GloHealth Financial Services Ltd. Pre-Budget Submission to the Joint Committee on Finance, Public Expenditure and Reform

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1 GloHealth Financial Services Ltd. Pre-Budget Submission to the Joint Committee on Finance, Public Expenditure and Reform 16 June 2014

2 GOVERNMENT POLICY AND HEALTH INSURANCE PREMIUMS Over the last 12 months the Government has implemented three sets of measures which have significantly driven up premiums for health insurance consumers: 1. Charges for private patients in public hospitals; 2. Capping the tax relief at source for health insurance; 3. Increasing the health insurance levy. All of these measures are creating a vicious cycle of rising premiums leading to increased cancellations resulting in further premium increases. These recent measures by Government have contributed significantly to the price paid for health insurance and will acerbate the affordability issues faced by so many citizens. The increase in costs by public policy is also counter productive as those that leave the private health insurance market then fall upon the public health system and add to the waiting lists and costs within the public health budgets. It is therefore a false economy to drive costs within the private health insurance market to such a point where it becomes unaffordable to many. Since 2008 almost 300,000 consumers have left the health insurance market and are now reliant on the public health system. It is estimated that these 300,000 consumers add approximately 12 million per annum to the health budget. 2 P a g e

3 1. Charges for private patients in public hospitals 1,200 Charges in Public Hospitals 1, ,017 1,046 1, Private Room Semi-private room Day-case The cost of a private room in a public hospital has doubled since 2005, the cost of a semi-private room in a public hospital has risen by more than 137% in the same time period. Since the market contraction began in 2008 the cost of a private bed has increased by 38% while the cost of a semiprivate bed has increased by over 57%. These represent significant and consistent increases in costs for health insurers imposed directly by Ministerial decision. In contrast: Private hospital rates have been reducing year on year and over the same period fell by over 10%; Consultant fees have now reduced to the levels set in In addition, in July 2013 the Minister for Health enacted legislation which allowed public hospitals charge private patients in public beds. This new charge means that a private patient is now charged 813 per night in a public ward in a public bed, where previously this patient paid 75. Where previously only 20% of beds were designate for private use in public hospitals now the hospital can charge for every bed, in effect, allowing for the privatisation of the whole public hospital system. The change will has had the following effects: It gives very clear financial incentives to public hospitals to treat private patients ahead of public patients directly worsening the two tier system within public hospitals; It provides a financial incentive to keep private patients in hospital for as long as possible lengths of stay for private patients in public hospitals are longer than those experienced in private hospitals; It is double taxation of consumers as they will have paid for the public bed through their taxes and are paying again for the same bed through their insurance; 3 P a g e

4 2. Capping the tax relief at source for health insurance It was announced in the Budget 2014 that the tax relief at source on health insurance premiums would be capped at either 20% of premium or 200 whichever was the greater for adults and 20% of premiums or 100 for children. According to the Department of Finance this measure alone should have put an additional burden of 127 million on health insurance consumers. However, it is now clear that the Department Finance have hugely underestimated the impact. Calculations carried out by the industry based on actual membership and premiums paid indicate that tax change will effectively impose premium increases of more than 220 million. In addition, the capping of tax relief has affect 9 out of 10 adults within the market. Taken with the effect of the public bed measures this means that in 2014 Government Policy alone will have added over 300 million in additional cost to consumers of health insurance. The effect of this provision will be: Higher premiums will be paid by the majority of consumers in the market; It will force consumers to drop some of their level of insurance coverage; It will accelerate the current fallout from the market. TAKEN WITH THE EFFECT OF THE PUBLIC BED MEASURES THIS MEANS THAT IN 2014 GOVERNMENT POLICY WILL HAVE ADDED OVER 300 MILLION THAT IS OVER A QUARTER OF A BILLION EURO - IN COST TO HEALTH INSURANCE CONSUMERS. 4 P a g e

