Introduction to Lifetime Community Rating (LCR)

As you may be aware the introduction of Lifetime Community Rating (LCR) is due to come into effect as and from the 1^st May 2015.   In the past I have described LCR as the missing piece of the jigsaw in a Community Rated system.  This measure will in effect penalise those late entrants who choose to enter the health insurance market at over aged 34 years.  Once 35, the customer will be subject to a 2% loading on the standard premium.  From the 1^st of May 2015, a loading of 2% per year for every year attained over aged 34 will apply.

For example, a 45-year-old who chooses to take out health insurance for the first time as of May 1^st this year will find themselves paying a premium 22% higher than that of the standard price for the same plan.  Likewise a 50-year-old will pay 32% more and so on.  One can surmise that those most likely to be enticed into the market by this measure are the same people who left the market in the past few years when times were at their toughest.  Indeed this may well be the primary demographic targeted by the measure.  However, if our office is any sort of a barometer, it is certainly acting as an incentive for many people in their 50’s and 60’s to consider their options.

Corporates may be worse off than most

What I would like to focus on in this article is how this measure effects Corporates and with particular attention to those Corporates who subsidise the cost of healthcare for their employees.  There are a range of benefits that some employers will offer their staff as standard.  These include:

• Health Insurance
• Death in Service Benefit (Life Cover)
• Income Protection
• Pension

Health Insurance, as we all know is a Community Rated insurance product.  The latter 3 interestingly enough are not.  However in a group scheme setting these 3 products can enjoy a Community Rated premium, that is to say a premium reflecting the entire insured demographic within the company rather than each employee’s risk profile.

This serves Corporates well because they do not want to find themselves in a position whereby they pay one premium for a 20-year-old employee and a substantially higher premium for a 60-year-old employee.  The reason for this is to allow companies avoid the differences that would arise in such circumstances, such as:

• The administrative headache caused by having various levels of premium depending on each individuals age or risk profile.

• It allows companies to remain above any charge of discrimination from a recruitment and retention perspective.

The great irony that comes with the introduction of LCR is in the corporate space.  The irony being that the only truly Community Rated Insurance product available in the Irish market will now effectively become the only truly Risk Rated insurance product in a company’s Employee Benefits package.

The consequence of this is that a company now has to consider the potential added cost of hiring anyone over aged 34 with no health Insurance.  Take for example a company looking at two candidates for hire.  Both are aged 46 but one has previously had no private health insurance.  There is now a consideration for the employer as to the fact that one of these candidates will cost them an extra 24% on the health insurance spend made on his behalf.

Possible Solutions

This is clearly an unintended consequence of the legislation.  It is nonetheless a very real consequence and one which will have to be managed sensitively.  This leads us to speculate exactly how the fallout from this will be managed in these instances.

1)      One option is that the employee will be asked to fund this enhanced premium from their own funds which effectively translates into a cost of employment.

2)      Another would be to wrap up the percentage cost over and above the standard price for all affected employees and spread it equally across the entire insured population, thereby effectively Community Rating the penalty amount.

These are just two of the possible answers yet to be explored.  Of the two above, I still see the former as the more attractive for the Corporate for reasons of simplicity and transparency.

No doubt the four health Insurers will also have their thinking caps on in relation to this anomaly and we await to hear what potential solutions they will bring to the party.

Patrick Brennan

www.IrishHealthInsurance.ie