Health Insurance "Cost of claims for older people 10 times that of claims for younger people

Brendan Burgess

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Under community rating, older people pay the same price as younger people. This means that health insurance is great value for older people but poor value for younger people. I have been trying to quantify this.

Pat McLouglin reported in November 2013 (Page 18)

Review of Measures to Reduce Costs in the Private Health Insurance Market 2013


"Data from insurers indicates that the average cost of claims in the 70+ age group is
10 times that of the 18-29 age group and 7 times that of the 30-39 age group. "

It would be very interesting in getting figures on how much people aged 18-29 actually spend on healthcare.

Some hard data for 2013
http://www.hia.ie/sites/default/files/HIA_May_Newsletter_2014_Final.pdf.

 
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Brendan Burgess said:
Under community rating, older people pay the same price as younger people. This means that health insurance is great value for older people but poor value for younger people.
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This will be rebalanced somewhat from 1 May 2015 as higher charges will apply (2% loading for each year over 34 years of age) to people who are 35 years of age or older when they first take out health insurance. Just spotted your earlier post on this .
 
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It's also important to note that the legislation wording refers to 2% of the gross premiums not the net premiums
 
Guys

I found recent Irish data, so I have updated my first post accordingly. It doesn't affect your comments though.

Brendan
 
Wow! That's some graph and strongly suggests that anybody under the age of 35 would have to have a very specific reason to take out health insurance.

Conversely, it seems to me that the level of average claims in later life means that lifetime community rating (which doesn't seem to have attracted much media attention) probably makes health insurance, at least a relatively high excess policy, a priority for the over 35s.
 
Brendan,

You have created threads similar to this in the past. I don’t see the point unless you think that young people of today will somehow remain young and healthy despite advancing years.

When you are young, you are subsidizing your older self.
 
Sophrosyne

Could you expand on this point somewhat? I often hear comments that imply that health premiums paid as a younger person have something to do with claims made at an older age ("I've been paying into the VHI all my life..."). How, at an individual level, does a younger person subsidise his/her older self in this way? This is clearly the case at a societal level but at an individual level - I don't see it. Health insurance premiums are not set aside as an individual fund for the policyholder.
 

Hi Sop

This is the first time I have been able to show data about the cost of claims. I had not had it before.

Younger people, in general, subsidise old people, in general.

But a specific young person is not subsidising themselves in later life.

If you pay €1,000 a year up to age 34 and I pay nothing, we will both be charged the same at age 35.
 
Hi Michael

That indeed is the dilemma. A young person has a choice whether or not to subsidise their older citizens' health costs.

I already do that through general taxation. I don't think it's right to do it to let them skip the queue in public hospitals. But if you want to do so, that's fine.

Brendan
 
Brendan Burgess said:
A young person has a choice whether or not to subsidise their older citizens' health costs. I don't think it's right to do it to let them skip the queue in public hospitals. But if you want to do so, that's fine.
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Indeed, that may be a side effect of me paying health insurance but it's not my motivation. I probably couldn't afford to go the private elective surgery route if I had a medical issue but I can afford to insure against that possibility. Graphs notwithstanding, given my current premium I prefer not to throw the dice on that one.
 
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Why does anyone pay for Fire insurance on a house?
All those who never make a claim are subsidising those who do - isn't this the essence of Brendan's question and is the underpinning for all insurance products - be it house, life or health?

If the State paid for all repairs to houses that were damaged or destroyed by fire, then obviously no one would take out Fire insurance. But if the State only paid out after a delay of 1,2 or more years then there would certainly be a market for Fire Insurance which paid out immediately.

It seems to me that it's the same market response to the health risk problem - the State will provide a service but with long delays.

I would certainly agree that it would be preferable to have a better public health service paid out of general taxation which would make the market for private health insurance dwindle away but that doesn't seem to be a reasonable assumption to make in the foreseeable future.
 
jpd said:
Why does anyone pay for Fire insurance on a house?
All those who never make a claim are subsidising those who do - isn't this the essence of Brendan's question and is the underpinning for all insurance products - be it house, life or health?
Click to expand...

Hi jpd

The comparison is not at all appropriate.

I have fire insurance which I never expect to claim on. I have no problem at all in my premium being used to pay out claims for those unlucky to have to make such a claim. All insured people have a very low chance of ever making a claim.

A better comparison would be if you could get maintenance "insurance" for houses. And everyone would pay the same premium, whether they lived in a new apartment or in a 5 bedroomed Georgian house. The owner of the Georgian house would get great value as he knows that he will have to spend thousands a year on maintaining the building, whereas the apartment owner will spend very little. Of course, the apartment might be struck by lightning or might have a construction problem, so one in a thousand will make a "profit" on their insurance.

Health insurance is like maintenance insurance and not at all like fire insurance. We are all going to spend money on health. A 25 year old can expect to spend €300 a year. A 75 year old can expect to spend €3,000. But they both pay the same premium. The 25 year old would be much better off putting the €1,000 annual premium in a savings account and paying his expenses from this fund. The 75 year old should sign up for everything - The Beacon Clinic, GPs fees, outpatient cover and no excess. And the 25 year olds will contribute to the cost.
 
I accept your argument but I think that my analogy is still valid except that the risk is spread across time, between generations. Otherwise, it's just a jungle with everyone fending for himself from birth to death which isn't a great recipe for a healthy society.

Also, not all old people need € 000s of health care - but, yes, old people do cost more, and sometimes a lot more than young people.

I would like to see a broader discussion about how we organise our society (covering health, social protection, education...) in the lead up to the next election, but I am rather sceptical about any chance of that.
 
A person pays Health ins for 40 years. One claim was made 25yrs ago, which was covered by their insurance. Since then premiums of lets say average 1000e pa have been paid ie 25000e.

A 30yrs old with 2yrs cover has a serious health problem which is covered by his insurance but costs well in excess of the 2000e he has paid in premiums. Is the older insured not "subsidising" the younger person?

There are many older insured who have never claimed but continue paying health ins. There are many who have never claimed on fire insurance or car insurance but who continue to pay these insurances. (yes I know car ins. is compulsory)

When taking out health ins. in our younger days we do so to cover ourselves in case of eventualities and continue into old age for the same reason.
 
jpd said:
I would like to see a broader discussion about how we organise our society
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And fire ahead with that in Letting off Steam or in the Economics forum. What I am trying to do is to write a guide for individuals on how to choose insurance. That's tough enough without trying to solve all the problems.
 
Hi 110

You miss the point completely, as do most people who pay health insurance when they are young.

It's terrible value. You pay a premium of €1,000 and expect to get back about €300 in claims. For an older person who pays €1,000, they can expect to claim around €3,000.

Of course, if you have health problems when you are young, which you expect to recur, you should take out insurance.

Younger people, as a cohort, are subsidising older people, as a cohort.


Brendan
 
Brendan, The motivation in taking out health ins when young is for cover in case health problems occur. Of course it's bad value if you don't need to claim, but when a young family member becomes ill it certainly is great value.

" If you have health problems when you are young, which you expect to recur, you should take out insurance"...it's too late then, insurance needs to be in situ before the problems occur. Seeking to cover a pre existing health issue has serious timeframes or will not be covered at all.
 
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