VHI introduces cancellation fees

VHI customers now face €50 fee for switching mid-contract
EITHNE DONNELLAN, Health Correspondent

THE STATE’S largest private health insurer, the VHI, has begun imposing fees on customers who cancel their insurance cover midway through the year.

Since May 1st it has been charging a €50 cancellation fee to those who switch insurers midway through their 12-month contracts, and is also insisting on clawing back from them part of the annual Government levy it pays on their behalf.

News of the charge emerged yesterday when the Health Insurance Authority, the industry regulator, published figures showing the number of people covered by private health insurance across the State fell by 14,000 in the first quarter of this year. This was in addition to 31,000 people cancelling their insurance policies in 2010 and 37,000 doing so in 2009.

The VHI said the first day a customer takes out a health insurance policy with the company – all of which are 12-month contracts usually paid in monthly instalments – it has to pay the Government a levy on their behalf. This is currently €205 for an adult and €66 for a child and the levy cannot be recouped from the Government, even if the customer cancels their policy.

The VHI said as it normally recoups the money from customers over their 12-month contract it was “only fair to our existing customers that any customer breaching their contract is liable to pay a pro-rata amount for the levy already paid for on their behalf” as well as an “administration fee” of €50.

The Government introduced the levy, which has led to a hike in insurance premiums, after the Supreme Court in 2008 struck down a risk-equalisation scheme designed to compensate insurers with a greater number of older people on their books. The money collected from the levy goes into a tax-relief scheme to subsidise health insurance costs for subscribers aged 50 and over.

Quinn Healthcare said last night it did not impose cancellation fees or attempt to claw back the levy when customers cancelled policies. It said this would serve to restrict movement and switching within the market.

Aviva does not impose cancellation fees or try to recoup the cost of the levy either.

The VHI stressed the cancellation fee is not imposed in some situations such as where a customer is made redundant or moves abroad, where a policyholder dies, or when a policy holder moves to a new employer who has a company paid scheme.

Declan Moran, director of marketing and business development at VHI, said if somebody cancelled their policy after four months, the VHI would want to recoup the amount of the levy which had been paid out on their behalf for the other eight months of the year.

He added that cancellation fees were not new to people. They were familiar with them from mobile phone and other contracts and while some may be unhappy about the VHI adopting them, most people understood contracts should not be breached, he said.