How did such a market develop?

Older people will be particularly affected by VHI’s health insurance premium increases as most of them are with the country’s biggest insurance provider, writes Claire O’Sullivan

IF ANGER was the predominant feeling of the Irish people last year, VHI’s new year announcement that they plan to introduce premium increases of up to 45% has struck the fear of God into many people — especially older people.

Age Action Ireland has said the increases “of between 21% and 45% on Plans B, C, D, and E options will inevitably put the cost of private health insurance beyond the reach of many older people”.

And, Fine Gael’s spokeswoman on older citizens, Catherine Byrne, described the proposed hike as “a direct attack on the elderly, the lower-paid, and those who are genuinely struggling to makes ends meet but are fearful to cancel their policies in case they fall ill”.

While the price hikes will be felt across all age groups, older people will be particularly affected as most of them are with the country’s biggest insurance provider, VHI.

Some 9% of VHI’s customers are over the age of 70 and it is this group that make significantly more claims than the younger cohort. According to the Health Insurance Authority (HIA), figures from the second half of 2009 show that this group make five times the average level of claims across all age groups. To put it starkly, VHI has four and half times more over-70 customers than Quinn and six times more than Aviva. VHI has 92% of the over-80s market and four out of five health insurance customers over the age of 60 are with VHI.

VHI chief executive Jimmy Tolan didn’t mince his words when announcing the premium rises — citing the fact that 50% of VHI’s annual expenditure goes on older customers.

“Without the price increases now announced, VHI Healthcare would have faced average losses of €850 on each of its 129,000 customers over the age of 70,” he said.

So how has this whole mess come about? Is it mismanagement by the VHI or is the Government to blame for allowing such a lopsided private health insurance market to develop? And why haven’t people acted before now to reduce costs?

According to VHI, it’s partially the Government’s fault for not introducing risk equalisation — a system whereby the other health insurance companies would have to compensate them for providing cover to the vast bulk of older private health customers. It’s also because of rising bed and medical inflation costs.

But Fianna Fáil TD, Chris Andrews has lambasted VHI, saying that an older and “loyal” customer base can’t be blamed.

“VHI talk of the fact that their customers have a higher age profile than the other insurers in the market, however, what they neglect to mention is the fact that many of these customers have paid a small fortune to the VHI over many years. Did the VHI think they were dealing with residents of never-never land, that people were never going to get older and need greater medical attention?”

The Government tried to trigger risk equalisation in 2006 but BUPA Ireland sought an injunction to stop its commencement. The state, however, had this eventually lifted. Later that year, a High Court case took place where BUPA challenged risk equalisation but the state won.

BUPA then threatened to withdraw from the market and eventually the Quinn group took them over. But a major setback for the Government came in 2009 when the Supreme Court allowed an appeal by Quinn against risk equalisation. This stopped Government risk equalisation plans in their tracks. However later that year, it introduced greater tax relief for private healthcare customers aged 50 and over so this age group wouldn’t be disadvantaged.

To fund this tax relief, they introduced a health insurance levy on every private insurance customer which they described as an interim measure “with the objective of supporting intergenerational solidarity”. Basically, the various health insurance companies added this levy on to their annual premiums and then passed it on to the consumer.

According to VHI however, this stopgap tax relief system is not working as the levy isn’t big enough.

“The Government is responsible for deciding the level of tax credits necessary to provide support for older insured people. Tax credits at current levels reduce VHI’s annual losses of insuring older customers from €170 million to €147m post the recent increase in private beds in public hospitals,” Tolan said yesterday.

Yesterday, Minister for Health Mary Harney said her focus is on the medium term introduction of risk equalisation so that community rating — the principle that all people should have access to a health insurance market where older, more high-risk customers are not being charged higher premiums than younger/ low-risk customers — is underpinned.

And, last November’s increase in private charges for public hospital beds, the minister said, was part of a “long-standing Government policy to reduce and ultimately eliminate any public subsidy for private patients in public hospitals”.

The Irish health insurance market, Ms Harney added, is “very complex and there are no easy solutions”.

A vital element of introducing risk equalisation is the creation of “a level playing field” between all companies. However, VHI isn’t fully regulated and last May, the state said it doesn’t want to own a health insurance company that it is also regulating via the Financial Regulator. Therefore VHI is to be put up for sale.

The Government decision to regulate has no doubt been accelerated by a threat of legal action from the EU, which is concerned about VHI’s derogation from the solvency requirements of the Non-Life Insurance Directives, due to its state ownership. And secondly, VHI’s competitors would not be happy either if the Government, as VHI’s owner and regulator/legislative operator, is also requesting cash from them to fund VHI’s older age profile.

If VHI is to be regulated by the Financial Regulator like Aviva and Quinn, it will be subject to guidelines governing the reserves of insurance companies. The Government has decided to invest an undisclosed sum in VHI so it can meet the “reserves requirements” of the regulator. A sum of €338m has been suggested.

A public consultation process around risk equalisation took place over the summer and the responses have been sent to the Department of Health who will use them to design the risk equalisation legislation. According to UCC Department of Economics lecturer, Dr Brian Turner, every effort is being made to ensure this legislation is “absolutely watertight” as “twice bitten, twice shy” they want to make it impervious to likely legal challenges from Quinn and Aviva.

It is likely to be 2012 at the earliest before risk equalisation is enancted. So will we see drops in VHI premiums then if Quinn and Aviva have to eventually subsidise the company for its older customers?

Despite all this focus on risk equalisation, Dr Brian Turner thinks it’s unlikely. He says he “can’t see it in the medium term as with an ageing population, huge strides in medical technology and medical inflations and the Government’s wish to make health insurers pay the full cost of hospital beds, premiums are unlikely to fall”.

He also thinks that the Government won’t be able to sell VHI until risk equalisation is in place as it won’t be attractive to buyers.

As for the future for private customers, he believes that “most people will hang on by their fingertips to health insurance” regardless of price hikes over the past three years.

“We will see increased switching of plans from year to year and people will change their level of cover regularly if they think they can avoid paying for higher coverage. Ultimately, Irish people see health insurance as a necessity as access to hospitals is such an issue in the public service,” he said.

The Department of Health is however conscious of ensuring private health insurance premiums remain affordable to Irish people as much as they are aware of the state’s own need to try and calm public expenditure on the acute hospital sector.

It is for that reason that they want to develop a “minimum benefits” system for all health insurance customers whereby GP care and some types of health screening are fully covered by all health policies. The rationale behind that? They think that if money isn’t an object, we will attend a GP or go for screening quickly rather than let health problems fester and GP and screening care is much cheaper than hospital care.

This, coupled with risk equalisation, is the only way they see they can steady health insurance pay hikes. It’s clear that under this government, the two-tier health system is not going anywhere and as patients, we’ve just got to hope we can keep finding the money from somewhere to keep ourselves from toppling off the top tier.

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