Jill Kerby

IGNORE THIS STEALTH INCOME TAX AT YOUR PERIL

Your private health insurance bills are set to soar.  You may not be able to afford to avoid using the public health system, which is under the greatest financial and organisational strain ever. And if you are an older person, you need to act now.

The most adamant health insurance users in this country are older people who joined the VHI back in the 1960s and ‘70s; at first they were professionals and higher civil servants.

As the decades passed and incomes were taxed so heavily, increasing number of bigger firms, especially American ones, offered health insurance to their employees as one of many employment benefits. These ‘cafeteria-style’ packages often included an occupational pension, share options and health insurance, often for the whole family.

The popularity of private health insurance grew with competition after 1996 when the VHI monopoly ended and BUPA Ireland arrived. Today, Laya (which emerged from BUPA), Aviva and GloHealth now compete furiously for the shrinking pool of money and members (now estimated at well under two million, down about 65,000 per annum since 2008.)

The fall in numbers is due to unemployment, falling incomes and higher income and other taxes (like the LPT). But also because of the surge in the annual health insurance levy to subsidize the VHI, which has a disproportionate number of expensive older members and other legacy costs.

The levy alone – at €350 per adult and €120 per child member for all but the cheapest policies, now accounts for a disproportionate portion of the premium. It is the cost every member pays for the decision not to break up and privatise the VHI back in the mid-90s and to ensure that it fulfilled the same insurance capitalisation and reserve requirements of every other insurer operating in this state.

Up until 2002 health insurance members enjoyed highest rate tax relief on their premiums. It is now the standard rate of 20% and is given at source, so the amount you are quoted is the after tax premium.

From next January, this 20% tax relief is only on the gross – not net – premium up to €1,000 for an adult and €500 for a child. A €1,000 price to you is actually a €1,200 gross or real cost of the plan.

The insurance industry claim up to 1.2 million of all their members (nearly all adults, and especially older members) will be paying at least between 4% and 15% more for their insurance next year.

Let’s do the math:  if you are an older person, and still hold popular plans like VHI’s Health Plus Choice (old Plan C) at €2,265.50 or Health Plus Extra (old Plan B Options) at €1,837 the loss of the tax relief means your premiums will be €2,632 and €2,096 respectively. (VHI offers very similar plans to these - Company Plan Extra Level 3 at  €1280.75 and Teacher’s Plan at €1,250 respectively.)

Anticipated price hikes from the insurers next month or in the Spring will add at least another 10% say insurance experts and we should assume another hike in the VHI health insurance levy. The government has also begun charging the insurers €1,000 a night for every public hospital bed occupied by their members, regardless whether they get a private room, as per their contract, or end up in a multi-bed ward. The impact of this has not yet been passed on.

The total cost of all these charges and taxes could amount to hikes of 30% for some policies.

The insurers are scrambling to adjust the benefits (more excesses, co-payments, less choice of private hospital) to keep members, especially young ones who cross subsidize older, sicker ones. Huge cancellations means this hasn’t been working very well.

If you are an older person, you need to have your health insurance reviewed before its renewal date. (All contracts are 12 months and you are penalised if you leave or transfer early). Go to a good local broker who specialises in health insurance or check out healthinsurancesavings.ie and irishhealthinsurance.ie. Ask for the cheaper, corporate equivalent of your plan and then compare these to all the insurer’s offers. You can try and do this exercise yourself at hia.ie, the Heath Authority website.

Meanwhile families with children should explore whether to drop down to the cheapest, entry-level plans and add a HSF (Hospital Saturday Fund) tax-free health cash plan. One premium of €9.50 to €17.50 a week covers all the family for a portion of both outpatient costs (GP, consultant, dentist, physio, etc) as well as a payment toward an overnight or day treatment in hospital.

Over 70s who still qualify for a full medical card, have more options than young families: the savings they make dropping annual cover can always be used to at least jump the long public consultant’s queues for quick diagnosis.