The community rated system of health insurance will be destabilised if current trends in the age composition of enrolment are not reversed, according to a report by the economist, Colm McCarthy commissioned by Aviva Health Insurance Ireland Limited.

The Report on the future of private health insurance in Ireland, shows that the decline in overall membership, down from 50.9% in Dec 2008 to 45.7% in Dec 2012 has been accompanied by even more rapidly declining enrolment  in the younger age groups. This decline reflects demographic trends which show that the group aged 20 to 29 has been shrinking rapidly as a proportion of the overall population over the last 5 years.

But the decline has been exacerbated by high levels of unemployment among the young as well as the dramatic increase in the cost of health insurance, which has more than doubled in real terms in the period since 2007.

Aviva Health estimates that by 2015, premiums are likely to increase by a further 25% to 30% if the government goes ahead with its plan to charge privately insured patients for occupying public beds. Mr McCarthy warns that the analysis contained in his Report “should serve to caution that any proposal to add further to health insurance premiums could further destabilise an already fragile and contracting market.”

Mr McCarthy says the very sharp changes in the age composition of the market over the last 5 years show no sign of abating. He points out that “a destabilising shrinkage” in 18-39 age groups has been accompanied by an increase in the age groups over 60 which now accounts for 18.5% of the total enrolment. “Once a concerted shift in the age-distribution of members away from the younger age-groups becomes established rising average premiums can make a community rated system dynamically unstable”.

Alison Burns, Chief Executive of Aviva Health said: “It is clear from this Report that the community-rated system is in a very fragile state.  In the last 5 years, 194,000 customers under the age of 39 years have left the market. In the same time, the number of customers over 60 has grown by 52,000. This is the essence of the problem in the Irish health insurance market. The fact is the claims’ cost of a customer over 70 years is almost ten times that of a customer aged 20. This problem must be addressed by all of us working in the health sector today, both public and private. The two sectors are inextricably linked.”

A community rated system requires a sizable cohort of younger and therefore healthy members to offset the high costs incurred in meeting the claims from the rising numbers of older members. The decline in younger membership is putting upward pressure on premiums, as insurers are forced to pass on the higher cost of claims in order to balance their books and meet solvency requirements.

The Report warns: “In the limit, if all low-claiming potential members are discouraged from staying on board, the premium levels for elderly people will become unaffordable and the community rated system will cease to be viable.”

Ms Burns said there was an urgent need for measures to attract younger people back into the market. “We want to be able to continue to offer quality, affordable products to get young people back into the market. But many of the factors inflating costs are outside of our control. If the government continues to introduce policies such as its proposal to charge privately insured patients for occupying public beds, the spiral of increase will unfortunately continue.  Inevitably, more hard pressed younger customers will drop out of the market and the full burden for healthcare provision falls back on the State and ultimately, the tax payer.”

She added that the profitability figures for the health insurance sector contained in the Report showed that insurers were not in a position to absorb any further cost increases.