Mr. Jim Joyce:

I welcome the opportunity to address the committee. My colleague, Mr. Sloyan, will make the presentation on behalf of the Health Insurance Authority but I wish to comment briefly on our role in respect of risk equalisation. It is universally recognised that risk equalisation is essential to community rating in the market. The system contains two elements, namely, levies on health insurers and credits for high risk subscribers. These are calculated so as to be fully offsetting and, therefore, financially neutral for the market as a whole. In general older people pay less and younger people pay more as a result of risk equalisation. This is what we mean by community rating.

In commenting on the risk equalisation system we must be careful to take the levies and credits together. An insurer with higher than average risk profile can be expected to favour higher levies and credits, while the insurer with lower than average risk profile can be expected to favour lower levies and credits. The authority endeavours to set the risk equalisation system at a level that is appropriate to the market and we are not biased one way or the other. I agree with Dr. Lynch that transfers occur but it is better to think about them as transfers between subscribers rather then between companies. The beneficiary of the transfer is the older customer rather than the VHI and the levy is subsidised by the younger customer rather than the company paying it. Risk equalisation in itself has no effect on overall market premiums. The determinant of overall levels of premiums is the insurer's cost of providing a service and the greatest element of this is the cost of claims.