Risk Equalisation
Health insurance claims costs increase with age. The average claims cost in a year for a 75 year old person is currently eleven times that for a 25 year old. At present, Vhi Healthcare has a much higher proportion of older lives than Quinn Healthcare or Aviva Health. For instance Vhi Healthcare currently (figures from July - Dec 2009) has 10 times the proportion of members in the over 80 age group than does Aviva Health and 9 times the proportion of Quinn Healthcare. This contributes to Vhi Healthcare having a higher average claim cost per member than Aviva Health or Quinn Healthcare.
Risk equalisation is a process that aims to equitably neutralise these differences in insurers’ costs that arise due to variations in the age profile of the insurers. Risk equalisation involves transfer payments between health insurers to spread some of the claims cost of the high-risk older members amongst all the private health insurers in the market in proportion to their market share. In the absence of risk equalisation there is a threat to the existence of a community rated market when significant differences in risk profiles exist between competing insurers.
Risk equalisation is a common mechanism in countries with community rated health insurance systems.
Following its evaluation and analysis of risk equalisation returns and consideration of representations received from health insurers and having regard to the best overall interests of consumers, the Authority recommended in October 2005 the commencement of risk equalisation payments (Letter from HIA to the Minister). In December 2005, the Minister for Health and Children decided that risk equalisation payments would commence from 1 January 2006.
2008
On the 16th of July 2008, the Supreme Court ruled that the Risk Equalisation Scheme was unconstitutional. The Government announced, in November 2008, an initiative of age related tax credits and health insurance stamp duty to support the cost of health insurance for older people. The legislation supporting this initiative was passed by the Oireachtas and signed into law in July 2009.
