Competition in the Irish Private Health Insurance Market

Unfunded Lifetime Community Rating
4.58 In the 1999 White Paper on Private Health Insurance the Government
indicated its intention to allow insurers the discretion to move from the
current single rate community rating system to a system of lifetime
community rating. It was considered that such a move would underpin
the future viability of community rating and would be inherently fairer
than the present system.
4.59 Section 6 of the Health Insurance (Amendment) Act, 2001 included
provisions for the Minister to introduce regulations allowing for these
late entry loadings in respect of persons aged 35 or over taking out
health insurance for the first time– a key pillar of lifetime community
rating. The Minister for Health & Children intends to introduce a
regulation that will implement unfunded lifetime community rating.
4.60 The Authority supports the introduction of unfunded lifetime
community rating. It will reduce the adverse selection risk posed by
the current system and thereby contribute to greater stability in the
market. It would also facilitate competition on a level playing field in
an insurance market with community rating
4.61 Community rating has a potential instability which arises from the need
to ensure a continuing flow of new young members. This reflects the
unfunded liability represented by the expectation of current insurance
policyholders that their future healthcare needs will be met in return
for the current level of community rated premiums. The Harvey Report
in 1998 estimated that this unfunded liability was €4.2 billion if medical
inflation matched general price inflation while it would amount to €30
billion if medical inflation exceeded general price inflation by 6% pa.
This unfunded liability has undoubtedly grown over the intervening
years.
4.62 Accordingly, the Authority makes the following recommendation;
Recommendation 7
The Minister for Health and Children should introduce
unfunded lifetime community rating as provided for in
the Health Insurance Act 1994 (as amended).
Action By
Minister for
Health and
Children
Risk Equalisation
4.63 The issue of risk equalisation and the principles and factors that should
be applied in deciding whether to commence risk equalisation
payments including the impact on competition in the market have been
the subject of extensive analysis and debate for more than 10 years
both before and after the establishment of the Authority. In a number
of studies throughout this period the arguments of interested parties
were considered and the conclusion that has been reached consistently
is that risk equalisation may be necessary in order to maintain
community rating and, notwithstanding potentially adverse effects on
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