As we approach the end of the first month of 2015 (and as the madness of the biggest renewal month in the calendar subsides) now seems like a good time to review the events of 2014 in the world of health insurance and the wider Healthcare System.  While many of the past years have been described as tumultuous regarding the Private Medical Insurance Market and the health system in general, this year was certainly that and much more.  While other years appeared heap bad news on top of more bad news, this year, thankfully had almost an equal measure of both.

To summarise, 2014 saw:

• A further increase in the Health Insurance Levy
• The introduction of bed re designation
• Free G.P’s for under 6’s delayed and delayed again
• Announcement of Lifetime Community Rating
• New Minister for Health
• Announcement of Lifetime Community Rating
• Announcement of no increase in advanced Health Insurance Levy for 2015
• Announcement of reduction of non advanced Health Insurance Levy for 2015
• Announcement of ability to further discount plans for certain age demographics
• Shelving of Plans for Universal Health Insurance (UHI)

Health Insurance Levy Increase

2014 saw a further increase to the health insurance levy of 14% percent.  The levy, designed to act as an interim measure in the absence of a functioning risk equalisation system has increased by over 150% since its introduction in 2009.  Under new legislation in March 2013 it was adopted as part of the new risk equalisation scheme.  It is a prime example of how the spiralling costs of health insurance since 2008 have been largely down to government intervention which was primarily a revenue raising measure, paid for by private health insurance customers.  By the reckonings of some experts and taking account of recent year’s budgetary measures, since the beginning of the economic crisis, an extra €600 Million has been squeezed from the purses of those subscribers to private health insurance.  This equates to approx €300 for every citizen currently paying for health insurance.

Introduction of Bed Re-designation

This contentious measure introduced by the State (again as a revenue raising exercise) was designed to address how private patients i.e. those patients who have Private Health Insurance, would be charged in public hospitals.  As PRSI tax payers we all enjoy universal access to public hospitals and hence 80% of beds in all Public Hospitals were designated as public beds up until the 1^st of January 2014. This meant that 20% of beds in Public Hospitals were designated for private patients.  In practice this meant that if 50 beds, in a hospital with 100 beds, were occupied by private health insurance policy holders, the insurer would only be charged the private rate for 20 beds and charged the public rate for the extra 30. The private rate currently stands at €813 per night while the public rate now stands at €75 per night.

As and from 1^st January 2014 this cap no longer exists and health insurers are now charged the private rate for all patients holding private health insurance occupying a bed in a public hospital.  This is bed re-designation.   In practice and using the above example, this means that as of January 2014, all 50 of those private patients are now costing the private health insurers €813 per night as opposed to €75 per night.  With just one night occupancy per patient in the above example, that sees and insurer bill jump from €18,510 to €40,650 or a 120% increase.  However it’s not just as simple as that.  It gets worse!  Under the public bed charge rule, that €75 is capped at 10 nights or €750, whereas the private charge of €813 is capped at 180 nights.  So the same example with a 15 night stay per patient would cost the insurer an extra €350,000.  As a result of this measure, the State has estimated that the cost to the insurers is likely to be in the region of €30 Million.  However health insurance actuaries have estimated the cost at €130 million.

Earlier in this article I referred to the State having cost health insurance customers an extra €600 million in taxes.  This figure was partially based on the State’s own estimates of the cost of bed re-designation i.e. €30 million.  If we are to believe the health insurers calculations, that figure would look more like €700 Million.  I believe these measures to be scandalously unjust, unethical and possibly illegal if challenged.  The reason for this opinion is due to the fact that the measure fails to recognise the PRSI contributions also made by those health insurance customers and their universal right to access healthcare on the same basis as everyone else who pays PRSI.

As if that wasn’t bad enough, The Department of Health have now told hospitals that they must charge between €300 and €400 a day for private patients even if they are treated on a trolley or in a therapy chair.

