Jill Kerby

FIRST COMMUNION WINDFALLS NEED CAREFUL HARVESTING

The next time you can’t afford to put petrol in the car or groceries on the table – and you happen to have an eight year old living in the house – you’ll know who to turn to for a loan.

Or at least that’s the unintended conclusion of a recent survey of First Communion costs by the popular social media site for MummyPages.ie that claims to have over 700,000 followers. While the average amount of gift money that a First Communicant received last year was €323, up from €299 in 2014, it states that 56% of them received between €500 and €1,500, and one in five children received €1,000.

It isn’t just the family and friends of the Communicants who are feeling more financial flush, said MummyPages.ie but parents too who, the survey discovered will spend between €1,222 and €1,525 this year for their child’s spiritual induction into the Catholic Church. (It gives a breakdown on the amount spent on new shoes and clothes for the child and rest of the family, makeup and hair appointments, presents, professional photographers, catering/restaurants/food and drink/entertainment)

A spokeswoman for MummyPages.ie noted that this appears to reflect a pick-up in the economy. The survey doesn’t reveal whether these higher figures for cash gifts and expenses are mostly happening in Dublin, Cork and other cities where it is claimed all the ‘recovery’ is happening, but it might be useful to add that question to next year’s survey and then use it as yet another economic indicator.

Springtime always begets stories about First Communion excesses that were curtailed a bit after 2008 crash, but never really went away.  Does it really matter how much people spend their own money on a big family party? Or that in an increasingly secular society that what were once religious events (like Christmas or Easter) are now the dates that kick off the family or society’s calendar of parties and get-togethers?

It becomes a problem only when the family or parents decide to spend other people’s money that they can’t afford to repay. First Communion ‘season’ is also the start of the Moneylender season in which interest of up to 187% can be legally charged on short-term loans. Too often a small First Communion loan can (against all rules) roll into a small summer holiday loan and then into a back-to-school and Christmas loan. Ultimately it keeps the borrower in a perpetual state of penury.  

But there’s a wider issue that all responsibility parents should want to address:  how much do their young children understand about money and how much access to this cash should we give them?

So here are a few thoughts you might want to share with, or better still, impose upon your little Communicant before and after their big day:

-       A lot of nice people are going to give you cards for your First Communion in which there will be some money for you. Open each card. Read the message and then, politely thank the giver. Do not just grab the money and run off, throwing away the card. (This will drive your grandparents nuts.)

-       Do not stand around counting this money during the party, or keep a running tab. Again, your grandparents will disapprove.

-       Do not compare how much you are getting compared to your brothers/sisters/cousins/friends. Do not brag about how much you have got to the neighbours. This is called “being vulgar”.  (Something your disapproving grandparents will not hesitate to remind US about.) 

-       €1,000  (or €200 or €500) is too much cash to leave lying around your bedroom. It needs a safer home.

-       A home for cash is a bank, post office, credit union or building society account.

-       The main reason for putting it into such an account is so it doesn’t get lost, chewed up by the dog, pilfered by older siblings or mums and dads. It will help you avoid something called ‘temptation’. (You may or may not have learned about this in your First Communion class.)

-       The other reason is so that you learn the importance of saving and the satisfaction of buying things with your own money.  The earlier you learn that the Bank of Mum & Dad is not a permanent institution, the better.

-       We also need to set some spending rules about this First Communion windfall. (Definition of “windfall”: “A large amount of money that is won or received unexpectedly.”)  You did not earn this money. Someone else did. Their act of generosity deserves to be respected. So how about, you can save a third of your loot, give away/donate a third to your favourite charity or good cause and you can spend a third, within some agreed limits.

The lost concepts of prudence, generosity and responsibility are difficult enough for adults, let alone small children to grasp. The First Communion provides just such an opportunity.  

And it will make their grandparents so happy. 

Do you have a personal finance question for Jill?  Please write c/o this newspaper or by email to jill@jillkerby.ie

PART 2: SAVE MONEY NOW WITH ANNUAL HEALTH INSURANCE REVIEWS

It has taken a long time for the Central Bank to intervene in the mind-numbingly complicated way that private health insurance contracts are sold and presented to individual customers. Hopefully product choices will be simplified and br made more accessible when the Bank finishes its review.

