Jill Kerby

GLOHEALTH SHAKES UP MARKET WITH EVEN MORE FLEXIBLE PRICING

The soaring cost of private health insurance (PHI) since 2008 has resulted in over a quarter of a million people dropping their private cover and tens of thousands adjusting their cover downwards.

The biggest culprits are not just unemployment, emigration, the usual high medical cost inflation and tightening family budgets, but also government imposed costs:  the raising of the risk equalisation levy – a subsidy for the state owned wholly VHI – to €399 per adult policy; the rise in the private bed in a public hospital charge from the €75 to €830 a night and finally, the loss of the 20% tax relief on premiums over €1,000.

Since it is mainly families and younger, healthy single people who have been dropping, or reducing their private insurance cover, the insurers have been targeting their needs first:  they’ve all cut the cost of family plans by giving limited term child discounts or allowing younger children and babies to go free.

They’ve also reduced some benefits to cut costs, adjusted the plan benefits to suit the needs/wants of the individual customer (GloHealth have based their entire product line on this kind of flexibility) or have adjusted plans to include more excess payments.

Gone are the days when there were just a handful of plans from which to choose: there are now a few hundred and you need your wits about you to work out the right one (or different ones) for each member of the family.

Last week, the enterprising GloHealth company, gave the fractured health insurance market another good shake: it announced  “Activate”, a range of unique new health insurance plans from September 1.

There are two cash only plans: Activate Cash and Activate More Cash (the latter is more expensive with high value cash payments). These plans make cash payments for a range of scans, tests and other diagnoses including consultant visits, access to a 24hr Nurse Line and for up to 10 nights of in-hospital stays.

The cost of these plan are €395 per adult, €197.50 for students (up to 22) and €161 per younger child for Activate Cash and €645, €322.50 and €187.63 respectively for the Activate More Cash Plan. Once you hold one of these plan you can upgrade (by paying the price difference) to an Activate Hospital plan (at €747 for an adult, €373.50 for a student and €281.37 for a child) for quicker access to a public hospital. The more expensive Activate More Hospital plan gives access to both public and private hospitals. It will cost holders of the Activate More Cash plan €1,267.75 for an adult, €633.88 for a student and 335.68 and again, you will have to make up the difference in price between the two plans.

This activation can happen within two weeks of a hospital admission, or even two weeks after an emergency admission if you wish. For people upgrading from the cash to hospital plans, who have pre-existing conditions, GloHealth will reduce the existing upgrade period to just two years.

The downside is that the range of Activate Cash payment categories is fairly limited – and are many co-payment and excess payments required, especially for the Activate More Hospital plans other than for public hospital stays.

The tradeoff is that if, like the majority of private health insurance members you rarely ever find yourself admitted to a hospital for an overnight stay, the Activate Cash payments – towards consultants fees, scans, A&E visits and any hospital overnights you might have (and these easily cover the mandatory €75 per night on public wards) – might be all that you ever need.

Health insurance adviser Dermot Goode (total.healthcover.ie) said last week that a pay-as-you-go option like this will appeal to many younger people on verge of cutting their health-care because aside from a much lower initial premium under the cash plans, it will give them that extra comfort of knowing that with the upgrade they can get hospital treatment quickly (and affordably) if the worst happened.

He also said he believed this is a “very good option” for parents whose older student children face adult premiums once they reach 22; at either €197.50 or €322.50 the cash plans (with the option to upgrade to hospital ones) are certainly a very tempting option (given how most young people are healthy) than expensive, conventional adult health insurance plans.

Will the other health insurers bring out their own versions of this new GloHealth cash/hospital upgrade combination? Perhaps.

But it will be also be interesting to see if GloHealth’s new offering ends up competing with the health cash plan provider, HSF.ie which has been promoting not just it’s own product, but their plans in conjunction with low cost PHI as a better value alternative to many stand-alone health insurance plans.

