herald

Tuesday 14 August 2018

Dan White: Now we're all priced out of private health

With both Aviva and Quinn Healthcare putting up their prices it is now clear that the Irish health insurance market is broken. The failure of successive ministers for health to prevent new arrivals from cherry-picking VHI's younger, more profitable customers means that many of us will no longer be able to afford health insurance.

This week's news that both Aviva and Quinn are also putting up their prices should have come as little surprise.

Ever since the Irish health insurance market was opened up to "competition" in the mid-1990s, health insurance price increases have followed a similar pattern.



PATTERN

First VHI, still the dominant player with almost two-thirds of private health insurance customers, puts up its prices in the first week of January.

This unleashes a huge political and media firestorm. Then a couple of weeks later when the dust has settled Aviva and Quinn Healthcare quietly follow with their own increases.

This year's health insurance price increases followed the usual pattern.

On January 6, VHI announced whopping increases of between 15pc and 45pc. Cue political uproar.

Then three weeks later Aviva unveils a 14pc price increase while Quinn jacks up its prices by between 8pc and 25pc.

So what is driving up health insurance prices and is there anything that can be done about it?

First the Irish population is ageing with the average age rising by about four months per year. As older people tend to get sick more often they make more health insurance claims.



SCIENCE

At the same time as the population is ageing, medical science is devising new and more expensive ways of keeping us alive for longer.

There is, in truth, little that can be done to offset the price effects caused by an ageing population and advances in medical science.

It is, however, a different story with the third factor driving up Irish health insurance prices.

Ever since VHI was first founded way back in 1957, the Irish health insurance market has been based on the principle of community rating -- where everyone regardless of age or medical condition pays the same price for the same health insurance policy.

In effect younger, healthier customers subsidise older, sicker customers.

Community rating began to break down when the market was opened up to competition after 1994. With a system of community rating there is a huge incentive for new companies coming in to the market to "cherry-pick" younger, more profitable customers.

It was to prevent this from happening that the 1994 Health Insurance Act, which ended VHI's legal monopoly, provided for a system of "risk equalisation", where companies with an above-average proportion of older customers, ie. VHI, were compensated by those with an above-average proportion of younger customers, ie. Aviva and Quinn.



COURT

Unfortunately a series of health ministers, including both Brian Cowen and Micheal Martin, dragged their feet on risk equalisation while in 2008 the Supreme Court struck down the system of risk equalisation that Mary Harney belatedly introduced at the end of 2005.

Now instead of risk equalisation we have a system of health insurance levies, €205 per adult and €66 per child, charged on all health insurance policies.

The health insurance levy has managed to achieve the worst of all possible worlds by driving up health insurance prices across the board without adequately compensating VHI for its older customer base.

Now, after 17 years of failing to address the problem, there are clear signs that the Irish health insurance market as we have known it for the past 54 years is breaking down.

When it announced its price increases earlier this month VHI reserved its steepest price increase for Plan B Options, a massive 45pc.

It is no coincidence that Plan B Options is the plan most favoured by older customers.

In practice, the most recent VHI price increases mark the end of community rating.

This is a development that will price more and more people out of the health insurance market.

In the first nine months of last year, 33,000 people, about 1.5pc of all customers, gave up their health insurance altogether.

They will be joined by tens of thousands more this year following the latest price increases.

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