Older readers will remember the simplicity of the pre-1996 VHI offerings when the state-owned company was a monopoly. They offered Plans A to E and you could “take ‘em, or leave ‘em.”  Prices were relatively high compared to the limited benefits and we all paid big excesses.

Today prices seem proportionately much higher, but much of it is down to the annual health insurance levy of €399 per adult and €125 per child and the huge increase in the cost of a public hospital stay - €813 per night, even if you don’t get your private room. Public patients who don’t have a medical card pay €75 a night for a maximum of 10 nights.

The complexity of the 450 or so different plans on the market is due to the way that old plans, that are regularly replaced, mainly to court the lucrative corporate market, but must be available to individual buyers, are not taken off the market. The corporate client(s) for whom the now redundant plan won’t be returning to it – a better value one will have replaced it – but lots of individual buyers may not be as active in looking for the next, best one, and remain on the older, more expensive one.  This is part of the problem the Central Bank wants to clear up.

The only solution – for everyone, not just big corporate clients, say specialist brokers like Dermot Goode (TotalHealthCover.ie) and Roisin Lyons (lyonsfinancial.ie) is to also get their plan reviewed at every renewal.

“I know the term “shopping around” can be a turn-off,” says Lyons, whose website invites you to key in your existing plan for an on-line review and new recommendation. “So I prefer to describe not reviewing as ‘denying yourself and your family the best insurance plan for the premium you can afford’.”

At the end of this month at least 75,000 people (who were 34 or over) who signed up for health insurance for the first time last year in order to avoid the lifetime 2% loading that would apply from May 1, 2015, will now have to renew their membership.

So far, say Lyons and Goode, there have been no new additions to the sets of low cost (c€400), low value public hospital, overnight-only introductory plans from 2015 that only offer bare minimum benefits. (None cover elective treatment or surgery; outpatient or day case consultations. Some even demand upfront payment that will only then be refunded by the insurer.)

“You need to move up to a health plan that costs around €900 a year to get the real benefits of private insurance – access to private hospitals, elective treatments, access to consultants, etc ” says Lyons. She thinks as those people in their mid 30s who joined “just to beat the loading” get older they will see the merits of upgrading.

Meanwhile, all the providers have been bringing out new, often lower cost plans to replace the popular “Plan B-style” plans, with their generous private hospital and outpatient benefits. that remain firm favourites with long standing and older customers. “These older plans are still firm favourites but newer versions have been coming out every year. They all have an annual sell-by date now,” says Goode.

For example, anyone who joined Aviva’s Level 2 Hospital plan when it came out now pays €2,335 a year. “It was replaced by Health Plan ’06, a corporate plan for €1,564 which was replaced by Health Plan 16 for €1,564, which has now been replaced by Health Plan 16.1 for just €1,218, a 22% saving.” The main difference with these replacements is that they include a €75 excess payment.

 “Anyone currently on Glo’s old ‘Better Plan’, now €1,412 a year, might want to a better corporate plan, ‘Best Smart Plan’ at €1,162 and save 18%.”

Meanwhile, says Goode, the two biggest players, VHI and Laya have replaced two of their most popular corporate offers that long ago replaced their old ‘Plan B’ classics: “Instead of paying VHI €1,351 for Company Plan Plus Level 1, anyone who did switch to it in the past should now consider the alternative PMI 3613 which costs €1,248, a savings of 8%.

“And Laya customer who’ve been on Company Care Excess, now €1,659, should consider switching to Connect Care 100 for €1,262 and save 24%.”

Similar savings on popular family plans are available, though the brokers say even better value can be had by not keeping everyone on the same plan. You will probably need some help to mix and match the different offers.

Finally, don’t be put off moving to a new provider, say Goode and Lyons, who will talk through any benefit delay where pre-existing conditions may be an issue if you want to increase cover.

