Insurance consultants' advice to cut health levy rejected by Reilly
Published 16/03/2014 | 02:30
HEALTH Minister James Reilly passed over advice from top level insurance consultants to lower the levy on private health insurance for those on cheaper policies.
Dr Reilly was told by a hired consultancy firm that imposing a smaller levy on basic policies could help stop the mass exodus of younger, healthier customers.
But the minister took the advice of his civil servants instead, who urged him not to change the hefty €290 levy on basic policies, fearing that those on more expensive policies would downgrade their cover.
According to the consultants' report – released under the Freedom of Information Act – Dr Reilly took the option that benefited the VHI and those on more expensive cover.
The contentious levy was imposed on all private health insurance policies to compensate the State-owned insurer, the VHI, for having the majority of older and more expensive customers.
But critics say that it has driven up the cost of insurance and pushed increasing numbers of young people to abandon private cover, which could have serious implications for the industry. In advance of last year's Budget, the Health Insurance Authority urged Dr Reilly to cut the levy for those on cheaper policies.
But internal documents show that the minister's view on the insurance levy was starkly at odds with the regulator and private consultants.
The minister had commissioned private consultancy firm Milliman to "review" the regulator's advice last October. The consultants were broadly supportive of the regulator's advice, backing the calls for lowering the levy for those on low-cost policies.
In a memo to the minister, the consultants said the regulator's proposals to reduce the levy appeared "sensible" "objective and transparent".
Overall, it found that lowering the levy for cheaper policies may "encourage sustainability" in the market by encouraging more young people to take out cover.
Ultimately, civil servants did not want to reduce the levy and wanted to limit the increase for those on more expensive plans.
Officials advised the health minister to freeze rather than cut the levy for cheaper insurance plans and to limit the increase on more expensive plans, which is what he eventually did.
According to Milliman, the approach chosen by the minister would have a "mixed" effect on sustainability and meant that those on low-cost policies were subsidising to a greater level those on more expensive ones.
It also "benefited" the VHI. The approach "increased the positive expected net financial impact on the VHI" which "may increase the risk" of overcompensating the State insurer. Irish insurers have come under fire for the "unacceptably high costs" of their policies, which are currently under review in the Department of Health.