Warning on health insurance exodus

The chairman of the Health Insurance Authority has warned that the community rating system could be significantly affected if customers continue to leave the private health insurance market.

Addressing the Oireachtas Health Committee, Jim Joyce said the exodus of customers from the market to date had been small in relative terms. But he said the viability of community rating depended on a regular influx of new younger consumers.

Community rating endeavours to provide insurance at the same price regardless of age, gender and health status. In practice, younger members end up paying higher premiums relative to their usage to subsidise older members who generally require more services.

The recession and the imposition of a Government health levy are understood to be the main factors driving people out of the market. The health levy has served to drive up insurance costs for younger members in order to subsidise the over-50s.

Mr Joyce said it was the Minister's intention to replace the current levy with a comprehensive risk equalisation scheme as soon as possible. Mr Joyce also referred to the current situation, whereby the VHI does not come under the remit of the Financial Regulator, as a market distortion that needed to be addressed.

Appearing earlier at the Committee, VHI chief executive Jimmy Tolan said he believed the insurer was at a huge disadvantage in not being regulated. But he said the regulator required a solvency ratio of 40% and VHI was at just 22% solvency.

Mr Tolan also said the VHI expected to have lost almost 120,000 customers by the end of 2009 and to have incurred underwriting losses of €80m. Mr Tolan also said that, by the end of the year, VHI will have lost €170m meeting the needs of customers over 60. He describing such losses as unsustainable. Mr Tolan said the average healthcare cost per VHI customer was €900 - double that of its competitors - because of the older age profile of its customers.

Hibernian and Quinn Healthcare called for the abolition of the levy, which they said was causing an affordability crisis. They also called for an end to what they see as the market dominance of VHI.