Bed Re-designation has seen premium increases of an average of 20% for both Laya Healthcare and Aviva Health in early 2014.  VHI surprisingly maintained a very reasonable level of increase at an average of 6% in the same year.  On closer inspection one could surmise that VHI saw this coming when it was first announced a couple of years ago and took their medicine early.  If one goes back over previous year’s increases one can see that VHI were on the higher end of the scale when it came to premium increases.

Free G.P care for children under 6 years of age

This proposal was muted by James Reilly in October 2013 in what always seemed like a cynical attempt to curry favour with a public who were growing ever despondent with the failings in his Health Service, cuts to services and the growing concern over his involvement in the addition of two primary care centres in his constituency.  I could go on!

I say cynical because:

• The initiative was way under costed at €37 Million
• The time frame for roll out was over ambitious and unrealistic to the extreme (Summer 2014)
• The proposal was not negotiated in any meaningful way with the IMO

On the costing issue, figures from RTE later suggested that the cost could be anything from €40 Million to €1.7 Billion!  This was also announced in a year when the Department of Health had a budget overrun of €350 Million (2014 would see an even greater overrun of €680 Million).

On the timing, this proposal was announced in October 2013 with a proposed roll out date of July 2014, just 8 months later.  Under any circumstances, even with the necessary budget, a roll out in that time would require huge commitment from all stakeholders from day one, not to mention the logistics of getting systems up and running.  This ties in with the third point, that the major stakeholders, the IMO, were never in a position to hit the ground running as no meaningful negotiation or engagement had been made with them by Minister Reilly or the department.

This always seemed more about distraction than plausible government policy and had echoes of decentralisation about it!  I recently came across a tweet from medical journalist Dawn O’Shea in the midst of the latest hospital overcrowding debacle.  The tweet read: “Free G.P care for under 6s & over -70s or safe care for everyone.  How should our tax money be spent”.  Something to think about!

Introduction of Lifetime Community Rating Announced

One of the final policy announcements of James Reilly was to sign into law a new measure called Lifetime Community Rating to encourage people to take out health insurance at a younger age, thereby helping to control premium inflation.  In my view this was essentially the missing piece of the jigsaw that it a Community Rated Market.

Community rated markets depend on a continuing entry of younger people. Younger people claim less on average and, accordingly, their continuing participation keeps premiums down for everybody.  Conversely, if people wait until they are older before taking out private health insurance, premiums will increase for everybody.

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 for the same plan 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.

As and from the 1^st of May 2015 a loading of 2% on gross premiums will apply to anyone aged 35 and a further 2% thereafter for every year of age after that.  So for example a 45 year old taking out health insurance for the first time after the 1^st of May 2015 will have a 10% loading on the annual gross premium.  This loading will then apply forever.  Credit will be provided for previous periods of health insurance and for periods of unemployment since the economic downturn in 2008.

The Health Insurance Authority (HIA) along with the four Health Insurers are expected to launch a highly publicised media campaign in February across a range of mediums to raise awareness of the new measures in advance of the May deadline and to encourage as many people into the system before then, whether they had previously left the market for reasons of affordability or for those who may consider joining for the first time.  Indeed our office has already fielded a number of queries from people in their 50’s, 60’s and 70’s who, to date, had never had health insurance.

New Minister for the Department of Health

In July 2014 we were introduced to a new Minister for Health Leo Varadkar.  Both the end of James Reilly’s tenure and Leo’s appointment to the post were largely expected.  Indeed one could speculate that both reshuffles were designed to punish those effected!  However if the purpose of placing Leo Varadkar in Health was to muffle his voice he quickly threw off that mantle.  Within a month of taking office Varadkar had laid waste to three of the governments top health promises:

• The HSE will not be abolished in 2015
• Free G.P care for all will not be realised by 2016
• Universal Health Insurance will not be realised by 2019

In October he continued to call it as he saw it in stating that many key health service indicators were “going in the wrong direction”.  He revealed that in the month he took office the amount of people waiting on trolleys for hospital admission was up 10% on the same time in the year previous year (2013).  By August those figures were showing an annual increase of 19%.