A good, specialist insurance adviser can help you get through all these choice options, explain how the tax deductions work (they don’t apply to cash-only plans) and help arrange the best value contract.

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

DO YOU NEED TO MAKE A NEW WILL?  ME TOO

As regular readers of this column know, I’m a great believer in having a financial plan and in reviewing that plan, especially when life events happen, like 

-       a first job (this is when the first plan should be constructed); 

-       marriage/partnership;

-       buying a home;

-       the birth of children;

-       post children middle age

-       retirement

-       advanced old age.

Here in Ireland, additional financial reviews may be necessary due to unemployment, emigration, divorce and even insolvency.

This summer my husband officially retired and we’ve undertaken a pretty comprehensive review, the first one in about a dozen years.  Back then with a sizeable payoff in his pocket, we had an opportunity to clear our debts and use freed-up cash flow to invest – mostly into our pensions. At 61, he’s now enjoying the benefits of that decision.

But part of the process of reviewing our finances has also involved reviewing our wills, which we haven’t adjusted since The Child was very little. That will included the naming of guardians and a discretionary trust. (He’ll be 21 in a couple of months.)

Now that he is nearly independent (but still in full-time education) we are looking at other tax-efficient and appropriate inheritance options…just in case:

-       Do we write simple wills that leave our individual or half share assets like our family home and joint savings to each other, with or without a smaller endowment to The Child?  This means any final inheritance will come from the surviving parent.

-       Do we make our wills as above, but add the provision of a discretionary trust in the event that we die together? The trust would limit The Child’s access to the capital money until he is older but also the immediate tax liability. It could continue to fund his third level education, pay his rent, etc.

-       Do we only leave him an inheritance equal to the current tax-free parent/child threshold of €225,000 between a child and parent (Category 1) and distribute the rest of our estate to other relatives, friends, charities?

-       Or, in the event we die together, do we just leave the bulk of our estate to him, (with bequests to others) but cover the potential inheritance tax bill by taking out what is known as a Section 72 insurance policy. (These policies are not cheap, but the proceeds are themselves, tax-free.)

What I’ve just described is certainly a “first world problem” that only applies to people who’ve accumulated assets – property, savings, pension funds.

However, in Ireland, and especially in Dublin where property prices are quickly rising, a family home can easily absorb the entire €225,000 tax free threshold if you only have one child.

It should be noted that a family home can be exempted from the inheritance tax equation if a child(ren) live with the disponer (the parent in this case) for three continuous years before they inherit. They cannot own property of their own and cannot sell the property for six years after the inheritance.

That said, we don’t expect The Child to live with us indefinitely, so the other options are being considered to both keep his tax bill as low as possible and achieve the most appropriate arrangement.

I’ve spoken to a number of financial advisers over the years about how much young people should inherit for their own good.

Nearly every one of them has reservations about the inheritance of large amounts of unearned wealth, or even the expectation of such wealth and how it might influence a young person from completing their education, finding a job or pursuing a career. The wrong outcome – a lot of wild spending - is sometimes described as the ‘Porsche syndrome’.

Making provision for children when they are very young, they say, is relatively easy: you aim to leave enough money to the surviving spouse or guardians to support the children financially until they reach young adulthood.

Making provision for adult children when you hit your advanced years and have consumed most of your wealth is also pretty easy: they’ll get what’s left over.

For (older) parents of a single young adult like us, however, who want to keep as many of the financial i’s dotted and the t’s crossed, how much unearned wealth should be passed on (after the government take their generous stake) is worth trying to get right. 

Financial reviews and will-making go hand in hand and it’s a process by which good financial and tax advisers come into their own.

We haven’t completed the process yet.  We might undertake it at least once more, but for now our succession and inheritance issues will be sorted out and I, can tick another financial box that represents, for me at least…peace of mind.

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

ENDING THE LEVIES COULD GIVE BUDGET RELIEF FOR LOW EARNERS

Newspaper reports suggest that the Minister for Finance is going to ease up on the tax we pay when he delivers the 2015 Budget in October, most likely by raising the income point at which workers start paying the marginal rate of income tax.

