Trend of younger people cutting back on cover will push prices up
THE Irish private health insurance market has seen significant changes in recent years.
Having grown consistently since 1957, the number of people insured has now fallen by over 260,000 since the end of 2008, exposing some problems that were perhaps masked by previous growth.
Although the decline in the numbers insured has been relatively modest – less than 12pc overall – the profile of those leaving is more worrying, with discontinuation concentrated in younger age groups.
Community rating relies on younger consumers cross-subsidising older consumers on the understanding that when they get older a future generation of younger consumers will cross-subsidise them.
If the stream of younger consumers tapers off, as is currently happening, it leaves a higher concentration of older consumers in the market, which increases average claim costs, putting upward pressure on premiums.
This pressure is adding to ongoing factors such as a generally ageing population, advances in medical technology and increasing incidence of chronic illness.
Government policy decisions have also contributed to rising premiums, the two most recent being the capping of tax relief on premiums and the charging of insurers for the use of public beds in public hospitals.
These decisions, designed to reduce the inequitable subsidisation of private patients by the public purse, are laudable, but come at a time of market instability, and have contributed to the discontinuation and downgrading of cover by the insured due to affordability issues.
The age-related cross-subsidisation has also been eroded in recent years by a proliferation of plans designed to attract particular age-groups by tailoring the benefits towards, for example, sports injuries and maternity benefits (to attract younger consumers) or better cover for hip replacements and cataract surgeries (to attract older consumers).
Insurers are thus segmenting the market and charging different rates for different plans to reflect the different risk profiles.
To reduce this problem, the minister has proposed restricting the number of plans insurers can offer.
To try to attract younger consumers, the minister has signed legislation to introduce lifetime community rating, whereby those who wait until older ages to take out insurance will pay a late entry loading to recoup the cross-subsidisation they avoided paying at younger ages.
However, the prospect of universal health insurance (UHI) in 2019, under which everyone will pay the same premium, will likely reduce the effectiveness of this measure since any loadings would only be payable for four years – if UHI goes ahead as planned, which is by no means certain.
In addition to the above challenges, other future developments will include the prospect of insurers negotiating prices with hospital groups, which will be dominant regional providers (although this may improve on the current situation whereby public hospital prices are set by the Minister with no negotiation), preparing for the transition to UHI, and changes to solvency regulations at European level.
One thing is for sure – this market isn't going to get boring any time soon.
Dr Brian Turner is an economics lecturer specialising in health policy at University College Cork.