Mr. John O'Dwyer:

I thank the Chairman, Deputies and Senators for their time. I appreciate the opportunity to outline our views on the Health Insurance (Amendment) Bill and related matters.

All insurers in the market and all private health insurance companies support the stated Government policy of community rating and the plans to protect it. Community rating is the principle that everyone pays the same for their health insurance plan regardless of age or health profile. However, the reality is that while everyone pays the same, not everyone costs the same. That is the crux of the issue. That is why risk equalisation is essential. Without it, the market would collapse. Risk equalisation in its simplest form is about sharing the claims costs of the old and the sick among the young and the healthy across all the private health insurance companies in the market.

We welcome the amendments outlined in the Health Insurance (Amendment) Bill to the levy and credit levels, which are a step in the right direction. Money is collected through the health insurance levy and redistributed as tax credits to older and sicker customers. It is very simple. If insurers want to reduce the impact of the levy they must take on older customers and gain the benefits of the credits.

The scheme has to be dynamic. It must be continuously improved and developed to reflect the changing nature of the market. In this regard, more needs to be done to develop the health status aspect of the scheme to ensure that the health status of customers is fairly and accurately represented. In fairness, both the regulator and Department of Health acknowledge that.

As long as we have community rating we need a robust risk-sharing system. That is the same the world over. We are not there yet, but the recent changes represent some progress. A properly functioning risk equalisation system is critical to transitioning to a market-based universal health insurance system, and we must address this now.

Vhi Healthcare, like all other insurers, does not operate in a vacuum and we need to recognise that there are very serious market challenges that need to be addressed swiftly. We fully understand and support the Minister's stated objective to maintain an affordable, vibrant private health insurance market that remains attractive to the young. Consideration must be given, therefore, to regulatory changes that will allow the market to remain intact, allowing older and sicker people to continue to access care when they need it while at the same time keeping health insurance affordable for young people. Clearly, that is a delicate balance.

There are significant pressures on the market. None of the challenges of aging membership on the one side and families under significant financial pressure forced to leave on the other side are easing. We must take a more creative and innovative approach to solving these issues for the long term.

As a priority we must examine options that will encourage young people already in the market to stay and that will also attract more younger people to join the market. Consideration should be given to introducing a more modified version of community rating that allows managed discounting by age bands. The discounts will range between 5% and 20% depending on age. That will encourage younger people to take out health insurance in the first instance and will also assist younger people to remain in the market. Keeping these young people in the market clearly benefits older customers.

Introducing lifetime community rating should also be considered. Essentially, this system rewards people who take out health insurance when they are young and healthy and penalises those who wait until they are older and more likely to claim. Similar to the pension market, if one starts investing at a younger age one will pay less for one's lifetime. If one is late to the table, annual contributions are higher.

We agree that this measure is long overdue in the private health insurance market. However, it will take some time to implement. The discounting mechanism for young people I outlined earlier is simpler, less complex and consistent with Government plans for the introduction of universal health insurance. There are also fewer barriers to implementing it.

All health insurers in the market should proactively market to and target their fair share of older and sicker customers. That is not happening, and the facts speak for themselves. After 17 years of competition, Vhi Healthcare now has a 55% market share but still pays well in excess of 71% of the claims in the market. We have close to 90% of those customers over 80, nearly 80% of those customers over 70, and 65% of those customers over 60 years of age. The average 80 year old in the market costs 11 timesmore than the customer in the nought to 49 years age bracket. These are not VHI figures; they are the regulator's figures.

To protect community rating we must remove the incentive to select customers based on risk. Clearly, it still pays to target younger customers only. The risk equalisation outlined in the legislation we are discussing today is cost neutral. It merely moves money around the system from young and healthy customers to sick and older customers. Contrary to what is being said, it does not drive price increases. If insurers balanced their books with a mixed profile of customers, the credits collected and levies paid would balance each other out.

The introduction of a standard product together with a fully effective risk equalisation system is a necessary prerequisite in the move to universal health insurance. It will mean that all citizens will be entitled to a standard level of cover, and insurers will then be focused on differentiating themselves by competing on the efficiencies and innovations they bring to the marketplace. That will ensure true, properly functioning competition that fully supports equal access for all. We suggest that a phased approach could be taken to this issue by first considering introducing a standard product with a fully effective risk equalisation for children.

There are a number of challenges facing the health insurance market at this time. At the VHI we are totally focused on driving down our costs in the organisation. Where we have control over costs we are not afraid to tackle them head-on. Our cost containment programme has seen consultants fees reduced to pre-2004 levels, the movement of 80% of all procedures to a day-case or lower setting, and the reduction of the average length of stay for in excess of over 150 procedures.

Uniquely, Vhi HomeCare has treated in excess of 3,000 patients at home, rather than in hospital, thereby saving approximately 37,500 hospital bed nights in the process. However there are certain issues over which we have no control and recent changes introduced in the Health (Amendment) Act 2013 mean the Government can now charge for all beds in public hospitals. While the Government has stated it intends to raise an additional €30 million at a minimum, the industry is concerned that the current rates with this initiative, as outlined in the legislation, will deliver multiples of this figure. In effect, this means that private patients are paying on the double for a service to which they are fully entitled through their taxes. In October 2013, without any advance warning, changes were made to tax relief at source for private health insurance customers. This will mean that 1.2 million customers will end up paying more as a direct result of this policy. Taken together with the increased charges in public hospitals, these measures add additional costs of at least €200 million to industry costs for 2014. This is a serious concern for all health insurers and is particularly worrying for a market that clearly is under pressure.

Vhi Healthcare is fully committed to supporting Government policy and strategy and to doing all it can to ensure a cost-effective, quality service is delivered to all customers. We believe that in order to be able to do this for the long term, new approaches, as outlined, are required. We are willing to lead on any of the solutions put forward today and look forward to working with the Minister, his Department, the regulator, our colleagues in the industry and with the membership of this joint committee to help deliver results.