Currently, anyone who earns over €32,800 jumps from paying 20% tax, 7% USC and 4% PRSI (or 31% combined tax and social insurance) to a 52% combined marginal rate:  41% tax plus USC and insurance.

The problem with adjusting tax bands – say by raising the entry point to €40,000, is that it can eat up a large amount of money and it benefits not just lower earners, letting them keep more of their income, but also middle and especially higher earners. Opposition parties on the left (who are snapping at the coalition’s heels) and social policy campaigners, favour a third income tax, wealth taxes and higher PRSI for those earners (mainly people earning in excess of €80,000-€100,000.) They say this extra tax could then be transferred to lower earners in the form of higher benefits and tax credits, especially child support measures.)

Since double earning couples can easily fall into the €80,000 - €100,000 joint income bracket – the increasingly ‘squeezed middle’ who face bigger property taxes in 2016 – higher income and wealth taxes are unlikely.

But with income tax returns already nearly €600 million over target for 2014, the Minister would appear to have more wriggle room than when the tax surplus was expected to be lower.

One suggestion that has been made – which doesn’t have any impact on income tax and could be targetted at lower earners, is to ease up on the raft of levies, those sneaky taxes that the government has been indiscriminately imposing since 2009.

The Pension Levy

The levies come in all shapes and sizes. The second biggest earner (after USC) is the pension levy. At 0.75% of the value of the cash value of the fund, this levy does not affect a person’s disposable income as the money cannot be claimed until retirement. But it will raise about c€675 million this year from the c€90 billion in private pension funds and it applies to every pension at the same rate, no matter if your fund is worth just €20,000 or €200,000.

Insurance Levies

The insurance levies are another big earner for the government. Every motor, home, personal liability, payment protection, travel and even pet insurance amounts to 5% of every premium. (The levy mostly pays for the bailing out of failed insurers, the PMPA, and more recently Quinn Insurance.) The 2% Quinn levy alone will raise about €65 million a year with the total take amounting to €150 million. The 1% life assurance levy applies to term insurance, mortgage protection, income protection, serious illness cover. Together the insurance levies are worth about €300 million.

Electricity Levy

Another levy that went up again in July and that affects every household, is the Public Service Obligation Levy (PSO) on electricity bills. For 2014/15 the PSO will amount to an average payment of €64.37 per customer, regardless of income. The levy which was introduced three years ago and will raise over €335 million the state.  

Health Levy

Few people earning below €32,800 would necessarily have private health insurance but many retired couples, whose incomes under €36,000 are already income exempt do carry this insurance. The health levy now makes up €399 of every adult policy. (The child levy is €125.) 

Even the plastic carry bag levy of 22 cent brings in about €15 million a year.

Universal Social Charge

The biggest levy of all, of course, is the universal social charge itself.

Ranging from 4% on incomes from €10,036 to €16,016; 7% above €16,016 and 10% on self-employed income in excess of €100,000, the levy is charged on gross earnings, that is, before any tax credits, pension contributions or other tax deductible payments.

USC will account for over €4 billion of revenue for the Exchequer, half of which is raised from earners on the average industrial wage of c€36,000.

While successive governments have each resisted means testing, the scatter-gun effect of the levies has taken its toll and raising the income ceiling on the payment of USC, and exempting people earning at the standard tax rate from the electricity levy and insurance levies would put money back in just about everyone’s pockets.

Someone earning €36,000 a year on which the 7% USC is levied, pays car and home insurance worth €700; life insurance, mortgage protection and pension contributions that total €1,000 a year, an average electricity bill and who buys just two plastic bags a month, will pay a whopping €2,634 in levies alone. That doesn’t include any pension fund levy.

These levies were brought in with little fanfare, publicity or opposition.  They could be rolled back the same way…starting next October.

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