Government announces measures to improve affordability of Private Health Insurance for Older People

04 January 2012

The Minister for Health Dr. James Reilly has announced changes to the Private Health Insurance system which will help to make Private Health Insurance (PHI) more affordable for older people. With the agreement of the Minister for Finance, Mr. Michael Noonan TD, there will be extra age-related income tax credit for insured persons aged 60 years and over, from 1 January 2012. This credit is provided as a tax relief at source – that is, the cost of the policy is reduced by the amount of the age- related income tax credit. The age- related credit is in addition to the standard rate income tax credit on all health insurance policies. The new rates will be included in the forthcoming Finance Bill.

The measures are designed to result in no overall increase of premiums paid in the market and to spread the risk more evenly between the healthy and the less healthy, the old and the young.

These measures are being taken under the Government’s Interim Scheme of Risk Equalisation.

Minister Reilly said:

Health insurance is becoming harder to afford for older people as insurers increasingly tailor their insurance plans towards younger, healthier customers. The Government is strongly committed to protecting community rating, whereby older and less healthy customers should pay the same amount for the same cover as younger and healthier people. The changes I am announcing will provide further necessary support to community rating.

Community rating of health insurance is at the very heart of our system. It will remain so under Universal Health Insurance. The PHI market has become increasingly segmented over recent years with insurers offering tailored packages to younger people that are designed to be unattractive to older people, while at the same time increasing the price of plans they offer to meet the needs of older people. I am very unhappy about this trend and I have raised the issue directly with the insurers. This measure I am announcing today is designed to support the protection of older, less healthy people.

The Minister said that the action he is taking now is in line with his plans to move to a system of Universal Health Insurance from 2016. Under UHI, everyone will be insured for health care, and the current unfair distinction between public and private patients will be removed. In the meantime, the Minister is focusing on addressing the problems of the current Private Health Insurance market, where insurers have a considerable financial incentive to cover younger, better risks rather than older, poorer risks.

A key concern for the Minister will be to reduce the cost of claims experienced by health insurers, so that we can achieve a more cost effective market with greater competition.

Minister Reilly said:

I firmly believe that health insurers have the scope to reduce their costs significantly, and I am happy to work with them to identify how this can be done. Costs in recent times have been allowed to increase unnecessarily and I want to see these brought back to more sustainable levels in order to keep health insurance affordable for as many people as possible. The Consultative Forum on Health Insurance which I announced last week has great potential in this regard.

The Minister said that the legislation passed earlier this month extended the present Interim Scheme of Risk Equalisation for a further year, into 2012. The increased rates to be applied under the scheme from 1 January 2012, which he is now announcing, will ensure that insurers have greater incentive to offer policies aimed at older customers.

The analysis carried out by the Health Insurance Authority, which makes recommendations on the rates that should be applied each year, estimates that the changes will have only a modest impact on insurance premiums. The increased support for community rating will mean an average rise of approximately €30 for insurers with the better risks in the market and a corresponding fall of some €30 per insured person for those with poorer risks. Any negative impact on premiums paid by the consumer would be further reduced by 20% due to the standard rate income tax credit on all health insurance policies.

The Minister will shortly announce details of a new permanent Risk Equalisation Scheme to be introduced from 1 January 2013. This will build further on the impact of the Interim Scheme to close further the gap between costs in insuring older and younger customers. It will continue the objective of making health insurance more affordable for older people.