Varadkar announces Private Health Insurance Package to address rising premiums

Small increase in subscribers in third quarter

Minister for Health Leo Varadkar has announced a series of measures designed to address rising premiums and stabilise Private Health Insurance in the interests of consumers.

The Private Health Insurance Package includes a Reduction in Stamp Duty, special lower premiums for young adults, the introduction of Lifetime Community Rating, and a reduction in the Health Insurance Authority Levy.

It also includes key recommendations set out in the two Pat McLoughlin reports on Private Health Insurance costs, and builds on Budget 2015 which included a freeze on hospital bed charges, and no decrease in the relievable amount for tax relief purposes.

Speaking today, Minister Varadkar said: “These measures are designed to work as a package and make private health insurance affordable again for as many people as possible. We want to try and limit the need for increases in premiums, and even secure some reductions if possible.

“I think the time is right to try a new approach. The economy is growing again and more people are back at work. Following a long period of rising premiums and a severe decline in health insurance cover, the number of policy holders is now showing modest growth. There was a modest increase of 1,000 in the number insured between July and September. I hope these new measures will allow that trend to continue, and I hope the insurance companies will respond favourably.”

Also today, the Department of Health published the second of Pat McLoughlin’s independent reports on Private Health Insurance costs. This was developed with the assistance of private health insurers, the Health Insurance Authority and the Department of Health. Minister Varadkar thanked Mr McLoughlin for his work.

Key Measures in the Private Health Insurance Package

Reduction in Stamp Duty

The Risk Equalisation Scheme is designed to protect community rating by making it easier for older people to afford private health insurance. The Scheme is funded by stamp duties levied on health insurance policies, and the money generated is used to pay Risk Equalisation credits to take account of the higher costs of older and sicker people in the market.

The Health Insurance (Amendment) Bills makes provision for:

  • Risk Equalisation credits (based on age, gender and level of cover) payable in respect of members aged 60 and over will be lower than last year;
  • The Hospital Bed Utilisation Credit (HBUC) which acts as a proxy for health status, is increased from €60 a night to €90[1] and is payable in respect of overnight stays for all ages;
  • The level of stamp duty to fund the Risk Equalisation credits is a 20% reduction in the levy for those aged 17 and under and a 17% reduction for those aged 18 and over, for products not providing advanced cover[2]. The combined impact of the HBUC and RE Credits brings the average net claims down to 130% of market average (133% in 2014).
  • The adult and child rates of stamp duty for advanced products remain unchanged for the first time (last year it increased by €49).

The net effect of these changes is to further strengthen the risk equalisation scheme in 2015, while increasing the HBUC and lowering the RE Credits. This improvement is achieved while reducing the level of stamp duty required to fund the RE credits for lower level products and maintaining current levels for products providing advanced cover.

These revised rates will apply from 1 March 2015 and follow the formal advice of the Health Insurance Authority. The overall changes to the RES in 2015 will mean that the ‘effectiveness’ of the RES (i.e. the extent to which it compensates for the higher costs of older customers) will improve in the older age groups. Most people over the age of 70 hold products providing for advanced cover. In this category, the revised rates will compensate for 81% of the higher claims costs for those over 70 and 88% of higher claims costs for those aged over 80.

Budget 2015 decisions

There is no decrease in the qualifying amount for tax relief purposes (of health insurance premia) – the ceiling remains at €1000 for an adult and €500 for a child. Hospital bed charges have been frozen at current rates.

 Lifetime Community Rating

LCR regulations were signed in July and will come into effect from 1 May 2015. The Health Insurance Authority will run an extensive communications campaign to publicise this significant change to the health insurance market, to ensure that everyone understands the measure, has enough notice of its introduction, and sufficient opportunity to purchase health insurance before the introduction of loadings.

 Reduction in Health Insurance Authority levy

The Minister has decided to reduce the levy which insurers pay to meet the running costs of the Health Insurance Authority, to a nominal rate of just 0.01% of insurers’ premium income for two years, 2015 and 2016. This will result in savings for insurers of €2 million in both years. Thereafter, the levy will be set at 0.09%, a reduction of 25% on current levels.

Young Adult Rates

The Health Insurance (Amendment) Bill to be published tomorrow provides for ‘Young Adult rates’ of premiums. This will address the sudden increase in premium rates that occurs for most young adults after their 21st birthday, where premiums can increase by 100% or more. Insurers will retain the discretion whether or not to provide Young Adult rates.

Where an insurer chooses to provide them, they must provide the full range of rates within the specified bands. This policy change also removes the requirement for young people to a dependant of an adult policy holder, or a full-time student dependent on parents.

Implement recommendations of Pat McLoughlin’s two reports on PHI costs

The steps outlined above are closely aligned to the recommendations of Pat McLoughlin’s   two-phase report on Private Health Insurance costs. The first report was published in December 2013 and his second is published today. The reports recommended a scheme of Lifetime Community Rating and discounted rates for young adults which are now being put into place. The second report is being published today.

Further refining the Risk Equalisation Scheme from 2016 onwards

In 2014 the Department and the Health Insurance Authority commenced work on the development of a more refined health status measure using Diagnosis Related Groups (DRGs) by enhancing support for less healthy people of all ages under the Scheme that will operate from 2016 – 2018.

[1] HBUC is a proxy measure for health status and is payable to insurers in respect of patients who stay overnight in a hospital bed.

[2] Non-advanced plans cannot provide more than 66% of the full cost of hospital charges in a private hospital.