Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

Deputy Boyd Barrett again referred to gold-plated insurance policies. I have already stated that I was misquoted in that regard, the point I made being that gold-plated premia are the most costly policies on which to give tax credits simply because they are more expensive. I never said the holders of such policies would be the only people affected by the budget change. In fact, holders of more modest policies also will be affected, but in a much more limited way. To give a typical budget example, Paul and Sinéad are married with two children aged seven and nine and have a medical insurance premium with a gross cost of €3,400 in 2013, before tax relief at source is applied. Their cover breaks down as costing €1,100 per adult and €600 per child. With tax relief at source of 20%, the cost is €3,400 minus €680, giving a cost in 2013 of €2,720. In 2014, the new cap on tax relief at source means they will get €600 rather than €680 back, giving a total cost next year of €2,800. It would be fairly average for a couple with two children to be paying €3,400 for medical insurance. One could argue that they might be under a great deal of pressure and cannot afford the additional €80, but it will not bring the house down nor force them out of health insurance.

I thank Deputy Naughten for his interesting and well researched contribution. The point I made in regard to equity was that 45% of the community benefit from this relief while 55% do not. Of course those 55% pay tax - not necessarily income tax but excise, VAT, universal social charge and other charges that arise under our multifaceted tax system. In fact, sometimes people in that group pay proportionately more tax than do better-off people. In other words, there is sometimes a transfer of tax from the poorest sectors of the community to the relatively well-off. That happens for very good reasons. The whole basis of justified tax breaks is to influence economic and social behaviour in a beneficial way. One cannot otherwise justify a tax break. If one is simply massaging people in order to win votes or trying to favour curry favour with one particular cohort in the community, then the tax break is not justified.

What then is the justification for a tax break on medical insurance? The answer is that it is there to encourage people to take out medical insurance. However, if that tax break is excessively generous and is driving up costs, then it must be examined. The information from the health insurance market report compiled by Millward Brown for the Health Insurance Authority included information on the answers people gave as to why they had let their private health insurance lapse. By far the most common reason was cost, with more than four in ten of those surveyed citing it is as the reason. The other main reasons were also based on economic decisions, such as the loss of a job, at 16%, and the discontinuation of cover by an employer, which accounted for 11% of lapsed policies. No longer being covered by parents' insurance was also a significant factor, although that is more of a default option than one based on a proactive decision. Nevertheless, it is another pointer to the factors influencing the decision to let one's private health insurance policy fall off. In the year of the survey, the decline in the number stating their entitlement to a medical card as the reason for dropping their health insurance cover suggests it is being seen as less of a fall-back position for people.

When one considers that there has been an 86% increase in the cost of health insurance but only a 7.5% decline in the incidence of insurance cover, one must conclude that it is a very inelastic product which does not respond to price very significantly. When it comes then to seeing how one can make ends meet in a budget, the fact that the cost of the associated tax break has increased so rapidly over the years, such that a figure of €500 million in 2013 would increase, if the system remains unchanged, to €1 billion by 2020, it seems clear it is time to do something about it. I do not accept that the change will have the dire consequences to which Deputy Boyd Barrett referred. There has been a great deal of talk to the effect that we will all be ruined and everybody will cancel their health insurance policies. The evidence does not in any way point to that. In fact, the effect on most ordinary policies is fairly marginal, as in the example I gave of a loss next year of €80 on a premium of €3,400.

The State provides universal hospital care, subject to some co-payments for non-medical card holders, and private health insurance is, therefore, an optional extra within the system. Of course there are pressures on health costs. I am assuming, however, that everybody here is supportive of community rating. If we simply price health insurance on the basis of risk, then elderly people and those with a history of illness will be deemed very high risk and, as such, will face enormous rises in premium costs. The levy to which Deputies referred is charged so that community rating can continue. Within the system, as organised in Ireland, the young and the healthy subsidise the old and the ill. That is what it comes down to, without putting too fine an explanation on it, and it is why prices increase. Health insurance is a very expensive commodity. At the same time, however, insurance providers certainly could do more to control medical costs because it is they who pay the maintenance and medical bills. I have seem some of those bills and they would make one wonder at the amounts being paid out for very short stays in private hospitals and minor surgical interventions. The Deputies probably hear more about this issue than I do these days. Having to spend so much time in Dublin means I am not behind my clinic desk as often as I used to be. I am sure people are contacting Deputies about the hospital charges levied under their insurance policies. The insurance companies have a case to answer in this regard.

There are options for people to reduce the cost of their insurance. The many hundreds of products on the market offer scope to switch to a slightly lower level of cover and thus offset the €80 or €100 being lost in tax relief under the new arrangement. This particular provision is one of the areas in the budget which we can justify on social grounds and on grounds of equity. Deputy Naughten argued that it will encourage people to let their policies lapse. However, it was, in fact, one of the changes for which industry representatives argued strongly in their engagement with my officials.

Regarding the uncertainty surrounding cover for students, the position is that some insurance providers treat students as adults while others treat them as children. Without changing the internal policies of the providers, we will follow their practice. In other words, if they treat students as adults, the cap of €1,000 will apply, and if they treat them as children, the cap of €500 will apply. I introduced that particular amendment after taking advice from the industry.

The second amendment in this section relates to situations where, for example, people wish to insure a parent who is residing with them. Up to now, in such cases, one simply paid the adult premium.

If one caps it, that will prove to be a disadvantage. The cap will, therefore, also apply to relatives other than spouses, siblings, children and so forth. Again, this was something the industry wanted and we moved to facilitate it. The decisions relating to all these matters are tough. The country is recovering and, please God, we will reach a situation where we will not be obliged to make so many decisions which affect so many people.

Where an individual does not take out private health insurance and elects to pay for health care privately, such expenses are eligible for tax relief under the health expenses regime. The position in that regard is not being changed. If someone goes to his or her consultant and the cost involved - for example, €160 - is not covered under his or her health insurance policy, he or she can submit his or her receipt when making his or her tax return at the end of the year and claim tax relief at 20%.