5 3. The Health Insurance Levy Health Insurance Levy Adults Children Non-advanced plans adults Non-advanced plans children The health insurance levy has increased by 150% since it was introduced in The levy, which is exchequer neutral, is theoretically supposed to support community rating in making health insurance more affordable for older members who are subsidised by younger members. However, the levy is not serving this purpose but rather, is undermining the entire market that it is supposed to protect. The health insurance market is very competitive and insurers set their prices, at the community rate, to be as competitive as possible. When the Minister puts through an increase in the levy, three out of four insurers have no choice but to increase their prices to meet this cost; it is entirely misleading to say otherwise and it is disingenuous to suggest that insurers have margins that would allow them somehow to absorb this cost. Currently, the underwriting profit within the market is 1% according to the Health Insurance Authority 1. VHI, also operating in a competitive market is under pressure to increase its reserves and reach a solvent position while it does not directly feel the impact of the levy, it has used the premium increases by its competitors to raise its own prices. This is why the levy, while designed to be neutral, will inevitably and invariably lead to price increases across the market. Since its inception far from protecting insurance premiums for the older insured people in the market, the levy has had the opposite effect. Over 300,000 mostly younger members have been forced out of the market. This has led directly to still higher prices for everyone. This is a failed policy that has year on year forced up costs and driven consumers out of the market. 1 Presentation by Liam Sloyan CEO of the Health Insurance Authority February ealth%20summit%2019%20feb% pdf 5 P a g e

6 EVERY PERSON UNDER 40 THAT LEAVES THE MARKET DRIVES UP THE COST FOR OLDER & SICKER PEOPLE. CONSEQUENCES OF THE CONTRACTION IN THE MARKET 1. EVERYBODY PAYS MORE FOR THEIR HEALTH INSURANCE Every additional cost to the market causes premiums to rise and people to leave those leaving are the persons most affected by the economic conditions and tend to be the younger, healthier members most needed to subsidise older members. 2. MORE PEOPLE USE THE PUBLIC HEALTH SYSTEM HSE Performance reports have shown a steady increase in the numbers of public patients in hospitals with a linked decrease in private treatments. In addition, public waiting list have been increasing. Every private patient who drops out of health insurance goes from paying for their treatment to being a cost to the hospital. 3. PRIVATE HEALTHCARE FACILITIES WILL SHUT Private hospitals provide 1 million bed nights and treat 400,000 people every year. With 3 million diagnostics test being carried out annually. This is already starting to shrink with the announcement by the Mater Private of the loss of 95 jobs and the closure of Mount Carmel hospital. The public hospital system does not have the budget, beds or capacity to make up the shortfall. 4. UNIVERSAL HEALTH INSURANCE BECOMES LESS OF A REALITY The more people leave the market, the more expensive health insurance becomes then the less likely universal health insurance will happen and the more costly it will be to implement. 6 P a g e

7 Budget 2015 It is in the interest of the State finances that the health insurance market remain viable and affordable to as many people as possible. Health insurance members take control of their health costs by purchasing insurance and not exercising their universal public entitlement under the public health system, they should not be penalised for taking such actions. The following measures should be considered within Budget 2015: 1. The health insurance levy should be reduced in Budget 2015 the health insurance levy has been found by the Health Insurance Authority 2 to have a negative impact on pricing in particular on cheaper plans within the market and has twice recommended that the levy in respect of these products be lowered, a recommendation that has been ignored by the Minister for Health. The levy should be reduced in order to dampen premium increases and to help affordability within the market. 2. The cap on tax relief at source for health insurance premiums should be raised to 20% of premium up until a maximum of This would remove the average premium for an adult within the market from the cap on tax relief. 3. There should be no further increases in costs to private patients in public hospitals and a benchmarking exercise should occur to compare costs between public and private hospitals. GloHealth would like to thank the Committee for the opportunity to put forwards its views on Budget Should the Committee have any further questions or require clarity on any matter please contact: Teresa Kelly Oroz Legal Director GloHealth Silverstone House, Ballymoss Road, Sandyford Industrial Estate, Dublin 18 T: +353 (01) E: TeresaKellyOroz@glohealth.ie 2 Report to the Minister for Health on an evaluation and analysis of returns for 1 July 2012 to 30 June 2013 including advice on risk equalisation credits, October P a g e

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