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

1. Brian Turner
School of Economics
University College Cork

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Dr. Brian Turner
School of Economics, University College Cork, Ireland
b.turner@ucc.ie