1. Irish Private Health Insurance Market
Liam Sloyan, Chief Executive / Registrar
Presentation to IMDA Health Insurance Forum.
9 April 2014
Thank you very much.
In this presentation, I will briefly
Outline the role of the Authority,
Provide an overview of the private health insurance market in Ireland
Discuss some key issues and regulations.

2. The Health Insurance Authority’s Role
Regulate compliance with legislation
Monitor the market and advise the Minister
Risk Equalisation
Advise on credits and levies
Administer the payment system and the Risk Equalisation Fund (€570m cashflow p.a.)
Ensure no overcompensation
Consumer information (600,000 contacts p.a. – mostly website)
The functions of the Health Insurance Authority involve
Regulating compliance with legislation
Monitoring the market and advising the Minister
With respect to risk equalisation or role is to
Advise on credits and levies
Administer the payment system and the Risk Equalisation Fund cashflows of €570m p.a.
Ensure that the risk equalisation system does not overcompensate any insurer.
The Authority also provides consumer information and there are c. 600,000 contacts to that service p.a., mostly to the website)

3. Market Structure Voluntary, Competitive, Community Rated.
The Irish private health insurance market is unique, in that it is a voluntary, competitive community rated market operating in the European Union.
It is particularly unusual to have a voluntary community rated market. Most community rated markets are universal or compulsory. A voluntary market clearly runs the risk that younger and healthier people will choose not to be insured. This risk clearly does not apply in a universal market.
Challenges also arise in the context of a competitive community rated market for example where risk profiles are not evenly distributed amongst competitors or where there is an incentive to only compete for segments of the market. Such challenges give rise to the need for risk equalisation

4. Market Regulation Regulated by HIA: Financial Regulators Regulate:
Community Rating
Open enrolment
Minimum Benefit
Risk Equalisation
Product Notification
Financial Regulators Regulate:
Solvency
Consumer Protection
Fitness and Probity
Subject to the above, insurers have freedom on pricing product design, arrangements with providers, claims control etc.
Such a market requires quite an amount of regulation. In this context, the HIA regulates
Community rating, which requires that all adults, subject to some exceptions, is charged the same premium for the same product.
Open Enrolment, which means that nobody may be refused cover.
Minimum Benefit, which establishes a minimum level of cover that must be included on all health insurance plans.
Risk equalisation, which provides for an equitable distribution throughout the market of the higher costs associated with insuring older and less healthy people.
Product notification and publication ensures that the public have access to information on all products available in the market.
Other aspects of the market are regulated by the Central Bank of Ireland (except for in the case of Vhi)
The CBI regulates the solvency of insurers within its remit.
It regulates the way in which they interact with insurers through the Consumer Protection Code and
It regulates the Fitness and Probity of the Directors and management of the organisations
While the market has a lot of regulation, insurers also have significant freedoms, with regard to, for example, pricing, product design and claims management.

5. Coverage Total insured at end December 2013 was 2,052,000.
Represents 45% of the Population
Market peak was 2,297,000 or 51% of the population at the end of 2008.
There were 2,052,000 people insured with inpatient health insurance plans at the end of December This represents an increase in the number of insured people of 4,000 over the quarter – the first increase since quarter 4 of There was a reduction in the number of insured lives of 47,000 in 2013.
This represents 45% of the population.
The market peaked at just under 2.3m at the end of December 2013.

6. Health Insurance Market Accounts in 2012
% of Premium
Premium earned
€2,220m
Claims incurred
-€2,050m
92%
Expenses and reinsurance (including reinsurers’ profit)
-€170m 8%
Investments
€20m 1%
Profit before tax (excluding reinsurers)
This slide shows consolidated accounts for the health insurance market in 2012.
Earned premium was just over €2.22bn, while total claims incurred was €2.05bn, or 92% of premiums.
Expenses and net cost of reinsurance (which includes the reinsurers’ profit) account for €170m or 8% of premium.
With the result that profit in 2012 equalled investment return at €20m or 1% of premium.

