Mr. John O'Dwyer:

From the perspective of VHI, we would like to cover a few topics to remind the committee of our private medical insurance market and some of the rules in it. We would like to talk about the importance of risk sharing and to examine the key issues facing the market. We will make some suggestions on how to make progress.

Some 2.1 million people in the country have health insurance, amounting to 47% of our population. Some 390,000 customers are aged over 60 years. The core principle by which we all compete is community-rated premiums, which means the same price for the same product in the case of a 20-year-old or a 60-year-old. There is no risk selection and the sick and vulnerable have the same access to care. There is a risk-sharing system, primarily to protect the elderly and the sick. The key objective of all the rules is to ensure there is no incentive to compete on risk selection.

We have community rated health insurance, meaning we charge someone who is 30 years of age the same price as a 70-year-old. This is different to property insurance or motor insurance, where there is risk rating. In community rating, we must have a risk-sharing system. It is worth pointing out that the health care costs of different age groups, whether healthy or sick, are different. An average 35-year-old costs approximately €700 per year in health care costs, while the average 75-year-old costs nearly €4,000. In the case of a sick 75-year-old, the figure can be multiples of that and can easily amount to €40,000 or €50,000. Without risk sharing, sick and older customers will not be able to afford health insurance when they need it most. All international markets with community rating have a risk-sharing system, including Australia, Israel, and our neighbours the Netherlands, Germany and Switzerland.

We welcome that the Dáil has put a permanent risk equalisation system in place and we are pleased that, for the first time, health status has been introduced. In the case of two 40-year-olds, the one with an illness such as diabetes costs much more money. It is a positive step that we now have health status.

While we are happy there is a permanent system of risk equalisation, we see areas for improvement. The effectiveness of risk equalisation needs to be improved. We estimate it is 55% effective, and it should move to closer to the Netherlands and other markets, for which the equivalent figures are more than 90%. There is great room to improve health status and how it is measured. It can be more sophisticated. There is an opportunity to have one standard level of cover. While we understand some of the motivation behind the current system of advanced and non-advanced cover, the solution is to have one standard level of cover with appropriate, fully effective risk equalisation.

Our risk sharing system is cost-neutral, with levies charged on each health insurance product and credits for companies that have elderly or sick people. Rather than going into a central pot, the money from the levies goes to companies that have sick or vulnerable people.

Our presentation gives an example of why we would like the effectiveness of the risk equalisation scheme to improve. If we examine the claims costs in the case of a 35-year-old after risk equalisation is applied and compare it to a 75-year-old, there is a difference of €1,000. A company with a 35-year-old, as opposed to a 75-year-old, is €1,000 better off. This incentivises cherry-picking in the market and we believe it is the key reason there are hundreds of products in the marketplace. We would like to see the gap significantly closed.

Looking at the challenges facing the market, the greatest challenge is affordability. The single greatest challenge facing us down the road is an increase in public hospital charges. The proposed increase, which we understand to be approximately €250 million over a couple of years, will add significant amounts to premiums if the charge goes ahead at that level, no matter what we do in respect of cost containment. I hope I speak for the industry on this point.

We would like to see no risk selection. We ask the committee members to note our key point, which is that we are looking for a simple and clearly understood standard product in the marketplace to cover people in the event of being sick. The product should have risk equalisation of greater than 90% effectiveness supporting it. Everything above that product can be risk-rated.

This is not dissimilar to what happens in Holland. Universal health care will take a number of years to introduce in its full form, but we can take many steps towards it with a standard product and also with the introduction of lifetime community rating. We need to encourage young people into the market, but we also need to acknowledge that a person coming in at 30 years of age should be given some credit, as opposed to someone coming in at 55 years of age when they are more likely to need health insurance. The concept of lifetime community rating should be introduced soon. We could also look to make sure it is affordable for young people. We could look for limited discounts for the under 30s.

Whatever actions are taken and whatever the rules of the game are, all our actions should be directed towards supporting the long-term objectives of universal health insurance which we, in VHI, clearly support.