AROUND 850,000 people face a stiff new increase in their health insurance after the Government surprisingly raised the levy on all policies by 40pc.
The move means an average family of two adults and two children will have to pay up to €220 more for health cover if the insurance companies pass on all the increase.
Customers are already smarting from huge increases in the cost of health insurance, announced just before Christmas.
The 40pc increase means the levy will immediately go up by an average of €80 -- from €205 to €285 -- for each adult and from €66 to €95 for every insured child.
In place since 2009, the special charge is used to compensate health providers with older customers, who tend to make more claims.
Last night, a spokesman for Health Minister James Reilly said the increase had to be introduced to help rebalance a market where insurers favoured young people.
But insurance companies, many of whom said they were surprised at the scale of the increase, are likely to pass on the cost across the board.
And that means around 850,000 consumers who will be renewing their cover in the first three months of the year face steep price increases.
The levy is a way of ensuring everyone pays the same price for the same policy, irrespective of age and health. It is paid by the insurers initially, who have in turn increased prices to the customer, to help recoup their costs.
However, the latest rise means the levy on an adult policy has now gone up by 78pc since it was first introduced, while thousands of families have already been forced to give up health insurance due to spiralling prices.
The cost of health insurance has jumped by around 50pc for an average family over the past two years.
In the first nine months of last year, 53,000 people dumped their health cover as they struggled to make ends meet.
Most of those ditching cover are younger people, who are less likely to make claims.
That, in turn, is putting added pressure on insurers, and is a major reason why the levy must increase to help cover the costs of older clients.
But insurers were last night taken aback by the size of the rise, which is four times greater than the increase imposed last year.
Aviva, which has around 460,000 customers, said it was shocked at the scale of the rise. It had anticipated that the levy would go up, but not by 40pc.
A spokesman said it would absorb the higher levy for now, but would be forced to review the pricing on all its policies.
Aviva is pushing up prices on all its policies by 15pc from the 15th of next month.
Quinn Healthcare chief executive Donal Clancy also said he was shocked at the extent of the increase, which would end up being passed on to customers in higher prices.
Quinn, which has 400,000 healthcare customers, said the high levy would cost it between €25m and €30m.
"There is no consideration here of what consumers can afford. This is just another stealth tax. There is no doubt we will have to pass it on to consumers."
Both Quinn and Aviva have increased the prices on many of their policies three times in just over a year.
In the past month, Quinn has pushed up its prices by up to 22pc, with Aviva imposing increases of 15pc from next month.
And last month, VHI increased the cost of some of its corporate plans, with new price hikes now expected in the next few weeks.
Last year it imposed two rises of between 15pc and 48pc on consumer plans.
Most of the money raised from the levy ends up with the state-owned VHI, as it insures the majority of over-60s who have health insurance. Almost a quarter of its customers are over the age of 60.
Chief executive of the VHI, Declan Moran, welcomed the hike in the levy.
"In order to have a truly competitive marketplace you need to regulate the market in such a way that it is equally attractive to insure an 80-year-old as it is to insure a 30-year-old. It is only then that you will see the market function correctly."
Without the levy, rivals would cherry-pick younger customers leading to older customers paying more, he claimed.
Mr Reilly also decided to increase the public hospital charges for insurers from January 1.
According to Dermot Goode, of healthinsurancesavings.ie, this could spark even further price increases, if higher costs are brought into public hospitals for those that have private health insurance.