Can you still afford private health insurance next year?

This is the worrying question that 2.2 million health insurance members will have to ask themselves in light of the other tax increases and benefit reductions announced in the Budget.

As of January 1st, 2009, the VHI, with (circa) 1.6 million members will increase the cost of its plans by an average of 23 per cent; Quinn-healthcare will raise theirs by 16 per cent.

Hibernian’s premium rise was set earlier, in October, at 6.75 per cent but may have to increase further, say industry analysts.

From January 1st as well, the proposed health levy which involves a charge of €160 per adult member and €53 levy per child members will also come into effect (so far, only the new Quinn prices include the levy).

Cancelling one’s health insurance would be a drastic step, especially in light of the problems that exist in the public health service, but some people on limited incomes may have no choice next year.

The huge price rises VHI announced last week are due, they say, to the usual cost culprits, – higher medical cost inflation, a rise in the number of claims, something they describe as “required recovery in claims/premium ratio and increased charges for public hospital beds”.

The levy is not a factor, says the VHI, and is not being passed on in this price hike. This is because Quinn-healthcare and Hibernian’s levy contributions will be subsidising the VHI through the elaborate tax relief to which mainly VHI members will be entitled.

According to Quinn-healthcare, at least half their higher than expected rise of 16 per cent for 2009 is due directly to the proposed levy.

The levy is controversial, and complicated.

Older members make more, costlier, claims than younger ones, but under our system of community rated premiums, everyone pays the same price for their chosen plan, regardless of age.

The young member effectively subsidises the older one (VHI claim the true cost of Plan B Options for someone age 80, for example is not the community rated price of €720 a year, but €3,040).

It is this same-price-for-all system that is impossible to sustain, says the Department and VHI, if one company has disproportionately more older members.

The insurers with fewer older members should therefore share the burden of older members by making a ‘risk equalisation’ transfer payment – at least that was the original plan.

It was inevitable that the VHI would have disproportionately more older members. This is a legacy of it having been set up in the late 1950s and spending 40 years as a state-owned monopoly until competition was forced upon it in 1996, when BUPA Ireland arrived.

It wasn’t too many years before VHI demanded the risk equalisation payments, claiming that BUPA now had disproportionately more younger clients than older ones.

Unfortunately, the amount VHI was claiming they were owed – first about €17 million, then €34 million, then upwards of €40 million plus, was more than all BUPA’s net annual profits.

Risk equalisation went to court, where several years and many tens of millions of euro in legal costs and was finally overturned by the Supreme Court last July.

The smaller players always argued that VHI’s age/risk disadvantage was more than offset by its huge size – it is four times bigger than Quinn-healthcare and nearly 10 times bigger than Hibernian Health.

Until only a few years ago, it didn’t have to set aside a large proportion of its turnover into an insurance reserve fund as BUPA/ Quinn and Vivas (Hibernian) were required by EU law.

VHI, by being allowed to remain the dominant player also enjoyed the advantage of huge brand awareness, which paid off with a surge of new, younger members.

Its critics point out that even without risk equalisation payments, (for 13 years), the VHI has been a mostly, profitable company, making €100 million last year.

The other insurers believe that this new levy is just Risk Equalisation Mark II, and just as unfair.

“This problem wouldn’t exist if the VHI had been privatised and broken up into smaller companies back in 1996 when competition was introduced,” a health insurance analyst told me.

The other insurance bosses keep repeating that even today, if the disproportionate number of older members were distributed to Quinn and Hibernian (along with their valuable premium payments), the VHI’s long term solvency problem would be assured.

The VHI say this is just media posturing and that the other insurers never wanted older members and have always ‘cherrypicked’ younger members, especially in start-up companies were the workers are mainly young

It certainly looks now like the new levy could also end up in the courts.

What the VHI did confirm to me last week is an earlier claim that the pool of money that the levy will generate will be greater – by about €35 million – than the extra tax relief that the mainly older VHI members will be entitled to claim. The VHI expect to be able to bank this money – for future use.

Meanwhile, there is no getting around the fact that the €160 and €53 are blunt, disproportionate, pricing instruments on top of ‘normal’ price inflation.

Individuals and families on low cost plans will find that the levy is disproportionately higher in value against their plans compared to someone who can afford a higher value plan (and if they are over 50 will be entitled to higher tax relief on the total premium).

It could end up pricing lower income members out of the market altogether.

As a result of the price increases/levy, a family of four with Quinn-healthcare will see their Essential Plus Excess plan rise by about €296 in 2009 to €1,756.

A VHI Plan B family will see their premiums go up by over €443 to €2,256, and that’s even without the levy being added (Hibernian’s Me Level 2 price for 2009 for a family of four was set before the levy came in – at €1,464).

So what can you do it these prices are just too steep, or because as a person or family under the age of 50 you don’t have access to the new system of higher tax relief?

* You can switch to a cheaper provider of the same level plan, where available.

* You can drop to a lower cost/lower benefit plan and hope it is adequate. VHI Plan A Options for a family of four will cost you about €1,592 a year; the Quinn Essential Starter plan will cost in the region of €1,150 and about €936 for the Hibernian Me/Level 1 plan (according to the Health Insurance Authority comparison table – see

* You can opt out of health insurance altogether and join the public health service queues, and

* Opt out but add a monthly cash health plan from HSF ( for the whole family – prices range from €114 a year to €660 a year – that pays out a range of cash benefits for medical treatments and expenses.

And finally, if you think that the protracted and unusual pricing problems in our health insurance market have been exacerbated by the fact that the Department of Health still owns the biggest player in the market, you could also share this view with your public representatives.

Whether that does any good at all, is another matter.