Budget changes to health insurance premiums

With effect from Wed 16th Oct, the Government has decided to reduce the amount of tax relief allowance on health insurance premiums.  Until now, the full cost of your health insurance was eligible for tax relief at the standard rate (currently 20%).  This was actually deducted at source which meant that members only had to pay the net premium to the health insurer.

The tax relief has now been capped at €1,000 gross per adult and €500 gross per child.  Any gross premium in excess of these levels must be payable in full.  Contrary to the way this was presented, this will not just affect ‘gold plated’ plans but will affect approximately 85-90% of all policyholders.  It will apply to all new policies and renewing policies from the 16th Oct onwards. Those who have already purchased or renewed with an effective date prior to 16th Oct will not be affected until their next renewal date.

Take an example of 1 adult on a standard level 2 hospital plan paying €1,250 gross for their cover. With full tax relief, their net premium was only €1,000; however, with the new change they will only get tax relief on the first €1,000 which means they pay €800 of this portion.  They then have to add in the full amount of the excess premium over €1,000 which is €250 bring their new net premium to €1,050.  According to our calculations, this change will add between €30 and €780 to adult charges which is equivalent to an increase of between 3% – 20%.

There is considerable confusion regarding this change in the market as many consumers believe they have escaped as their net premium is currently below the €1,000 threshold. However, they need to work off the gross premium and not the net figure.

Finally, if there was ever a ‘wake-up’ call for people to review their cover, this is it.  With over 250 plans on the market and new plans being launched almost weekly, there should be a plan to suit everyones’ budget.  The key piece is to make sure that any plan selected meets your exact requirements before either changing plan or switching provider.  A good advisor will be able to do this work for you.

Dermot Goode
General Manager Health Insurance
Cornmarket, Group Financial Services Ltd.