Prognosis?Not so good

The three main insurance companies are expected to announce price increases in the first quarter of 2012. Consumers can only hope to delay the extra payments, writes Dermot Goode

ONLY last week, VHI announced a 2% price increase. Now Quinn has just announced its latest increase of an average of 12%, which will come into effect on January 1. We can expect all three insurers to announce further price increases in the first quarter, similar to what happened between January and April this year.

Approximately 43,000 people cancelled their health insurance in the first half of this year and this is set to be over 75,000 by year-end. These people will now have to rely on a public system which is already creaking. Recent figures show there are about 30,000 people on public hospital waiting lists and this is also likely to rise. If prices were to increase in 2012 on a similar level, the cancellation figure could be anything up to 100,000 by the end of 2012.

Unfortunately, for Irish consumers, these increases could not come at a worse time.

The health insurance landscape is extremely uncertain in respect of the three main providers. Quinn Healthcare is still for sale; we are awaiting the proposals from Health Minister James Reilly regarding the future structure of VHI and there has already been speculation the organisation may be split up into two or three entities, with the state possibly retaining some degree of ownership; and Aviva has just announced their restructuring plans, although it appears that their health insurance operation in Ireland will be unaffected.

All three insurers are waiting to see what changes the minister will make to health insurance levies and public hospital charges. These rose 11% and 21% respectively on January 1, directly impacting on the level of price increases imposed by the insurers. If the minster was to increase these charges by a similar figure from January 1, 2012, the insurers would have to pass on these charges almost immediately. There is a strong likelihood the minister will have to pass on some level of increase, which means we can all expect to pay considerably more for our health insurance from January onwards.

An added pressure for the health insurers is their rising claims costs. The majority of those exiting health insurance altogether are the young and healthy. This means that those left in the system are more likely to claim and thus, the cycle continues. For example, claims costs increase, premiums increase, and more people leave and take a chance on the public system.

Consumers have already been reacting to these price increases. More 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 approximately 9% but they will be liable for an excess on any admissions to private hospitals, which could wipe out their savings.

For those reducing their cover to public hospitals only, it will simply mean you have more people trying to access fewer 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 leading private hospitals.

Many people are also reducing their cover for dependent children or deleting them from their policies altogether. The insurers have reacted by launching a range of lower-cost options, which is welcome news. But consumers need to understand that if they are reducing their premium by €700 per adult, then they are not comparing like-with-like.

For example, VHI has introduced a range of Restricted Illnesses, which means members will no longer have full cover for these conditions in private hospitals. In some cases, this could leave a person with a shortfall of up to 20%. In the case of a hip-replacement procedure, that could mean a bill of up to €3,000.

Aviva will introduce a similar restriction from January 1 on some of their plans, but the shortfall will be capped at €2,000, irrespective of cost. This is a dangerous trend for the industry, and could mean that consumers will pay higher premiums for less cover. While this list is restricted to orthopaedic and ophthalmic procedures at present, there is nothing to stop the insurers broadening the number of procedures that will fall into this category.

VHI has also amended all of its contracts to include financial penalties for mid-term cancellations. So while the regulations always indicated that you could switch your cover at anytime, this is no longer possible with VHI. There is every likelihood that this policy could be adapted by all three health insurers.

Unfortunately, health insurance has now become so complex that consumers must get independent advice. A quality advisor can advise on corporate plans, split cover, reduced day-to-day cover, renewal-date changes and many other tactics to help reduce the overall cost. They can also ensure that they understand all policy changes without having to read through all of the complex insurance literature.

In summary, there is little good news on the horizon for health insurance customers.

However, by reviewing their cover properly, they should be able to defer the upcoming price increases for at least 12 months and then see what options are available.

* Dermot Goode lectures on health insurance for the Irish Brokers Association and founded healthinsurancesavings.ie, a trading name of Cornmarket Group Financial Services Ltd, which is regulated by the Central Bank of Ireland.