Unwinding the State subsidisation of private health insurance

Brian TurnerSchool of Economics

University College Cork

BackgroundIreland’s health system is predominately tax

funded, but private health insurance contributes around 12 percent of funding (2013)

Private health insurance is voluntary and provides mostly supplementary cover, with some elements of complementary cover

Approximately 46 percent of people in Ireland are currently covered by private health insurance

Market operates on the basis of community rating, open enrolment and lifetime cover

Background – Contd.There are significant overlaps between public

and private funding and delivery of healthcare in Ireland

Privately insured patients can be treated in private hospitals or public hospitals

In many cases, consultants treat a mixture of public and private patients

Public hospitals and consultants who treat both public and private patients are paid differently for different patientsLeads to an incentive to treat more private

patients

State SubsidisationThe State subsidises private health insurance in

a number of ways, including:Tax relief on premiums (almost €448m in 2012)Not charging insurers full economic cost for

public hospital accommodation of private patientsUp to 2013, up to 20 percent of beds in public

hospitals could be designated as private bedsInsurers were charged for private patients

accommodated in private beds, but not for private patients occupying public beds (apart from statutory nightly charge – currently €75)

Tax Relief in Context

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

0

100

200

300

400

500

0

300

600

900

1200

1500

Medical Insurance Health ExpensesMI Claimants HE Claimants

Cos

t of

tax

rel

ief €

m

No.

cla

imin

g re

lief (

000s

)

Source: Revenue Commissioners

Unwinding the SubsidiesBudget 2014 (announced in October 2013)

contained two measures to reduce these subsidies

Amount of premium subject to tax relief was capped at €1,000 for adults and €500 for children (under-18)Applied immediately

Bed designation removed and insurers charged for accommodation of private patients in all beds in public hospitalsApplied from 1st January 2014

Bed Charges for Private Patients in Public Hospitals (€)Hospital Type Private

RoomSemi-private Room*

Day Case Public/Non-designated Bed

2013 2014 2013 2014 2013

2014

2013 2014

HSE Regional Hospitals and Voluntary and Joint Board Teaching Hospitals

1,046

1,000

933 813 753 407 75 813

HSE County Hospitals and Voluntary Non-Teaching Hospitals

819 800 730 659 586 329 75 659

HSE District Hospitals

260 222 193 75* Figures for 2014 refer to accommodation provided in a multi-occupancy room. In practice, this could be a semi-private room or a ward

Impact of the ChangesChanges came at a time when premiums were

rising substantially ahead of overall inflation and people were leaving the market, particularly in the younger age groups

Led to initial fears that these changes would exacerbate the situation and further risk destabilisation of the market

Lifetime community rating proposed (again) around the same time as one measure to encourage take-up among younger consumers & curb premium inflation

Health Insurance Inflation

Jan-04

Aug-04

Mar

-05

Oct-05

May

-06

Dec-06

Jul-0

7

Feb-08

Sep-0

8

Apr-09

Nov-09

Jun-1

0

Jan-11

Aug-11

Mar

-12

Oct-12

May

-13-10-505

1015202530

All Items CPI Health Insurance

% y

-on-

y

Source: Central Statistics Office

Membership and Employment20

02Q

120

02Q

320

03Q

120

03Q

320

04Q

120

04Q

320

05Q

120

05Q

320

06Q

120

06Q

320

07Q

120

07Q

320

08Q

120

08Q

320

09Q

120

09Q

320

10Q

120

10Q

320

11Q

120

11Q

320

12Q

120

12Q

320

13Q

120

13Q

317001800190020002100220023002400

Employment Membership

Thou

sand

s

Source: Central Statistics Office, The Health Insurance Authority

So What Actually Happened?Premium inflation eased considerably

May be partly due to the introduction of lifetime community rating from 1st May 2015

Insurers introduced new plans at lower end of price scale in the run-up to this date to attract new customers

However inflation has begun to creep up again more recentlyMay be partly due to unwinding of introductory offers

on entry-level plans in run-up to lifetime community rating

But is still relatively muted compared with inflation prior to the introduction of the changes

Health Insurance Inflation

Jan-04

Oct-04Ju

l-05

Apr-06Jan

-07

Oct-07Ju

l-08

Apr-09Jan

-10

Oct-10Ju

l-11

Apr-12Jan

-13

Oct-13Ju

l-14

Apr-15Jan

-16-10-505

1015202530

All Items CPI Health Insurance

% y

-on-

y

Source: Central Statistics Office

So What Actually Happened?Take-up stabilised, before increasing in

immediate run-up to introduction of lifetime community ratingMay be a lagged response to employment

growthLag longer than at peak – possibly due to

reduced affordabilityGradual increase in take-up since then

Rise of c. 4,000 members in Q4 2015 and Q1 2016 and 7,000 members in Q2 2016

Compares with average quarterly rise of c. 15,000 members between 2001 and 2008

Membership and Employment20

02Q

120

02Q

420

03Q

320

04Q

220

05Q

120

05Q

420

06Q

320

07Q

220

08Q

120

08Q

420

09Q

320

10Q

220

11Q

120

11Q

420

12Q

320

13Q

220

14Q

120

14Q

420

15Q

320

16Q

217001800190020002100220023002400

Employment Membership

Thou

sand

s

Source: Central Statistics Office, The Health Insurance Authority

ConclusionsIntroduction of these measures has reduced

State subsidisation of private health insuranceHas therefore reduced an inequity in the

systemHowever, a substantial subsidy remains

Despite initial fears, measures have not caused significant damage to the market

Timing may have played a role in this, as employment growth has returned and lifetime community rating was introduced in May 2015, prompting innovation at lower end of the market

Future DirectionsFurther reductions in State subsidy might well

be forthcomingWould further reduce inequityBut needs to be balanced against risk of damaging

PHI market and overloading an already strained public system

Possible measuresFurther reduce (or eliminate) tax reliefContinue moves towards full economic costing of

beds in public hospitalsSet public hospitals aside for public patients only

For further information, please contact...Dr. Brian TurnerSchool of Economics, University College Cork, Irelandb.turner@ucc.ie