The latest statistics from Eurostat show Ireland as one of the most expensive places to live in Europe. One area that stood out most was health insurance. In just three years, some policies have risen 70%. With the recession hitting hard, many customers are simply cancelling their cover. Premiums are rising faster than inflation, but healthcare insurers say government policy is to blame.

The Prognosis Isn’t Good For Private Healthcare Insurers In Ireland

Has the state created unfair conditions?

When BUPA Ireland entered the Irish market back in 1997, ending the state-run VHI Healthcare monopoly, the government reacted by introducing a Risk Equalisation Scheme. This would mean BUPA making payments to VHI, to offset higher costs faced by VHI’s older customers base. In December 2006, a High Court ruling let the Risk Equalisation Scheme go unchallenged and BUPA said it was pulling out of the market.

BUPA was subsequently acquired by the Quinn Group. Under Irish law, as a new insurer, it was exempt from the Risk Equalisation Scheme for three years. However, a ruling in the Supreme Court found that the scheme should be set aside. Instead, it was replaced with the Health Insurance Bill of 2008, which introduced levies on all health insurance members to fund a system of tax credits for those over the age of 50 with private healthcare insurance.

The Quinn Group fell into administration in late 2009. In 2011, the managing director of Quinn Healthcare, Donal Clancy, announced a senior management bid for the group, underwritten by Elips Life, a subsidiary of Swiss Re. The company was rebranded LAYA Healthcare the following year.

Increasing pressure on premiums

Since 2009, the health levy has risen from €160 to €399 per adult, resulting in higher premiums and more people leaving private healthcare schemes. LAYA announced price hikes of between 3% and 14% in December 2012, further rises averaging 10.8% in April 2013 and, just last month, another increase of 10% affecting 400,000 customers.

LAYA blamed the increases on the healthcare insurance levy, an increase in the cost of hospital beds and the growing number of young people leaving the market.

Instead of paying €4000 or more each year for cover, those with family policies are choosing to put the money in savings accounts to pay for any medical expenses as they arise. Not an unwise move, when you consider the cost of the excesses on some policies. The healthy and the young are leaving simply because they feel they are just subsidising the old and infirm. But what can be done?

‘We need a regulated and sustainable market,’ says Donal Clancy. ‘The young and healthy are leaving the market, so those that remain are older and less healthy. If we do nothing about that, it will cost everyone more.’

True, but private healthcare charges are becoming unaffordable for most. Insurers are pricing themselves out of the market. At present, less than half the population is covered and that number is falling, as around 6,000 each month relinquish their policies. At some point, will the market become unsustainable?

LAYA is still winning over VHI customers

VHI saw 133,000 customers go in non-renewals and to the competition in 2011. It lost €7.2m providing health insurance in 2012, relying on other products to make up the difference. Wages are still significantly higher in the state controlled body than at any of its competitors. Meanwhile, LAYA and Aviva Health made a profit in 2012, respectively €5m and €7.2m, mostly by targeting younger customers. LAYA expects similar figures this year, but only because of price hikes.

Some believe that the government is acting unfairly against VHI competitors. When VHI was to be regulated from December last year, the government asked the EU for a 12 month extension, then reduced tax relief on healthcare insurance premiums in the last budget. Clancy says VHI has missed 13 deadlines:

‘If you asked me five years ago, I would have said it’d be fixed with 12 months.’

The government levy on policies will rise again in March. Will this mean more price rises are inevitable?

‘When we have a price increase, we say why and we say where the money is going.’

Healthcare insurers: An unhealthy outlook

Nevertheless, LAYA has done well in a difficult climate and Clancy believes the company will continue to do well as the economy picks up. However, the government’s decision to make holders of private health insurance pay full prices for public hospital beds is set to cost insurers €300 million this year alone – a move Clancy isn’t happy about:

‘We agreed a deal [on hospital beds] last summer and the government reneged on it at the last minute. It would be nice to get over the recession without killing the customer.’

Those could be telling words indeed. Even minister for health, James Reilly, has said that insurance costs are ‘simply unsustainable’. If private insurers pull out, the state will have a big mess to clear up. Which could inevitably lead to a form of universal health insurance and perhaps even the end of the private health insurance sector in Ireland.