Premiums at VHI could rise by 45%, says health insurer

VHI PREMIUMS could rise by up to 45 per cent next year unless the company is allowed to phase in proposed new charges, the State-owned insurer has warned the Government.

Plans by Minister for Health James Reilly to impose charges next year on private patients using public beds could have serious implications for the viability of the company, internal documents seen by The Irish Times indicate.

These would include the acceleration of subscribers cancelling policies and a “downgrading spiral” as people move to cheaper health insurance.

Imposition of additional charges would also make it unlikely that the VHI could fulfil the condition to obtain a Central Bank licence prior to an EU deadline in December 2013, according to the documents.

Dr Reilly is under immense pressure to cut the deficit in the health services, which stands at more than €430 million. Charging the full economic cost of private patients using public beds is seen as an important way of raising revenue but it could have serious consequences for all health insurers, not just the VHI.

Earlier this month, the Minister agreed to defer the introduction of the charges until next year in return for an agreement by health insurers to make an advance payment on costs due next year.

The proposed charges will add about €250 million to the cost of claims for the country’s four health insurers, of which €200 million to €220 million will be borne by the VHI. At a meeting earlier this month with the Department of Health, VHI executives argued that it should be allowed to phase in the charge over five years. It said this would allow it introduce other measures to soften the impact on prices.

According to the VHI, a minimum 45 per cent rise would be required if it were to cover the entire additional charge through pricing, while maintaining current solvency levels.

However, rather than raising the money solely through price increases, it is proposing other measures that would raise 50 per cent of the sum. These would include “co-payment” by subscribers for some procedures and greater efficiencies.

Under this plan, prices would rise by 13 per cent if the VHI is forced to absorb the increased charge in one year. It says the total rise will be 22 per cent when “normal healthcare inflation” is included.

In addition, up to €40 million would be raised through changes to member cover and up to €80 million through a 15 per cent cut in public hospital beds covered.

However, if the VHI is allowed five years to absorb the charge, it says it can limit price increases to 2 per cent per annum, or 10 per cent when normal healthcare inflation is included. Under this scenario, it would not be necessary to cut the number of public beds covered.

More than 134,000 people have cancelled their health insurance over the past three years. The documents indicate a further 120,000 are set to leave the market over the next two years, but they warn that another 60,000 will cancel if the Coalition insists on “accelerated implementation” of the charge over one to two years. A downgrading spiral is also predicted beyond 2015 as customers opt for cheaper cover.

The VHI says health insurers will face capital deficits as the €250 million charge is payable before premium or benefit changes accrue.

The company questions whether it could present a sustainable plan to the Central Bank in such circumstances and said that extra capital it requires will be difficult to source due to “business plan volatility”.

A one-year lead-in to the charge would raise capital shortfall by €100 million in 2014, it estimates, whereas the shortfall would be only €5 million if a five-year period were allowed.