Mr. Brian Dunne:

I thank the Chairman and members of the joint committee for inviting us to make a presentation. I apologise to the committee on behalf of our managing director, Ms Alison Burns, who could not be here today.

The committee has asked us to address the topic of health insurance and related matters. I will start by considering the health insurance levies, as other speakers have done. I will then set out our views on key issues for the future of the health insurance market in Ireland. Our views are probably shared by the other companies. I will focus on the affordability of health insurance, the management of costs within the system and the proposal, as outlined in the budget, to increase substantially the charge for health insurance companies using public hospital beds.

Aviva Health is committed to the introduction of a robust risk equalisation system to support the public policy objective of community rating and, more generally, inter-generational solidarity in the health insurance market. The updated levy and credit system, as introduced in legislation passed by the Oireachtas in December 2012, is a further significant step in the development of a robust risk equalisation system. The issue concerns the quantum. The levies equate to a high proportion - more than 40% in some cases - of the overall insurance premiums of customers on entry level plans.

There was some consultation with insurers about last year's legislation. We actively participated in the consultation in a constructive manner. While some of our concerns were taken on board, the updated system has a number of shortcomings. An emerging issue is the categorisation of products available on the market as "non-advanced" or "advanced". The Health Insurance Authority was asked to categorise each product according to the level of benefits provided in a private hospital. If these benefits are in excess of 66%, the product is categorised as "advanced" and, therefore, subject to a higher levy. Anything below that figure is considered "non-advanced" and subject to a lower levy.

On 31 December last the Health Insurance Authority notified all health insurers about the categorisation of their products. To our surprise, all of Aviva Health's products were classified as "advanced". The primary reason for this is that outpatient diagnostic treatments in private hospitals are taken into account in arriving at the categorisation. One of the consequences of this is that insurers, including Aviva Health, will have to reduce some benefits on entry level plans to ensure they are classified as non-advanced products and thereby attract a lower levy. We will continue to work with the Department of Health, the Health Insurance Authority and our competitor insurers through the Health Insurance Consultative Forum to overcome the shortcomings inherent in the new system for the benefit of all consumers.

When we made a presentation at this forum in October last year, we provided some numbers on the changing age profile of the industry membership between 2008 and 2011. For the benefit of members, we have included these numbers again in Annex 1 of the documentation we have furnished to the committee. The numbers are telling in so far as they show that the age profile of the insured population is rising and that younger people are opting out. While no numbers have yet been published for 2012, we do not believe this pattern has changed. As a result of the continued and increasing pressures on budgets in all Irish households, including escalating health insurance premiums, this trend is continuing in 2013. All stakeholders, including insurers and the Department of Health, have a shared responsibility to make the market sustainable. We cannot achieve sustainability if we do not have an appropriate regulatory environment, with all insurers subject to the same rules, or if we are unable to manage costs to make health insurance more affordable for everyone.

Aviva Health recognises that in addition to the quantum of levies, the management of costs by insurers is key to affordability. For health insurers, this means, individually and collectively, controlling administration and claims costs. Administration costs should account for a relatively small proportion of overall costs. The cost of claims is a bigger issue. Aviva Health has introduced a number of cost control initiatives. We engage in robust negotiations with all of our private providers, including consultants. With the advice of our own medical council, we have developed protocols for medical treatments. We encourage early intervention and treatment in the community. We have made significant savings through our claims investigation unit which reviews and monitors the billings of providers. These initiatives are a source of advantage to us.

There are ways in which insurers can work together, with the support of the Department of Health, to manage claims costs and, therefore, maintain the sustainability of the market. The development of industry standard clinical pathways would ensure quality health care was provided for customers in the most efficient manner. For example, guidelines on the appropriate setting for treatments - inpatient, day patient or at home - should be agreed. There should also be criteria for the payment of certain procedures and the appropriate length of stay if inpatient treatment is required. If medical practitioners and the industry work together, they can ensure the treatments provided are usual, customary and reasonable.

Under current rules, insurers are not permitted to negotiate with public hospitals. This is a barrier to an efficient market and reduced premiums for all consumers. Insurers should be able to negotiate contracts with public hospitals. The proposed new public hospital group structure may facilitate this and it should be introduced as a matter of urgency. The industry also needs to encourage the use of primary care as an alternative to hospitalisation. This includes promoting and covering treatments in the home or in a primary care setting. We should adopt payment reforms across the market, with the State and health insurers working together. As part of this, we need to counter fraudulent claims. None of these measures will yield dramatic and immediate savings, but they must be part of a long-term project to help to keep the market sustainable.

We want to impress on the committee the implications of substantial increases in the charge for privately insured patients occupying a public bed. This is a matter of the utmost concern for us, as it should be for all consumers and public representatives. It is inevitable that any move to redesignate bed charges will drive up premiums substantially because insurers simply cannot bear the cost while remaining in business. In fact, it could well have substantial implications for the sustainability of the market as a whole. This proposal raises fundamental questions for the health insurance industry and the health system in general. Why should patients who have private health insurance and pay their taxes lose their universal entitlement to public health care funded by the State? How can we expect the industry to retain its customers in the light of the scale of price increases that would result from this change? If the market shrinks as we predict it will, how will the State fund the increased demands on the public system? Will the public finances be better or worse on a net basis after the increase? As young and healthy people continue to leave the market, how can we expect those who remain to bear the ever-increasing burden of premiums and levies?

Bed redesignation represents a major shift in health policy. The questions I have asked must be answered before further steps are taken towards its implementation. I thank the committee for giving us an opportunity to present our views on important matters that are defining the shape of the health insurance market in Ireland. We look forward to participating in this discussion and answering questions.