He went on calling it as he saw it in October by stating that “one of the biggest differences I’m experiencing between tourism and sport, and health, is that the interest groups in tourism and sport want you to succeed – you’d kind of wonder sometimes if that’s the case in health” most likely referring to medical doctors.

In Budget 2015 he was fortunate enough not to have to announce any further health cuts for the first time since 2009.  Overall Varadkar has proved competent in the job, up to the task and has secured the support of Cabinet and more importantly the Economic Management Council.  However his task in the year ahead will not be easy.  Fine Gael is still committed to introducing free G.P care for under 6’s and over 70’s by 2016.  Aside from that there are the long hospital waiting lists (which reached record proportions again in early January this year), public patients waiting for diagnosis, inpatient, outpatient and day case procedures and appointments.  Nonetheless we wish him the best of luck.

Measures to help the health Insurance Industry

In November the Minister for Health met with the Health Council of Insurance Ireland (comprising the CEO’s of all 4 health insurance companies,  Aviva Health, GloHealth,  Laya Healthcare and VHI) where he announced a series of new measures to be introduced in the forthcoming months. These measures are in response to previous engagements by the health insurance companies with the Minister.

While many policy decisions of recent years have had a negative impact on the cost of health insurance these measures were welcome news. The measures announced are the first phase of a series of measures and will help to dampen the scale of premium increases within the market.

The main features announced by the Minister were:

1.       Health Insurance Levy – the levy for ‘advanced plans’ (which is the majority of plans in the market) will be frozen and the levy for non-advanced plans (which primarily provide cover for public hospitals and whom approximately 6% of customers are on) will be reduced by €50 for adults and €20 for children

2.       Effectiveness of the Risk Equalisation scheme – while the levy will not increase the age related tax credits will be modified to increase the effectiveness of the scheme for over 70’s. The Hospital Bed Utilisation Cost will increase (a payment made from the levy fund to insurers for inpatient bed nights)

3.       Discounts for under 25 will be introduced – these will be on a sliding scale from 50% for 18 & 19 year olds, to 10% for 25 year olds.  The discounts may be applied at the discretion of the insurers however if an insurer applies a discount to a particular plan then it must be introduced across all the age cohorts from 18-25. The introduction of discounts will commence on 1 May 2015 (for policies effected from that date) in line with the planned commencement of Lifetime Community Rating

4.       The levy that is payable for the funding of the Health Insurance Authority will be reduced to 0.01% for two years (this will result in an overall saving to the health insurance market of €2 million)

5.       The Open Enrolment regulations will be amended with effect from 1 May 2015 to:

·         Standardise waiting periods. This will be implemented for all regardless of age – hence only one waiting period would apply to all members rather than the tiers that are currently in operation;

·         Introduce a new definition of pre-existing illness based on signs and symptoms rather than on the onset of the condition itself

6.       Some technical amendments were made in the legislation with regard to the imposition of penalties (i.e. the 2% loading for each year over the age of 35 when someone takes out health insurance for the 1st time) under Lifetime community rating being mandatory, that persons leaving restricted membership undertakings (e.g. the Garda or ESB schemes) to commercial insurers cannot have initial waiting periods applied to them and that initial waiting periods cannot be applied to any person who either switches provider or changes plan within an insurance company.

Conclusion

So this concludes our summary of 2014 and it’s comforting and refreshing to note that as 2014 rolled on much of the latter measured announced were broadly positive.  So much so, that I believe the worst years of Health Insurance premium inflation are behind us.  We can always expect annual price increases in this market but hopefully of a level that people can accept and budget for.  Indeed one insurer (Laya Healthcare) has already announced a 24 month price freeze on their Future Protect range of plans.

IHI look forward to calmer waters in 2015 while recognising that such a statement carries a certain health warning when applied to the Irish Healthcare System!

We look forward to keeping you updated in the year ahead.

Patrick Brennan

www.IrishHealthInsurance.ie