There have recently be soundings from Government at looking at the idea of charging late entrants into the health insurance market a higher premium rate than those who choose to take out cover at a younger age.  In this article we take a look at why we believe this should be implemented.

This is a system called Lifetime Community Rating and indeed there is currently provision in the legislation for its introduction although as yet it has not been introduced.

Under the proposed system, an insurer may increase the premium for those that take out insurance for the first time later on in life. This is called a late entry loading. Under this system a 60 year old who took out insurance when they were 25 will pay the same premium as a 25 year old, but a 60 year old who takes out insurance for the first time may be charged more.

Community Rating is not simply based on the principle of the young subsidising the old as commonly understood.  It is based on the principle of the young subsidising themselves in that the system is based on the idea that an insured person can continue to pay the same class of premium for the lifetime of their policy (i.e. their whole life) even as their risk profile increases with age.

Under this ideology a 24 year old who takes out say a VHI Plan B plan will continue to pay at the same rate into old age, thereby effectively subsidising themselves on a deferred basis, by having taken out the policy at a young age.

This principle has never been fully implemented in Ireland as this principle is based on the idea that one’s starting premium rate should dictate the rate one pays for life.

In Ireland the 24 year old and 54 year taking out their first policy on the same day will pay the same rate, even though the 54 year old has never made this deferred subsidy.

For community rating to work, the young must subsidise themselves. In practice, this means that the age at commencement of the policy should dictate the premium rate. Those who defer taking out insurance, and thus do not provide a deferred subsidy should not be able to avail of the same premium rate as those who do.

In practice this requires that premiums are age rated, based on the age at commencement of the policy.  This could be done on an age banding basis in much the same way as age related tax credits (ARTC’s) are currently structured.

The need for this has been known for sometime and has been implemented in other countries that subscribe to Community Rated Health Insurance Systems.  Indeed Mary Harney as Minister for Health entertained this idea at some point during her tenure but it was never implemented.

I believe it is an important step in ensuring a workable Community Rated System into the future however it too may come at a cost.  It will no doubt add insult to injury for the many long term subscribers to health insurance who found themselves exiting the market in the last 24 to 36 months due to increased financial pressures but whose intention it was to rejoin the system when better times allowed.  Under the proposed measures these people could see themselves further priced out of the market they had hoped to rejoin.