Written answers

Tuesday, 6 March 2012

8:00 pm

Photo of Alex WhiteAlex White (Dublin South, Labour)
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Question 508: To ask the Minister for Health if his attention has been drawn to the practice of the VHI in charging an insured couple seeking to cancel their policy 11 months from renewal a fee of €634.40 in lieu of the Government health levy for 2012; if he plans to address the issue; and if he will make a statement on the matter. [12225/12]

Photo of James ReillyJames Reilly (Dublin North, Fine Gael)
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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, if a policyholder wishes to cancel their health insurance contract, the cancellation is subject to the relevant terms in the policy contract, provided the contract allows for mid term cancellation. 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. 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, if the two policies commence in the same accounting period. In this regard, accounting periods are normally the twelve month period starting on 1 August and finishing on 31 July.

I am informed by the VHI that the amount the couple are required to pay is based on a pro rata calculation of the levy for two adults and two children, which the VHI are required to pay in respect of the policy concerned. Where the policy is cancelled mid policy term, VHI were 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.

There is also a €50 administration charge which I understand is imposed by VHI to cover the cost of the administration involved in the cancellation of a policy post-breach of the contract (it should be noted this is per policy rather than per person – the average VHI policy involves two people). The administration charge only arises if a breach of contract occurs.

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