The health insurance levy is part of the interim scheme provided for under the Health Insurance (Miscellaneous Provisions) Act 2009. This interim scheme consists of two distinct elements:
(i) age-related tax credit provided at source to private health insurers in respect of persons over the age of 50 who hold private health insurance policies. This aims to secure a health policy objective of achieving inter-generational solidarity in terms of assisting individuals to meet their health insurance costs on the basis of age, and
(ii) a levy charged on private health insurance companies for each insured person in order to fund the age related tax relief so that the scheme remains cost neutral to the Exchequer.
I would like to stress that the levy is placed on private health insurance providers for each insured individual, and not on individuals themselves. It is a matter for the insurers to decide whether or how much of the levy they pass on to their customers. Insurers with a disproportionate share of older people will be net beneficiaries. Insurers with mostly younger customers will also have some older customers and receive tax credits in respect of those customers also. This interim scheme will be in place for a three year period commencing on 1 Jan 2009 and, for cashflow reasons, running into 2012. Officials in my Department along with the Health Insurance Authority are working on a new scheme of risk equalisation to replace the interim scheme.
As Minister for Health and Children, I have no role to play in the setting of prices by any of the private health insurance providers, including VHI. This is a commercial decision for the insurer concerned. Health insurance prices can be affected by a range of economic considerations including the costs of health care services and other costs and may also reflect the age profile of the customers in any insurer's customer base. The scheme's sole purpose is to underpin the principle of community rating, so that insured older persons are less likely to face higher increases and/or product segmentation due to their age.
The Government's clear policy objective is that health insurance should remain affordable to a large number of people, particularly to older and sicker people. To this end, community rating must be the cornerstone of the Irish health insurance market. The viability of the system relies on the effective operation of solidarity between different generations through which the young subsidise the health care costs of the elderly and are subsidised in their turn by the following generation. Health insurance should not be risk-rated for increasing age, medical status or claims history.
Sustaining community rating requires a legally and financially robust system of risk equalisation to ensure cross-subsidisation across the entire market, not just within each company's cohort of customers or among the holders of each health insurance contract. As I mentioned, work is now under way to replace the temporary levy and tax relief arrangement with such a robust system of risk equalisation.