A health insurance policy not fit for purpose

At the end of November, the Mater Private Hospital announced they were axing 95 jobs citing the fact that 170,000 insurance policy holders have cancelled their cover since 2011 and the “further erosion of resources” in the sector due to the cap on tax relief on premiums over €1,000. The reduction in patient services in Mater Private and further reduction in private hospitals throughout Ireland will have an inevitable consequence. It will impose an even greater strain on the depleted resources of our public health system.

Reducing the tax relief on health insurance makes no sense. The Minister for Health knows this and I suspect many of the advisors and officials who surround him share that view. This measure was announced by the Department of Finance as a way of shoring up VHI. It’s essentially an additional private insurance levy for all insurers that is being used to fill the capital regulatory hole that exists in VHI. The philosophical underpinnings of tax reliefs, tax increases or tax cuts can be debated but basically what the reduction in tax relief means for 1.1 million policy holders is that premiums will increase.

Tax relief

In an interview Minister Reilly gave in February to the Sunday Business Post he said that he did not believe another rise in VHI premiums was “fair, proper or right”. Yet here we are, 10 months later and the changes in tax relief means that tax relief on VHI’s Health Plus Extra plan, for example, pushed the premium to €2,096 from €1,837, an increase of 14% or €260.

These plans invariably are held by elderly people who want to avoid higher excesses and ensure that their policies will cover the full amount for common procedures such as hip replacements and heart bypass operations. VHI has 90% of the elderly health insurance market. This change is a direct increase on the premiums; the same increase just 10 months ago the minister said was not fair, proper or right.

Even if the revenue generated from the changes to the tax relief or the stamp duty increase are to be used for a capital injection into VHI, there were alternative means for how the VHI difficulties could have been dealt with. The VHI Annual Healthcare 2012 report was laid before the houses of the Oireachtas very recently and the figures in the VHI annual accounts are stark. Despite a falling number of policy holders, in 2012 administrative expenses increased by €10 million, numbers of employees in VHI increased by over 100, and salary costs have increased by almost €4 million.


This comes at a time when the Government is soon to announce that €150 million of taxpayers’ money is to be injected into VHI to keep the business solvent. There is no credible basis to justify increasing administrative and salary costs in the State’s largest health insurer when policy numbers are depleting and it needs a €150 million bailout. This has been rumbling for some time since the European Court of Justice ruling back in September 2011 that it had to shore up its reserves to the same levels as its private competitors. At the time, we were told that an additional €220 million would be required but it seems from latest reports, that this figure has been reduced significantly as a result of an additional private investment deal.

There clearly is an appetite for further international investment into the Irish health insurance market demonstrated by new companies like Glo-Health emerging. If VHI had been split up, instead of the taxpayer taking the €150 million hit or attractive deals being provided to investor Warren Buffett, VHI would not be so reliant on taxpayers funding. Equally, a split could generate greater competition and reduced premiums resulting from a more competitive health insurance market. 

VHI currently has 57% of the market share while paying 80% of the claims in the market. This level of market share inevitably will decrease the extent to which a truly competitive insurance market can thrive.  Arbitrary restrictions in tax relief on health insurance, increases in the health insurance levy and complete failure to break up the VHI monopoly are hitting taxpayers and 1 million health insurance policy holders where it hurts. 

More efficient

I am certainly not suggesting that we abandon risk equalisation, the policy which essentially means young policy holders fund the claims by the more elderly population. What I am saying is let’s engineer a more efficient health insurance market.

Strategic reform

At the moment it’s just fire fighting. There is no big strategic reform occurring so VHI are getting everything they want and the policy holder and the taxpayer are paying the price for both.

Before the State hands over €150 million of taxpayers’ money, I have called on Minister Reilly to publish the 2011 Goodbody and Matheson report dealing with a potential breakup in VHI. Taxpayers and policy holders alike deserve to know what alternative options the Government had but ignored.

In the review of the sale of state assets in 2011, Colm McCarthy was prevented from making recommendations concerning VHI because at that point the Government was already running their own process. Colm McCarthy should be brought in again to investigate the possibility of breaking up and selling parts of VHI and reducing the cost to taxpayer while increasing competition for the 2 million policy holders in Ireland.

I have urged the minister to reconsider both the changes in tax relief and the increase in the health insurance levy. These are quick fixes designed to give the false impression that anything the minister is doing in the private health insurance sector is strategic or involves any long term thinking.

The changes in tax relief for policy holders, in addition to the increase in stamp duty levy, introduced by the Minister for Finance would not be necessary if greater efficiencies were introduced across the board in public expenditure. Elderly people and families today, are paying the price for the ineptitude, chaos and disorganisation that has been the hallmark of governance of the Irish health system over the past decade.