Signature
L = min(a * y, L_max); P_L = P_0 * (1 + L)
| Inputs | Definition | Unit |
|---|---|---|
a | Loading for each counted year without cover: 0.02 in both Ireland and Australia | proportion per year |
y | Counted years without cover. In Ireland, each year spent aged 35 or over without cover; the Health Insurance Authority counts 11 years for a person first insured at 45. In Australia, each year over age 30 when hospital cover is taken out | years |
L_max | Maximum loading: 0.70 in both Ireland and Australia | proportion |
P_0 | Premium before the loading: the gross premium in Ireland and the hospital cover premium in Australia | £ per year in the illustrations on this page |
L | Late-entry loading as a proportion of the premium, for example 0.22 for 22% | proportion |
|---|---|---|
P_L | Premium including the late-entry loading | £ per year in the illustrations on this page |
Function
Community-rated premium, cross-subsidy and risk equalisation function
Maps the number of members and the expected annual cost of each risk group in a community-rated pool to the single premium every member pays, the implicit cross-subsidy each group gives or receives, the risk equalisation transfers that offset those cross-subsidies for insurers, and the late-entry loadings that Ireland and Australia add to the premium of people who first buy cover when older. The same difference between payment and expected cost, read from the insurer's side, is the expected profit per member on the Cream Skimming page (HE-FM-CSKM-001).
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Implementations
Excel
Late-entry loading and loaded premium in two Excel cells
With the rate per year in LoadRate, the counted years in YearsWithoutCover, the cap in MaxLoading and the premium before loading in BasePremium, the first formula returns the loading and the second the loaded premium.
=MIN(LoadRate*YearsWithoutCover,MaxLoading); =BasePremium*(1+MIN(LoadRate*YearsWithoutCover,MaxLoading))
Assumptions
Late-entry loading paid for a limited period of cover
In both countries the loading stops after 10 years of cover, in Australia 10 years of continuous hospital cover. The formula gives the premium during that period, not over a lifetime.
Counted years follow each scheme's own rules
y follows the scheme's counting rules, including credit for earlier periods of cover and permitted absences, which the formula does not model. Ireland counts years from age 35, and Australia counts years over 30 based on age on the 1 July before joining.
Worked examples
Irish late-entry loading for a person first insured at 45
The Health Insurance Authority's own example counts 11 years and gives a loading of 22%. Applied for illustration to the article's illustrative community rate of £2,000, the premium becomes £2,440.
a = 0.02; y = 11; L_max = 0.70; P_0 = 2000; L = 0.22; P_L = 2440
Australian late-entry loading for a person taking out hospital cover at 36
The Commonwealth Ombudsman's example of a person aged 36 counts 6 years over 30 and gives a loading of 12%. On the illustrative £2,000 premium the loaded premium is £2,240, computed here for illustration.
a = 0.02; y = 6; L_max = 0.70; P_0 = 2000; L = 0.12; P_L = 2240
Late-entry loading held at the 70% cap
A person with 41 counted years, for example someone first insured in Ireland at 75, would reach 82% without the cap. The cap holds the loading at 70%, and the illustrative £2,000 premium becomes £3,400. Figures computed here for illustration.
a = 0.02; y = 41; L_max = 0.70; P_0 = 2000; L = 0.70; P_L = 3400
Common errors
Counting Australian late-entry years from age 35
Ireland counts years from age 35 and Australia counts years over 30. For a person first taking out hospital cover at 41, the Commonwealth Ombudsman's example gives 11 years and 22%; counting as in Ireland would give 7 years and 14%, computed here for illustration, understating the Australian loading.
Applying the late-entry loading for life
The loading is withdrawn after 10 years of cover in both countries, so an estimate of lifetime premiums that keeps it for life overstates what late entrants pay. The Health Insurance Authority's 2017 report described the Irish loadings as applying for life, which the 2017 amendment changed.
Sources
Irish Lifetime Community Rating loading rules
Health Insurance Authority. Lifetime community rating (LCR). Dublin: HIA. Sections on how much the loading is (2% of the gross cost of the policy for each year spent aged 35 or above without health insurance), the maximum loading of 70% and the maximum of 10 years, with worked examples of first purchases at 45 (22%) and 49 (30%).
Irish statutory basis of Lifetime Community Rating loadings
Health Insurance Act 1994 (Ireland), section 7A as amended, including subsection (2A)(b) as substituted in December 2017, on the withdrawal of the loading after 10 years of cover. Revised Act, Law Reform Commission.
Australian Lifetime Health Cover loading rules
Commonwealth Ombudsman. Lifetime Health Cover. privatehealth.gov.au. Sections on the start of Lifetime Health Cover on 1 July 2000, the loading of 2% on the hospital premium for every year aged over 30 based on age on the 1 July before joining, the maximum loading of 70%, removal after 10 years of continuous hospital cover, and worked examples at ages 41 (22%) and 36 (12%).
Australian statutory basis of Lifetime Health Cover loadings
Private Health Insurance Act 2007 (Australia), sections 34-10 (increased premiums stop after 10 years' continuous cover), 34-25 (lifetime health cover base day) and 37-15 (maximum increase of 70% of the base rate). Federal Register of Legislation, Compilation No. 42.
Health Insurance Authority 2017 report on Lifetime Community Rating
Health Insurance Authority. Report of the Health Insurance Authority to the Department of Health on Lifetime Community Rating. Dublin: HIA; 2017. Page 6, which gives the loading as 2% of the gross premium for each year of age above 34 and states that the loadings apply for life, the position before the December 2017 amendment.
Canonical Identity
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