Parliamentary Question addressed to the Minister for Health

1 To ask the Minister for Health if he will request the VHI to desist from using the Government health insurance levy as a means of preventing persons in financial difficulties from downgrading their policies; and if he will make a statement on the matter?

2  To ask the Minister for Health if, in view of the reports that VHI are allowing customers who have been made redundant downgrade their policies without penalty, he accepts the VHI explanation that they must charge other customers downgrading their policies such high penalties because of the health insurance levy; and if he will make a statement on the matter?

Reply

VHI is required by law under the Health Insurance (Miscellaneous Provisions) Act 2009 to provide contracts of insurance that are 12 months in duration. While insurers provide a facility to consumers to pay premiums over the policy year, rather than at the start of the policy, this does not change the twelve month nature of contracts. Health insurance contracts are normally written for a term of one year. Like any contract, a customer wishing to cancel or amend their contract is subject to the terms of that contract. If the policy contract does not allow cancellation during the term of the year, an insurer can seek to enforce the contract under contract law and demand the balance of the year’s premium.

All open market insurers give a 14 day cooling off period where they will cancel the contract and give a full premium refund. I am informed by the VHI that there are a limited number of special circumstances where they do allow a customer to breach their contract mid-year without penalty, including redundancy and emigration. It is important to note that customers are free to cancel and change their policy at their renewal date without difficulty.

In respect of policies renewing or commencing in 2012, the current Scheme of Age-Related Tax Credits and Community Rating Levy provides for the payment by insurers of a levy of €285 per adult. It should be noted that, where customers leave before the twelve month insurance period expires, the insurer incurs a loss in relation to the levy paid as the levy may only be collected once. If a policy is cancelled mid policy year, insurers cannot reclaim a proportion of the levy. Where a policy holder switches to an alternative insurer, the second insurer does not have to pay the levy in respect of the replacement policy, provided the two policies commence in the same accounting period (normally the twelve month period starting on 1 August and finishing on 31 July).

I understand that, where customers cancel their cover mid-policy (and pay the normal penalties for breaking their contract), VHI treats them as if they were a new customer, with waiting periods applying if they take out another VHI policy immediately afterwards. This measure is being taken as, where a policy is cancelled mid policy term, VHI are still required to pay the levy and therefore would otherwise be at a loss. VHI must ensure that they take in enough premium income in a given year to cover the costs of their customers’ healthcare needs in that year. This would not be possible if the terms of cover on policies were constantly changing outside of the agreed contract period.

Section 8(5) of the Health Insurance Act 1994 (as amended in 2001) refers to the cessation of a contract with an insurer and the subsequent effecting of a contract with a different insurer. This section of the Acts does not cover circumstances of switching policies within the same insurer and does not prohibit an insurance provider from applying penalties to customers who cancel their cover mid-policy and wish to take out another, less expensive policy with the same insurer immediately afterwards.

The Health Insurance Authority (HIA) is the independent regulator of the private health insurance market in Ireland and provides information to consumers regarding their rights and health insurance plans and benefits. My Department will examine this issue further, in conjunction with the HIA, as part of the overall strategy to address issues in the private health insurance market, leading in to the introduction of Universal Health Insurance.