Proposal to phase out tax relief gets mixed reaction

Calls for Government to adhere to report’s key demand for enhanced primary care and community care

AN EXPERT group’s recommendation in recent days that tax relief on private health insurance in Ireland be phased out has met with a mixed response.

It would mean a “seismic” shift in how health services are funded, according to the head of the Irish Patients Association (IPA).

Stephen McMahon joined Opposition parties in warning the Government not to "cherry pick" from the Report of the Expert Group on Resource Allocation and Financing in the Health Sectorin order to boost revenue, without adopting its key demand for enhanced primary and community care.

Mr McMahon said that while the IPA welcomed the report as “a very useful road map”, he warned any move to end tax relief on private insurance could be akin to “decommissioning a nuclear reactor” if not managed properly.

“You cannot dismantle an entire system without having something to put in its place,” said Mr McMahon.

He pointed out that there was an estimated two million private health subscribers in the State and said that any move which would cause people to “opt out en masse” would put a huge strain on the public system.

Prof Frances Ruane, chairwoman of the expert group which published its findings on Friday, stressed that the proposal was to gradually phase out rather than abolish the tax relief which she pointed out had already been significantly reduced from the top tax rate to 20 per cent.

The emphasis of the report was on the need to focus resources on primary and community health services. It pointed out that tax relief on health insurance supports access to hospital-based care while making relatively little contribution to managing chronic disease in the community.

The estimated cost of this tax relief in 2007 was €300 million, according to the report which has called for subsidised GP care and drug costs for every member of the population at an estimated cost of €513 million a year.

Prof Ruane explained that if calling for subsidised GP care for all, the logical next step would be to end tax relief on GP fees and prescription costs. It was then logical to look at tax relief on health insurance which mainly supports hospital care.

“We felt that State resources could be better targeted,” explained Prof Ruane, who said best international practice showed resources should be targeted at primary and community care.

Fine Gael’s health spokesman, Dr James Reilly, said that ending tax relief on private health insurance was “a bad idea” which would lead to the collapse of the market, especially in the current climate.

But he stressed that his party agreed with the need to shift the focus to primary and community care and said private health insurance should cover services in this area.

“It is nonsense that we have a situation where insurance covers the most expensive part of the service and there is free access to the most expensive part of the service,” he said.

This is a reference to the fact that everyone in the State is entitled to free or subsidised care in a public hospital, but two-thirds of the population have to pay for GP care.

Labour’s health spokeswoman, Jan O’Sullivan, said the tax relief could not be phased out in isolation “and, in fairness, that is not what the report is suggesting”.

She said that any move by the Government to end the tax relief out of the blue and in isolation would have a very negative effect for consumers but she welcomed the report’s call for primary care cards for all.

“I feel any responsible health spokesperson would have to support that but what I don’t want to see is the Government cherry picking from the report to save money as that would mean the worst of all possible worlds for patients.”

Prof Ruane pointed out that the number of people with private health insurance in Ireland was exceptionally high at close to 50 per cent compared with 10 per cent in the UK, for example, where the NHS is undoubtedly a factor.

But it’s estimated that 16,000 people in the State cancelled their policies in the first three months of this year. And a recent survey by the Health Insurance Authority suggests that the recession is having a continuing impact on the market with one company, Hibernian Aviva Health, reporting that 74 per cent of those who cancelled policies in the past year were under 40.

The VHI alone lost 120,000 clients in 2009.

The implications for the already over-stretched public hospital sector is causing concern, notwithstanding Prof Brendan Drumm’s plan to cut another 1,100 public hospital beds this year.

The report from Prof Ruane’s group points out that there is a shortage of certain types of public hospital space – while there is a surplus of some private health space.

The expert group said the shortage of certain types of acute hospital space was related to “unsustainably high occupancy rates and pressure from a larger population”. It also highlighted the surplus of some types of private hospital facilities, which had been developed on foot of State investment in the form of tax incentives but “unfortunately, despite the tax incentives, these developments took place in the absence of any integrated health planning structure”.

Donal Duffy, assistant general secretary of the Irish Hospital Consultants Association, said he would not comment on a tax policy issue but he conceded that the existing tax relief on private health insurance had encouraged people “to take financial responsibility for their own healthcare”.

He said if the tax incentive was removed – something the Department of Finance disapproves of – it was reasonable to assume that fewer people would have health insurance, placing greater demand on State services “which, as we know, are currently very stretched”.

Yesterday Prof Ruane, who is also director of the Economic and Social Research Institute, said little attention had been paid to the report’s comments about private hospitals. She said a “very hands-off approach” had been adopted towards private hospitals which currently did not have to be licensed.

She said the expert group had found it difficult to access data about private facilities “not that anyone was keeping it from us but because nobody had been collecting it”.

She added that planning of hospitals generally needed to be stronger. She said everyone was now aware of housing estates and hotels which had been built in areas where there was no need for them but planning was obviously more crucial in the context of hospitals.

The expert group was careful not to seek additional funding in order to have its recommendations implemented. It pointed out that any measure involving costs could be off-set by savings elsewhere – for example, the €300 million it believes acute hospitals could save through maximum efficiency.

Minister for Health Mary Harney has been warned not to cherry pick and she has promised to give detailed consideration to all the proposals.

While concluding that some recommendations could be implemented speedily, she said others required more fundamental change over a medium timeframe, “as resources and savings permit”.

Mr McMahon said measures such as the phasing out of tax relief for the State’s two million health insurers could not be done until the more fundamental changes to the way we organise our health services were in place.

“Remember the 2001 health strategy where the resources were to be directed at providing 3,000 extra acute beds by 2011?” he asked. “Now we are being told that primary care is to be the priority. If they want to remove a model which they say is obsolete, they better have a new one in place first.”