Rise in insurance costs can be delayed but can’t be avoided

UNFORTUNATELY, this latest development couldn’t come at a worse time for health insurance customers.

Last year, levies rose 11%, but the latest hike of almost 40% will undoubtedly lead to further premium increases. Already, Quinn Healthcare has increased its standard plans by an average of 12% and Aviva has announced its plans are to increase by 15% from February 15 next. VHI announced a 2% price hike in November and we can expect a further increase sometime in the first quarter. Some of its corporate plans have already been increased by up to 15%.

These levy hikes, together with the 4% average increase in public hospital charges, have a direct impact on the health insurers as these charges are effective immediately. However, it can take up to two years for the insurers to reap the full benefit of any premium increases, which is a major challenge for them. While they will try to absorb some of these increases, the reality is that at some stage they will have to pass them on to consumers, many of whom are already struggling to pay their premiums.

The net effect of this is that the levy will increase from €205 to €285 per adult and from €66 to €95 per child. For an average family with two adults and two children, this could mean an additional cost of €218 per annum if it is passed on in full. This levy applies equally to all plans, which means that those on the lowest plans will pay the same levy as those on the most expensive options.

Like the public health system, the health insurance industry is facing serious challenges. About 53,000 people cancelled their health insurance in the first nine months of 2011 and we can expect this figure to have risen to 75,000 by year-end.

These people will now have to rely on a creaking public system. If prices were to increase again in 2012 as a result of this levy, the cancellation figure could be anything up to 100,000 by January 2013.

Those cancelling tend to be the younger, healthier lives. The impact of this trend is that the insurers are left with higher claims costs, which causes more upward pressure on premiums and thus the cycle of increased cancellations continues.

Health Minister James Reilly has also indicated potential changes to the way consumers with private health insurance are charged for using public hospital facilities. While no specific details are available at present, all three insurers have indicated that any such measures could increase their costs further and these would inevitably be passed onto all their health insurance customers. Should this happen, we can expect many more people to be forced out of private healthcare and back onto the public health system.

To try and contain their costs, some of the health insurers have had to reduce their cover on many of their mainstream plans for key medical procedures performed in private hospitals only. VHI has reduced its cover for a specific list of 50 procedures to 80% while Aviva has introduced a maximum co-payment of €2,000 for a list of nine procedures. Quinn has not introduced any such measures yet.

Not surprisingly, consumers have reacted to these hikes. Increasing numbers are downgrading their cover to public hospital plans only or alternatively, are taking on excess-based plans for private hospital cover. This can reduce their costs by about 9% but they will be liable for an excess on any admissions to private hospitals.

For those reducing their cover to public hospitals only, it will simply mean you have more people trying to access less beds, which, in turn, may increase waiting times. If this trend continues, it could put pressure on the private hospitals as they try and maintain occupancy rates. Already, consumers will have noticed the increased advertising by some of the leading private hospitals.

Unfortunately, health insurance has become so complex that consumers must get expert advice. A quality adviser can inform consumers on corporate plans, split cover, reduced day-to-day cover, renewal date changes and many other tactics to help reduce the overall cost.

In summary, there is little good news on the horizon for health insurance customers. However, by reviewing their cover properly, they may be able to defer the upcoming price increases for at least a further 12 months and see what options are on the table then.

* Dermot Goode is with Healthinsurancesavings.ie, a trading name of Cornmarket Group Financial Services Ltd. Cornmarket Group Financial Services Ltd is regulated by the Central Bank.