7. Market Shares by Membership
Vhi Healthcare had 95% market share in 1996, when BUPA Ireland entered the market. The remaining market share was held by Restricted Membership Undertakings (RMUs) such as the Garda Scheme, the Prison Officers Scheme and the ESB Scheme.
Its market share then dropped, steadily enough, at an average rate of 2.5 percentage points p.a. to 56% at the end of 2012.

8. Market Shares by Age - 1 Jan 13
However, the fall in Vhi Healthcare’s market share has not been consistent across all age groups.
While at the beginning of 2013, Vhi’s market share had dropped to 55% in the 0-49 age group, it continued to have a market share of 78% in the age group and a market share 89% in the 80+ age group.
This is important, because as you will appreciate, As you will appreciate the over 70s age groups are key

9. Projected Claims Costs for Males (The most popular level of cover)
As can be seen in this chart, the over 70 age groups are critical in the context of claims costs. For example males age 75 to 79 with the most popular levels of cover are with the most popular level of cover are projected to have claims of c. € 4,000 on average, while the market average claim cost for adults is projected to be c. €1,200.
So, it can be seen that the differences in claims costs by age are enormous and the need for a risk equalisation system derives from these types of differences.

10. Regulation in Ireland Timeline
1994 Health Insurance Act
2001 Health Insurance (Amendment) Act and HIA Established
2009 Interim Risk Equalisation System and HIA consumer information function
2012 – Permanent Risk Equalisation System

11. Need for Risk Equalisation (RE)
Without RE the economic incentives are:
Insure healthier consumers
Avoid less healthy consumers
Segment your risk profile so that less healthy consumers can be charged more
Also, without RE competition is distorted and insurers with a worse risk profile are at a disadvantage.
Without risk equalisation, the economic incentives are,
Insure healthier consumers (they’ll cost a way less)
Avoid less healthy consumers
Segment your risk profile so that less healthy consumers can be charged more without impacting on your ability to compete for younger more healthy people
Also, without RE competition is distorted and insurers with a worse risk profile are at a disadvantage.

12. Structure of Risk Equalisation in Ireland
RE is provided for in the Health Insurance Acts.
Credits are paid out of the Risk Equalisation Fund in respect of insured persons:
Mainly older people
Also people who spend time in hospital
Credits vary by age, gender, level of cover and hospitalisation.
The Fund is funded by a stamp duty (levy) paid by all insurers.
The levy is calculated so that the credits distributed will equal the levy collected.
In Ireland, risk equalisation is provided for in the Health Insurance Acts.
There is a Risk Equalisation Fund managed and administered by the Health Insurance Authority.
Credits are paid out of the fund to support older and less healthy people.
These credits are funded by a levy on all insurers in respect of the number of people they insure.

13. Market Impacts of Risk Equalisation
Supports community rating by:
Reducing the net claims cost for products that insure more older / less healthy people.
Also increases the net cost for products that insure more younger / healthy people.
Supports competition by reducing distortions between insurers with different age / health profiles.
Maintains focus on consumer beneficial activities (such as cost control) rather than managing age profile.
Overall impact on market costs is neutral.
Risk equalisation supports community and competition by reducing the incentives for behaviours that undermine community rating and by reducing distortions between insurers with different age / health profiles.
Specifically, community rating is supported by
Reducing the net claims cost of insuring older / less healthy people.
It also increases the net cost of insuring more younger / healthy people.
It is also important to note that risk equalisation is neutral with regard to market costs, it supports community rating by redistributing funds in the market to support older and less healthy people. It does not take funds out of the market.

14. How are credits / levy determined
HIA analyses data and advises the Minister, based on the following:
Support community rating
Market sustainability
Competition
Avoid overcompensation
Levy collected should equal credits distributed to the market
The Ministers for Health and Finance decide what credits and levy to propose to the Oireachtas.
Credits / levy are as enacted by Oireachtas in an amendment to the Health Insurance Acts.
The process for determining the Risk Equalisation Credits and the Levy is also set out in legislation.
The Authority analyses data on the market and provides advice to the Minister based on
Supporting community rating
Market sustainability
Competition
Avoiding overcompensation
The Authority recommends a levy that it considers would be necessary to meet the cost of the credits.
The Minister for Health and Minister for Finance decide what credits and levy to propose to the Oireachtas.
Credits / levy are as enacted by Oireachtas.

