Money Times - February 24, 2015

Posted by Jill Kerby on February 24 2015 @ 09:00




Remember the story of the golden goose?  The cost of health insurance comes to mind every time I think of how easy it is to kill off a good thing – or at least move in that murderous direction.

Only after as many as 250,000 people had dropped their private health cover did the government and health insurance industry finally realise that drastic action had to be taken if the private side of Irish health care was not to further implode, putting even more pressure on our seriously under-achieving and over-spent state health service.

The solution was a long-suggested development:  Lifetime Community Rating - LCR for short – which from May 1, 2015 will replace the faulty Community Rating that has been in place since the 1960s.

Under community rating rules, everyone can purchase any health insurance plan on the market regardless of their age or state of health. (Over 2m people have a plan.)

The downside of CR, however, is that the pyramid on which it is built becomes unstable if there isn’t a large, steady stream of young members joining every year, paying premiums for insurance that they probably won’t use until they are older and become more susceptible to various health conditions. 

If the pool from which new membership shrinks, then the cost to the insurers soars a) as older customers, still paying modest premiums start making bigger and more expensive claims, b) younger existing members drop down to lower value plans or quit their membership altogether or, c) if more people – especially healthy ones - strategically delay buying a plan until they are in their middle age or older. 

The latter people take a big chance that they might develop some illness or condition before their joining date:  depending on your age you could go 5, 7 or 10 years before your policy covers pre-existing conditions.  Still, under the old CR system they might have calculated that 25 years of NOT paying health insurance made up for the risk of getting ill: and anyway, they were still entitled to treatment under the public health system.

“All that changes on May 1”, says specialist health broker Roisin Lyons, the chief executive of Lyons Financial in Dunboyne, Co Meath.

“Solidarity-based health insurance [like CR] is a good thing, but it is outdated now,” said Lyons, due to the economic downturn and our ageing population. “This [lifetime community loading incentive] is a wise move that will incentivise 30 year olds to buy the insurance.”  Missing the deadline, she warned, “means you are stuck for life with a higher premium. I’m not sure everyone realises this.”

So how much more will non-members of a health insurance plan have to pay if they don’t have a LCR plan by April 30?

A 35 year old who does not buy a plan from VHI, Laya, Aviva or GloHealth will only pay a 2% loading on their future premiums, explained Lyons.  If their policy of choice costs €1,000 a year, “it will cost them €1,020 a year because they didn’t sign up before May 1.” 

But if the person is already 40 on May 1 that €1,000 policy rises to €1,120. A 60 year old who misses the deadline will pay €1,500 a year for the exact same policy, reflecting his 25 years of age over the cut off date of 34 to enjoy the original community rating regulation and not the new ‘lifetime’ one. 

The good news after all of that is that the life companies are bringing out lower cost entry levy plan for the 50-60,000 new members they expect will sign up by April 30.  They cost as little as €450-€489 a year (c€99 for children) and provide a semi-private room in a public (but not a private) hospital. You also get 20% tax relief on premiums.

“This is the equivalent of the old VHI Plan A-type priced plan,” explained Lyons. The benefits are very basic and may not be wholly satisfactory since there is no guarantee of even a semi-private bed/ward in any public hospitals. If you eventually can afford to upgrade to a better plan, waiting periods will apply for pre-existing conditions.

Not everyone will be loaded: if you are already 35 and over if doesn’t apply if you only gave up your insurance in the previous 13 weeks and you will get up to 3 years loading credit if your were insured but stopped your cover for periods of unemployment since 1 January 2008. Also, it you lived outside Ireland on 1 May 2015 but subsequently move here, the loading won’t apply if you get health insurance within nine months and continue to be insured.

If you do want to avoid loading, act soon. Health insurance is confusing, full of terms and conditions so always shop around. Check the www.hia.ie site, or use a good, specialist broker that can explain the merits of corporate plans and “excesses” to cut premiums.

If you have a personal finance question for Jill, please email her at jill@jillkerby.ie or write to her c/o this paper.


2 comment(s)

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