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Saturday 21 October 2017

Time is running out for the health cover freeloaders

Community rating - where everyone pays the same price for cover regardless of age or medical condition - has long been one of the pillars of the Irish health insurance market.

The problem with community rating is that it gave young healthy people - who make few health insurance claims - an incentive to "freeload".

After all why should you pay for health insurance now when you can get it for the same price later on, when you are older and sicker?

That didn't matter very much while the state-owned VHI was the monopoly provider.

With health insurance being essentially a voluntary tax the state was basically shifting money from one pocket to another.

Things changed when the market was opened up to private companies two decades ago. These new entrants could, and did, target younger customers who make far fewer claims leaving the VHI with the older, sicker customers.

I well remember a former VHI boss telling me at the time the market was opened up to competition that "cherrypicking" by the new entrants would eventually lead to the end of community rating.

While I laughed them off at the time, subsequent events have more than justified his fears.

recession

The post-2008 recession, which saw over 300,000 people lose their jobs along with tax increases and wage cuts,has made the situation even worse.

Health insurance increasingly came to be seen as an unaffordable luxury.

Since the end of 2008 266,000 people, almost 12pc of the total, have given up their health insurance. Even worse, most of those who have given up their health cover are young people.

This has created a vicious circle. As young people give up their health cover the health insurance companies, particularly the VHI, are left with a disproportionate number of older customers.

This pushes up prices further - average health insurance premiums have doubled over the past six years - encouraging more people to drop their cover.

Things just couldn't go on like this.

With the health insurance market on the point of complete breakdown the government and Minister James Reilly (below) have, a mere 15 years after a White Paper recommended it, finally taken steps to tackle the problem of "freeloading".

From next May anyone who hasn't taken out health insurance by the age of 35 will be hit by a special loading.

For every year after 35 that a person delays taking out health insurance an extra 2pc will be added to the cost of their policy.

This means that a 45-year old who previously had no health insurance cover buying a €1,000 policy would be hit with an extra €200 loading, bringing the total cost to €1,200.

When a similar measure was introduced in Australia a few years ago large numbers of younger people purchased health insurance cover.

Will Ireland be the same?

So if you are a young, or even youngish, person who hasn't taken out health insurance, gambling that you will stay healthy, now is almost certainly the time to act.

If you don't purchase cover over the next nine months then you will eventually have to pay far more for your health insurance.

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