15. Risk Equalisation Credits from 1 March 2014
Advanced
Non Advanced
Male
Female
60-64
€450
€325
€250
€200
65-69
€1,150
€775
€575
€400
70-74
€1,850
€1,200
€925
€625
75-79
€2,500
€1,925
€950
80-85
€3,200
€2,250
€1,575
85+
€4,000
€2,725
€1,975
€1,325
Hospitalisation
€60
Adult
Child
Stamp Duty
€399
€135
€290
€100
The credits and stamp duties proposed in the Bill are set out in this table.
The Committee will note that credits for advanced products are higher than those for non advanced products and that credits for males are higher than credits for females. Also the amounts of the credits increase rapidly with age. All of this reflects the different claims experiences of the different groups.
The stamp duties proposed are also set out. These vary between adults and children and by level of cover.

16. Impact of Risk Equalisation on Net Costs by Age (Males with the most popular level of cover)
This chart shows the impact that these credits and stamp duty would be projected to have on claims costs for individuals by age.
The blue line represents the gross claims costs and it can be seen that this increases rapidly with age.
The red line represents the market average claims cost.
While the green line represents the claims costs net of risk equalisation payments.
It can be seen that risk equalisation increases the net claims costs of insuring people under the age of 60 and reduces the net claims costs of insuring people over the age of 60, however, the net claims cost for those over the age of 60 remains higher than for those under the age of 60.

17. Impact of RE by Product
It is important to look at the combined impact of the stamp duty and the credits.
RE reduces net claims costs for products with older and less healthy people.
e.g., in the case of one very popular plan on the market, RE reduces costs by c. €700 per insured adult.
For products with fewer older people, net claims costs increase, although not by the full cost of the levy as all have some older people.
Accordingly, it is worth noting that risk equalisation reduces the net claims costs for products with older and less healthy people.
For one very significant product on the market, net claims costs are reduced by c. €700 by risk equalisation.
For products with fewer older people, net claims costs increase, although not by the full cost of the levy as all have some older people.

18. Total Credits and Stamp Duty
It is projected that c. €570m of credits will be paid out of the REF for 2014.
This is funded by stamp duty payments of c. €570m for the same period.
In this way, an amount, approximately equal to 25% of health insurance premiums is redistributed through the REF in order to support the higher claims costs of older and less healthy people.
It is projected that approximately €570m of credits will be paid out of the Risk Equalisation Fund in respect of policies commencing or renewing in 2014.
This is funded by stamp duty payments of approximately €570m in respect of the same policies.
In this way, an amount, approximately equal to 25% of health insurance premiums is redistributed through the Risk Equalisation Fund in order to support the higher claims costs of older and less healthy people.
Thank you very much.

19. Other Key Challenges for the Market
Claims / Premium Inflation
Ageing Market
Product Proliferation / Confusopoly
These challenges arise in the context of the voluntary and competitive nature of the market:
Freedoms for pricing, claims management and product design
Freedom to opt in or out of insurance
Other key challenges for the market are:
Claims / Premium Inflation,
Linked to this, The Ageing market,
Product Proliferation / Confusopoly
It is worth noting that these challenges arise in the context of the voluntary and competitive nature of the market and reflect freedoms for insurers to set premiums, to manage claims the way they see fit including to make arrangements with suppliers as they see fit and to design products as they see fit as well as freedoms for consumers to opt in or out of insurance.

