Big changes to Health Insurance from 1st May
One of the biggest changes to be implemented ever in the Health Insurance market is happening from 1st May this year. On this date, we’ll see the introduction of Lifetime Community Rating (LCR), which is a mechanism to encourage younger people to take out health insurance, to help control premium inflation.
Why, what’s the problem?
The hefty increase in health insurance premiums in recent years has been caused partly by lots of young people giving up their health insurance cover. This causes issues in the market, which operates on the basis of Community Rating. This principle means that everyone pays the same amount for their Health Insurance plan, irrespective of age or when they first take out Health Insurance.
However community rated markets depend on a continuing entry of younger people into the market. Younger people claim less on average and, accordingly, their continuing participation keeps premiums down for everybody. Conversely, if people wait until they are older before taking out private health insurance, premiums will increase for everybody as older people are more likely to claim and insurers take this into account when setting their premium levels.
Lifetime Community Rating (which is being introduced from 1st May) will encourage people to take out and continue private health insurance at a younger age, thereby helping to control premium inflation across the health insurance market. The introduction of Lifetime Community Rating provides for late entry loadings on the premiums of those who buy health insurance for the first time at the age of 35 years and older. That means that if you delay taking out your health insurance (and as a result are more likely to make significant claims), you will pay more for the insurance than people who took it out at a young age. This loading will be applied to your health insurance premium every year into the future.
What does this mean in practice?
The new measure will involve a 2% loading for every year older you are above age 34 when you take out the cover. For example if you are 35 when you take out a policy for the first time, you will pay an extra 2%, if you are 36 you will pay an extra 4% and if you take out cover for the first time at age 44, you’ll pay 20% more every year for your cover. Credit will be provided for previous periods of health insurance and for periods of unemployment since the economic downturn in 2008.
Will it work?
Well, we took a look at other markets where the same problem existed. We have seen LCR successfully implemented in Australia as one of a series of incentives to encourage people to enter the health insurance market at a younger age. From 1984 through to 1998, the Australian health insurance market had declined from 70% to 30% of the population, and although other less effective measures did result in a small increase to 32.3% of the population from 1998 to early 2000, the impact of LCR in Australia once implemented on 15 July 2000, saw a significant rise in those holding such cover with the majority of entrants opting in within 2 weeks of the deadline. The increase continued gradually up to what is now 47% of the population. By reducing the entry age, it had the resulting effect of ceasing the steady decline in those leaving the health insurance market.
One significant factor in the implementation down under, was that the campaign got widespread publicity and the public were fully aware of the deadline date. The Health Insurance Authority (HIA) launched their media campaign in Ireland on 1st March last with encouraging ads on TV and radio. This should help build awareness of the importance of this financial deadline and also highlight to people, the real value of actually having a health insurance policy. It is only when an individual has a personal health scare, that suddenly, the importance of this cover becomes acute. As Minister Varadkar said earlier this week, health insurance is not so much perceived as a “luxury”, it is more viewed as an “essential”. Remember that health insurance gives you:
a) Faster access to treatment
b) Quicker diagnosis
c) Peace of mind, (when you need it most)
d) Not relying on the public system
What should you do?
Our strong recommendation is that people who are over the age of 34 or nearing it should look for help in assessing what’s right for them. At a minimum, the range of new plans being released should be considered so as to at least get their foot on the ladder, otherwise they will find themselves paying more for the cost of the same plan, if taken out after 1st May.
People really do have choice at the moment and once the deadline date has passed, over 34s will be more restricted.
And that’s where Lyons can help. We can help you examine your circumstances, identify your own specific requirements and find the most cost effective plan to meet your needs. Please feel free to pick up the phone to us at any stage and we’ll be delighted to discuss your Health Insurance needs.
Lyons Financial Services 21st April, 2015
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