Working out the cost of loading on private health insurance

I will be 35 on May 1st so I expect that if I take a health policy out after that date, I will have a loading of 2 per cent of the premium per year above age 34.

There seem to be two scenarios here and I’m unclear from Government documents which will apply. I’ll use myself as an example:

1. I take out a policy on June 1st, 2015. A 2 per cent loading applies and a loading of 2 per cent will apply for premiums for all subsequent years that I hold a policy (nine-month policy gap notwithstanding)

2. I take out a policy on June 1st, 2015. A 2 per cent loading applies in the first year. In the second year I will pay a 4 per cent loading, in the third 6 per cent, and so on.

As already stated this is a source of confusion from official documents I have read and as such is a source of concern.

Mr BC, email

It is certainly a source of concern but not as much as you fear in your worst case scenario.

From May 1st next, anyone who takes out private health insurance for the first time (or after a long break) at the age of 35 or older, will have to contend with a lifetime community rating loading over and above the premium.

The thinking is that the recession-driven retreat from private health cover by mainly younger, healthy individuals is undermining the financial model. That means that either older people will pay increasingly high – and ultimately unsustainable – premiums or the companies providing the cover will be forced to exit the business. However, to ease your fears, the loading you will incur is determined only by when you first subscribe to private health insurance after May 1st. If you are 35, the loading will be 2 per cent. That will rise by a further two percentage points up to a 70 per cent loading if you were 69 or older signing up for private health insurance.

But, crucially, once you have joined, your loading is frozen. So, if the loading is 2 per cent, it remains 2 per cent each year on top of the relevant premium. If you were, say, 40, the loading would be 12 per cent on joining and it would continue to be so.

How long will the loading last? The intention is that it will stay in place until a universal health insurance structure is in place, but the loading rates will be reviewed by the Health Insurance Authority in 2017.

As always, there are some exceptions. You do get credit for previous years of cover. Effectively, the number of previous years’ cover before your insurance lapsed will be deducted from your current age.

The same applies for periods of unemployment.

Finally, people arriving in the State after May 1st will not be penalised with the loading even if they are 35 or over as long as they sign up for private health insurance within nine months. For those already insured, they can drop their cover without penalty, but only for 13 weeks.

Subject to double- whammy on pension

The

public

service

pension

related

deduction was introduced in 2009 with the relevant rates applied to gross earnings, even where a member’s benefits are integrated with the State

pension.

In 2013, the Government introduced a new single public service pension scheme which applies to all new entrants to public sector employments.This new scheme provides for career average earnings, rather than final salary, to be pensioned.

My daughter entered public sector employment in mid-2014. Her employer has told her that she is subject to the full pension related deduction. Is her employer correct? It seems very harsh to effectively doubly penalise new entrants to the public sector in this way – ie lower pension entitlements for the future and the full deduction.

Mr BF, email

The public service pension related deduction, better known as the public service pension levy, was introducedunder the Financial Emergency Measures in the Public Interest Act, 2009, better known by its acronym, Fempi.

After an early adjustment to reduce the impact on the lowest earners, it provided that no levy would be deducted on earnings up to €15,000. Above that level, a levy of 5 per cent was taken on earnings between €15,000 and €20,000. Earnings about €20,000 attract a levy of 10 per cent, a figure that rises to 10.5 per cent on earnings above €60,000.

It is a blended rate so, for instance, if your daughter earned €35,000, she would pay nothing on the first €15,000, 2.5 per cent on the next €5,000 and 10 per cent on the remaining €15,000 – a total of €1,750 per annum.

A more recent amendment halved the rate on earnings between €15,000 and €20,000 to 2.5 per cent from the start of last year, meaning the bill for your daughter is now €1,625.

That deduction, or levy, continues to apply to all staff in the public service, regardless of when they joined.

Independently of this, the Government has finally moved from a final salary-defined benefit scheme for public service staff to a career average plan. The scheme still offers a guaranteed pension unlike the experience of most of those in the private sector – at least, assuming a future government does not go bankrupt – but it is clearly going to result in a lower pension income.

The new system applies only to new entrants to the public service, with anyone already employed under the old regime still entitled to retire on a pension determined by the final salary ahead of retirement.

Whether the new scheme is affordable remains a moot point in the longer term, but the final salary scheme was rapidly becoming unsustainable, especially given the future demographics of this country.

All of this is of no consolation to your daughter who, as she has been told, faces a lower net salary now due to the deduction of the pension levy and also a lower eventual pension under the new averaging rules. The only light for her is that trade unions are gearing up for a battle with the Government to roll back some of the public service pay cuts introduced under Fempi. The pension levy is in their sights and they anticipate opening discussion with Government in the second half of the year.

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.