Health insurance - €160 levy dressed up as tax relief

The Government announced that it would provide increased tax relief for private health insurance premiums for everyone over 50 years of age.

The scheme is being introduced as a substitute for the risk equalisation plan that was struck down by the Supreme Court. It was also necessary, because of the budget decision to increase charges for private beds by 20%, along with medical inflation.

Health Minister Mary Harney said these changes are necessary because older people would effectively face significantly higher premiums, possibly up by over 60%. This was a scenario that the Government could not support, because it would mean that many older people could not afford health insurance.

Successive governments have supported the idea of risk equalisation whereby everybody pays the same premium, irrespective of age. This effectively means younger people are subsidising older people, because people over 80 make claims are on average four times higher than somebody at 40, and those aged 60 have average claims that are twice as high as those aged 30.

When the Voluntary Health Insurance (VHI) was the only health insurer in the Irish market, it was relatively easy to implement risk equalisation, but once the market opened up to others in the mid-1990s, risk equalisation became much more problematic. The Government initially sought to achieve risk equalisation by having companies whose clients had a younger profile pay to compensate those with a higher age-profile. But the Supreme Court struck down that scheme in July.

Of course, Ms Harney was a leading member of an earlier government which recklessly encouraged older people to believe they were entitled to comprehensive free medical care and that, consequently, they did not need health insurance. The latest move is an attempt to make the recent political U-turn more palatable.

People currently receive 20% tax relief on their health insurance subscription charges. The Government plans to introduce a system that will be tiered in favour of older people paying for health insurance. In a strict sense, it might be more appropriate to describe as a subsidy what the government is planning. The Government will provide €200 a year relief for those between the ages of 50 and 60 and €500 annually for those aged between 60 and 70, €950 for those between 70 and 80, and €1,175 each year for those over 80.

This money will be deducted off the amount that the insured person will be asked to pay. Hence those who do not actually pay income tax will benefit by the full subsidy to which they are entitled off their health insurance premium.

This is expected to cost around €300m, and that money will be raised by placing a levy of €160 on all the health insurance companies for each adult on their books and €53 for each child. The companies can pass this on in the form of higher costs.

The end result is that every adult’s health insurance is likely to go up by at least €160 a year.