Healthcare costs to grow by '6% to 7%' annually

THE COST of healthcare will hit €37 billion in 2020 and will grow at between 6 per cent and 7 per cent a year over the next decade as the population ages, health insurer VHI warned yesterday.

The company’s chief executive, Jimmy Tolan, predicted that as the Republic’s population gets older, more people will need more treatment for illness, meaning the number of claims against policies will increase.

He warned that as this trend continued, it would increase costs by 6 per cent to 7 per cent a year between now and 2020.

Mr Tolan was speaking as VHI released results showing that the State company lost €42 million last year, while the actual deficit in its underwriting business, before factoring investment income and tax credits, was €75 million.

Along with its accounts, the company published its predictions of what healthcare will cost over the next decade.

The figures, partly based on material drawn from the Economic and Social Research Institute and the Centre for Ageing Research and Development in Ireland, paint a picture of an ageing population suffering from a greater number of chronic diseases such as heart disease and cancer, which will require ongoing and long-term care.

The over-65 age group now numbers 510,000; by 2020, this number is projected to grow to 792,000. On this basis, VHI calculates that spending on healthcare will grow from €19 billion this year to €37 billion in 2020.

Allowing for economic growth of 4 per cent a year, the Republic’s healthcare bill will amount to 16 per cent of gross domestic product – the total wealth generated in the State – by 2020, compared to 12 per cent this year.

VHI’s own claims bill will at least double to €2.5 billion over the next decade as the Republic’s population ages, the State health insurer predicted.

The company paid out €1.3 billion in claims last year, and its chief executive, Jimmy Tolan, estimated that that figure could rise to €2.5 billion by 2020, without taking inflation or other factors affecting medical costs into account.

“This is simply based on the amount of healthcare that people will need,” Mr Tolan said.

He added that older patients who now cost the company €700 a year could cost it €2,000 a year by 2020.

The company is proposing to tackle this change by focusing on prevention, community care and chronic disease management over coming years. It has taken a number of steps towards this already, including initiatives such as nursing stations and VHI Swiftcare.

It also said yesterday that it was tackling its costs. It has cut internal costs by 9 per cent over the last year; negotiated a 10 per cent reduction with consultants, which applied from yesterday; and a 5 per cent reduction in hospital fees.

Mr Tolan, whose company insures more older people than its competitors, Quinn and Aviva, pointed out that a policy taken out by a 25 year old will earn €400 in profits in a year, while insuring an 80-year-old incurs a loss of €1,000.

It is Government policy that health insurance is “community rated”.

This means that some of the profits earned on younger, healthier customers are used to pay for the costs incurred in insuring older clients who are more likely to get ill and claim on their policies, a mechanism known as “risk-equalisation”.

A successful legal challenge by Quinn Health to the Government’s original risk-equalisation proposals means that the State has to come up with an alternative plan, which is due to be in place by 2013.