Do enough young people pay for health insurance?
The answer to this in all honesty is probably no! But in reality there will probably never be enough young people paying for health insurance…
Why is that?
Young people are the lifeblood of any health insurance system. Under the system of “community rating” that has operated in Ireland for years, everybody paid the exact same for their health insurance irrespective of age. The reality is that younger people are healthier, and as a result claim far less than their older counterparts. So younger people are far more profitable than older people to health insurers.
But there’s a problem…
And the problem is that it has been devilishly difficult to encourage young people to take out health insurance, at the time when they are profitable for insurers. This is for a number of reasons, the main one being that it traditionally was not viewed as good value for money as younger people did not claim very much. And then you add on the money pressures that younger people have paying their mortgages and raising their families etc., so it’s probably not surprising that this group was hard to attract.
And so along came Lifetime Community Rating
A number of initiatives were tried to attract more young people into the market. First of all, we’ve seen some great product innovations from insurer with specific benefits (such as maternity cover, children’s cover etc.) aimed at younger people.
But the big change happened from May 2015, with the introduction of Lifetime Community Rating. This initiative changed the system so that anyone taking out health insurance above the age of 34 is now charged a higher rate than other subscribers every year into the future. The older you are taking out health insurance, the higher your loading will be, each and every year. So as a result, the system now encourages people under the age of 35 (that healthy and profitable cohort) to enter the system earlier than they might have before, in order to avoid the loading. This was quite an innovative development really!
Has it worked?
Overall, there is no doubt that Lifetime Community Rating (LCR) has worked. The figures from the Health Insurance Authority show that more people under the age of 35 are signing up for health insurance, and because they are more profitable, this is helping to lower the premiums of older customers.
In order to avoid the LCR loading, there has been an influx of vital young subscribers with at least 240,025 people aged between 25 and 35 with health insurance now – this age group being critical in the efforts to keep premiums as affordable as possible. The premiums that they pay and their lower levels of claims help to balance out the shortfalls from older people who claim more and are more expensive for insurers.
The HIA Chief Executive Don Gallagher said: “The private health insurance market is clearly in a recovery phase. The sustainability of the market, and the overall affordability of premiums, is supported by the increase in the total number insured and the younger average age of those insured. Our community rated system requires a steady flow of new and younger lives becoming insured. This helps support the inter-generational solidarity that is implicit in community rating where premiums are not risk-rated for expected future health status or current age. The increase in the numbers insured under 50 years of age is very welcome as this is a key target group for lifetime community rating.”
So yes, Lifetime Community Rating has been a success and we are seeing more young people enter the health insurance market.