Next Week:  How much can you save on health insurance this coming year? The brokers share their best price substitutes for April/May renewals.

PART 1: HEALTH INSURANCE A YEAR AFTER THE ARRIVAL OF LIFETIME COMMUNITY RATING

This month last year an important personal finance decision had to be made by tens of thousands of adults over age 34 who were not already owners of private health insurance: “Do I bother to take out a policy, even one of the low value, low cost, hospital cover only ones or do I take my chances as an entirely public patient?”

About 75,000 extra adults now how have private insurance as a result of the Lifetime Community Rating deadline of the end of April 2015, Not joining before age 35 meant paying a 2% premium loading thereafter for every year you happen to be over age 34.  A 40 year old today who only decides this year to finally buy private cover will pay 12% more for the same policy – forever. A 60 year old will pay 50% more.

I mention the deadline because the introduction of Lifetime Community Rating (LCR), with its age-based price loading hasn’t made health insurance cheaper, despite some unfounded expectations at the time. Its main purpose was to prevent the bombing out of the entire system of community rated health insurance in this country.

Gone now is a pricing system unsuitable to a country with a rapidly growing older population in which anyone could wait until they were now at risk - say in their 50s or 60s – of developing an expensive medical condition and only then bothered to buy a health insurance policy at the same price that a healthy 20 or 30 year old would pay.

Community rating Irish-style was, until last year, an extreme form of cross subsidisation and risk sharing that was simply unsustainable. Today, someone who waits until they are older will pay more for their cover, but given how much they would have previously ‘saved’ by not paying the insurance premiums, the overall financial effect is not unfair.  And it means more long term security for the four health insurers, especially the VHI, that has seen a steady rise in both the number and value of claims by their ageing membership.

So what is the state of play of the market, a year on from the introduction of LCR?

The biggest story is the takeover of Aviva Health by Irish Life, which already has a 50% interest in GloHealth, the most recent entry to the market and particularly popular with younger members and families. If Irish Life succeeds in convincing the Competition Authority that there is no conflict of interest, a larger,  merged provider should be in a better position to offer more competitively priced policies and further challenge the VHI, which remains wholly owned by the Department of Health.

This could be very good – at the outset – for consumers, but having just three providers in the market is not ideal, especially for so long as every adult policy is subject to a state levy of €399 and €125 for every child (which goes to the VHI as a legacy holder of the most older members). In itself it will have no effect on the continued billing by the HSE of private insurance patients (and their insurers) for the €800 plus per night charge for private rooms in public hospitals even when the insured patient is not admitted to that room. (Public patients pay just €75 per night.)

The other news last week, 12 months after the reform of the community rating rules, is that the cost of health insurance continues to rise.

According to the latest figures from the Central Statistics Office, while overall prices in their basket of consumer goods fell in March by 0.3% compared to the same month last year, the cost of healthcare (including insurance) rose by c1%.

The headlines can be deceptive, however, especially for anyone who still hasn’t discovered the merits of actively shopping around for the best value insurance cover at every renewal date.

Specialist independent health insurance brokers like Dermot Goode of TotalHealthCover.ie and Niamh Lyons of Lyons Financial (www.lyonsfinancial.ie), remind us that the insurance providers continue to introduce new plans on a regular basis. These competitively prices schemes replace existing ones that were often designed and introduced for specific bigger corporate customers whose plan is now up for renewal. Under LCR these plans must also be available to any individual buyers.

“Anyone who is still on the same plan for two or more years,” said Goode, “is paying too much” and should be switching to a similar but inevitably cheaper plan with their existing provider, or another one.  The brokers also consistently suggest that not every member of the family share the same plan, despite what looks like a competitive price. This is because while all-in-one family plans appear convenient, they can and sometimes should be replaced with separate plans, especially if anyone in the family has an existing medical conditions that might require a wider set of benefits.

Next Week:  How much can you save on health insurance this coming year? The brokers share their best price substitutes for April/May renewals.

Do you have a personal finance question for Jill?  Please write c/o this newspaper or by email to jill@jillkerby.ie