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NERI Seminar - Unwinding the State subsidisation of private health insurance - 7 Sept 16

NERI Seminar - Unwinding the State subsidisation of private health insurance delivered by Dr Brian Turner, UCC

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NERI Seminar - Unwinding the State subsidisation of private health insurance - 7 Sept 16

  1. 1. Brian Turner School of Economics University College Cork
  2. 2. Background  Ireland’s health system is predominately tax funded, but private health insurance contributes around 12 percent of funding (2013)  Private health insurance is voluntary and provides mostly supplementary cover, with some elements of complementary cover  Approximately 46 percent of people in Ireland are currently covered by private health insurance  Market operates on the basis of community rating, open enrolment and lifetime cover
  3. 3. Background – Contd.  There are significant overlaps between public and private funding and delivery of healthcare in Ireland  Privately insured patients can be treated in private hospitals or public hospitals  In many cases, consultants treat a mixture of public and private patients  Public hospitals and consultants who treat both public and private patients are paid differently for different patients  Leads to an incentive to treat more private patients
  4. 4. State Subsidisation  The State subsidises private health insurance in a number of ways, including:  Tax relief on premiums (almost €448m in 2012)  Not charging insurers full economic cost for public hospital accommodation of private patients  Up to 2013, up to 20 percent of beds in public hospitals could be designated as private beds  Insurers were charged for private patients accommodated in private beds, but not for private patients occupying public beds (apart from statutory nightly charge – currently €75)
  5. 5. Tax Relief in Context 0 300 600 900 1200 1500 0 50 100 150 200 250 300 350 400 450 500 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 No.claimingrelief(000s) Costoftaxrelief€m Medical Insurance Health Expenses MI Claimants HE Claimants Source: Revenue Commissioners
  6. 6. Unwinding the Subsidies  Budget 2014 (announced in October 2013) contained two measures to reduce these subsidies  Amount of premium subject to tax relief was capped at €1,000 for adults and €500 for children (under-18)  Applied immediately  Bed designation removed and insurers charged for accommodation of private patients in all beds in public hospitals  Applied from 1st January 2014
  7. 7. Bed Charges for Private Patients in Public Hospitals (€) Hospital Type Private Room Semi-private Room* Day Case Public/Non- designated Bed 2013 2014 2013 2014 2013 2014 2013 2014 HSE Regional Hospitals and Voluntary and Joint Board Teaching Hospitals 1,046 1,000 933 813 753 407 75 813 HSE County Hospitals and Voluntary Non- Teaching Hospitals 819 800 730 659 586 329 75 659 HSE District Hospitals 260 222 193 75 * Figures for 2014 refer to accommodation provided in a multi-occupancy room. In practice, this could be a semi-private room or a ward
  8. 8. Impact of the Changes  Changes came at a time when premiums were rising substantially ahead of overall inflation and people were leaving the market, particularly in the younger age groups  Led to initial fears that these changes would exacerbate the situation and further risk destabilisation of the market  Lifetime community rating proposed (again) around the same time as one measure to encourage take-up among younger consumers & curb premium inflation
  9. 9. Health Insurance Inflation -10 -5 0 5 10 15 20 25 30 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 %y-on-y All Items CPI Health Insurance Source: Central Statistics Office
  10. 10. Membership and Employment 1700 1800 1900 2000 2100 2200 2300 2400 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 Thousands Employment Membership Source: Central Statistics Office, The Health Insurance Authority
  11. 11. So What Actually Happened?  Premium inflation eased considerably  May be partly due to the introduction of lifetime community rating from 1st May 2015  Insurers introduced new plans at lower end of price scale in the run-up to this date to attract new customers  However inflation has begun to creep up again more recently  May be partly due to unwinding of introductory offers on entry-level plans in run-up to lifetime community rating  But is still relatively muted compared with inflation prior to the introduction of the changes
  12. 12. Health Insurance Inflation -10 -5 0 5 10 15 20 25 30 Jan-04 Sep-04 May-05 Jan-06 Sep-06 May-07 Jan-08 Sep-08 May-09 Jan-10 Sep-10 May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-15 Jan-16 %y-on-y All Items CPI Health Insurance Source: Central Statistics Office
  13. 13. So What Actually Happened?  Take-up stabilised, before increasing in immediate run-up to introduction of lifetime community rating  May be a lagged response to employment growth  Lag longer than at peak – possibly due to reduced affordability  Gradual increase in take-up since then  Rise of c. 4,000 members in Q4 2015 and Q1 2016 and 7,000 members in Q2 2016  Compares with average quarterly rise of c. 15,000 members between 2001 and 2008
  14. 14. Membership and Employment 1700 1800 1900 2000 2100 2200 2300 2400 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 Thousands Employment Membership Source: Central Statistics Office, The Health Insurance Authority
  15. 15. Conclusions  Introduction of these measures has reduced State subsidisation of private health insurance  Has therefore reduced an inequity in the system  However, a substantial subsidy remains  Despite initial fears, measures have not caused significant damage to the market  Timing may have played a role in this, as employment growth has returned and lifetime community rating was introduced in May 2015, prompting innovation at lower end of the market
  16. 16. Future Directions  Further reductions in State subsidy might well be forthcoming  Would further reduce inequity  But needs to be balanced against risk of damaging PHI market and overloading an already strained public system  Possible measures  Further reduce (or eliminate) tax relief  Continue moves towards full economic costing of beds in public hospitals  Set public hospitals aside for public patients only
  17. 17. Dr. Brian Turner School of Economics, University College Cork, Ireland b.turner@ucc.ie

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NERI Seminar - Unwinding the State subsidisation of private health insurance delivered by Dr Brian Turner, UCC

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