20. Claims / Premium Inflation and Ageing
Both average claims and premiums have been increasing by about 10% p.a. since 2008.
Around 3% p.a. of this is due to ageing.
Each of the following contributes around 1% p.a. to the cost of ageing:
Ageing of the general Irish population
Increased penetration amongst older people
Reduced penetration amongst younger people
Turning to claims and premium inflation both claims and premiums have been increasing by c. 10% p.a. since 2008.
We would estimate that between 3% and 3.5% p.a. of this increase is due to ageing.
The ageing of the market relates to three factors:
The ageing of the Irish population as a whole, due to increased longevity, reduced fertility rates and emigration of younger adults.
Increased penetration amongst older people. 10 years ago at (at end 2003), the penetration rate applying in the age group was 48%, while the penetration rate in the age group was around 37%. 10 years later, those in their sixties are now in their seventies and they have maintained their cover, increasing the penetration rate for the 70 to 79 age group to 49%. There has been a similar effect in the over 80 age group where the penetration rate has increased from 26% to 36%.
There has also been a reduced penetration of health insurance amongst younger adults, i.e. those aged between 20 and 40.

21. Claims / Premium Inflation and Ageing(2)
Claims management and pricing are areas in which the insurers have freedom.
Minister established a group under Pat McLoughlin to look at Claims Inflation.
Policy options to address ageing include:
Lifetime Community Rating (in a voluntary market)
Allowing discounts for younger adults
Ultimately, of course, claims management and pricing are principally matters for insurers.
The Minister has established a group Chaired by Mr Pat McLoughlin, involving the Department of Health, the HIA and insurers to look at the issue of claims inflation.
With respect to ageing, some policy options have been raised to encourage younger people to take out insurance , in particular:
Lifetime Community Rating, which allows that people who take out health insurance later in life would pay a higher premium, so that a 60 year old who has insurance since they were 25 would pay the same premium as a 25 year old but a 60 year old taking out insurance for the first time would pay a higher premium.
Another option is to allow discounts for younger adults, for example, as a way to phase the increase between child / student rates and full adult rates.

22. Product Proliferation / Confusopoly
Number of products in the market has increased to almost 300.
According to the UK Office of Fair Trading confusopolies
1. Make comparisons harder, reduce the likelihood that consumers will get the best deal and increase scepticism and inertia around switching.
2. Reduce the impact of the 'marginal consumer’ … whose comparisons and switching behaviours might otherwise drive down prices for everyone else too.
Over the past 10 years, the number of products in the market has increased 20 fold from around 15 to around 300.
Issues clearly arise for markets where consumers have difficulty in comparing the options available to them. Such markets are sometimes called confusopolies.
In its 2013 paper on confusopolies, the UK Office of Fair Trading said that they impact negatively on consumer welfare by
1. Making comparisons harder, reducing the likelihood that consumers will get the best deal and increasing scepticism and inertia around switching.
2. Reducing the impact of the 'marginal consumer’ … whose comparisons and switching behaviours might otherwise drive down prices for everyone else too.

23. Product Notification / Consumer Information
Insurers have freedom on product design
HIA gets 30 days notice of new products / product changes.
Information is published on in a consumer friendly way – enabling comparisons.
Publication on website informs financial advisers and consumer advisers.
Consumers can phone HIA for assistance
600,000 contacts (mostly website) in last 12 months
Insurers have freedom on product design but they are subject to the Central Bank of Ireland’s Consumer Protection Code in the way that they interact with consumers.
They must also give the HIA 30 days notice of new products and product changes. The HIA then publishes this information on its website in a consumer friendly way to enable comparisons by consumers and informs financial and consumer advisers. Consumers can also telephone the HIA if they require assistance. In total there have been c. 600,000 contacts to the Authority in the last 12 months (mostly through
Thank you very much.

24. 2012 Survey - Employer Schemes (Employees)
Approximately 1/3 of those with health insurance have it through a work scheme.
Of those approximately 40% say an employer pays some or all of the cost.
29% of consumers regard health insurance as the best employee benefit (second only to pension at 36%).

25. 2012 Survey Results Private Sector Employers
Around 1 in 5 employers run an employee health insurance scheme
Schemes tend to be run by larger employers
Around 60% said they paid some or all of the cost.
Those with private health insurance schemes are also more likely to have pension schemes, flexitime, educational support etc.