The system of income tax relief for medical insurance premiums is provided at source at the standard rate of income tax. Therefore, prior to the recent reform the State was paying 20% of the cost of all private medical insurance premiums. In Budget 2014 tax relief for medical insurance premiums was restricted to the first €1,000 per adult and the first €500 per child insured. Any portion of premium paid in excess of these ceilings no longer qualifies for tax relief. The cost of Income Tax relief in respect of medical insurance has increased significantly in recent years, at €404 million in 2011, €448 million in 2012 and is estimated to be €500 million in 2013. Despite the increasing cost of the relief, the numbers insured are estimated to have reduced by approximately 170,000 over the same period, while at the same time the level of medical cover has decreased on some policies. Against this background the increase in costs is unsustainable.
The new ceilings will ensure continuing support via the tax system for those who purchase medical insurance policies, while reducing Exchequer exposure to more expensive policies. It is not possible to estimate by how much a particular individual will be affected by this measure as tax relief on premiums is only one factor that could influence the pricing of premiums by insurance companies. Any change in the net amount payable for a premium could be caused by general increases in the price of the plan and/or changes in the medical procedures or hospitals covered and/or the imposition of the new ceilings for tax relief.
It is important to point out that the Government fully supports the elderly in retaining access to medical insurance via community rating of insurance premiums. Community rating, in principle, provides that everybody is charged the same premium for a particular health insurance plan, irrespective of age, gender and the current or likely future state of their health. Community rating therefore means that the level of risk that a particular consumer poses to an insurer does not directly affect the premium paid. It also means that premiums for younger or healthier lives are typically higher than their expected claims would require, whereas for older or less healthy lives, premiums are typically lower than the expected claims would require. Older people who have been paying health insurance premiums for many years will have contributed to intergenerational solidarity when they were younger and could reasonably expect to benefit from it now. The support system that enables community rating involves the charging of a levy on the policies of younger individuals to contribute to a fund that enables risk equalisation.
