, in reality, only pay the same as younger members.
The Government maintains that as the new tax relief - as with the current tax relief - will be administered through the insurance companies, the older subscriber will not notice any changes in cost. The proposals will come into effect from January, subject to approval from the European Commission.
However, Quinn Healthcare has already warned that it would be reviewing the measures with its lawyers so further legal action in the health insurance area cannot be ruled out.