Mr. Brian Dunne:

I thank the Chairman and members of the joint committee for inviting Aviva Health to present to them today at a critical time for the health insurance industry. I am joined by John Armstrong, who is responsible for product and pricing at Aviva Health. This is our third presentation to the joint committee and our comments provide an update on market developments since we last met in February of this year. We welcome the chance to talk about both those developments and the Bill. At the outset, to be clear, Aviva Health is committed to a robust risk equalisation system to support the public policy objective of community rating and, more generally, to intergenerational solidarity within the health insurance market. In this context, we support a move towards proper health status-based risk equalisation.

Six months ago, Aviva Health published a report by the leading economist, Colm McCarthy, in which he warned that any measure leading to an increase in the cost of health insurance premiums would further destabilise an already fragile and contracting market. Since the publication of that report, the Government has introduced two such destabilising measures. First, in late July, legislation was passed that would allow public hospitals to charge privately insured patients up to €813 per night for the use of a public bed. The Minister for Health has yet to confirm that he intends to apply the charges as outlined in the legislation. The Minister’s stated intention was to raise €30 million from these charges in 2014. An independent assessment has calculated the rates in the existing legislation will raise €115 million to €130 million.

Second, in the budget announced in October, the Minister for Finance capped the amount of health insurance premium on which tax relief would apply at €1,000 gross per annum for an adult and €500 for a child gross of the tax relief. This change has resulted in nine out of ten adult members paying an average of €100 extra for their health insurance plans, with an increase of a multiple of that amount applying in many cases. Our estimate is this measure will save the Exchequer €180 in 2014. The combination of these measures has served to place an additional burden of €300 million on the 2.1 million people who have taken personal responsibility for their health care by continuing to pay for health insurance in very challenging times. Aviva recently asked Mr. McCarthy to update his report of last May to take account of these policy developments. In his update, which we have just received, he states:

The impact of these measures needs to be assessed against the background of the shrinking overall market and the negative trends in the age composition of subscribers. If the trend towards non-coverage in the younger age-groups is accelerated the process could begin to feed on itself, with consequential upward pressure on premiums independent of cost developments. The risk is that the market becomes de-stabilised, with a rush to the exit by the younger enrolled members and increasing difficulties in the recruitment of new members.

It is against the back-drop of this uncertain and volatile market that we present to members today.

When we met the joint committee last February we, along with the other insurers, warned that any move to charge privately-insured patients for the use of public beds would inevitably and substantially drive up premiums. We also stated the imposition of such charges could well have serious implications for the sustainability of the market as a whole. As members are aware, the Minister for Health decided to proceed with this policy change and the Oireachtas passed legislation in July 2013 enabling public bed charges to be introduced at specified rates. At the time, the insurers calculated the rates as outlined would raise far in excess of the €30 million earmarked by the Minister and his Department. Members will recall that because of the disagreement between the insurers and the Department on the amount the rates would generate, the Minister deferred the implementation date of the new charges to allow an independent assessment to be carried out by both the Health Insurance Authority and an independent expert appointed by insurers. The Minister further committed that following this review he would, if necessary, amend the rates before the end of 2013 to deliver no more than the intended €30 million.

These reviews are now complete and both the HIA and the independent expert agree that the charges as currently enshrined in the July Act would provide an income stream from private health insurers to the public hospitals of between €115 million and €130 million in a full year. Given his clear commitment at the time, we have been expecting the Minister to bring forward amending legislation to reduce the rates significantly. There is no sign of such legislation and I regret to say, as of today, we remain in the dark as to how the Government intends to proceed on this important matter. This uncertainty creates great difficulty for insurers, all of which are planning for their January 2014 renewals. If the rates are to remain as provided for in the July legislation, there will be - as we warned at the time - immediate premium increases across the market. Our customers must be made aware of this and we as insurers must be given time to put in place prices that will maintain our solvency and allow us to meet the claims of our customers.

Our first duty as a responsible insurer is to make sure we are in a position to pay the claims of our customers when they get sick. This means we have to get our pricing right. We also have an obligation to comply with the Government’s health insurance regulatory regime. As members will be aware, under the Health Insurance Act as amended in 2012, insurers are required to notify the Health Insurance Authority, 30 days in advance, of any changes to the prices and benefits of their products. For example, any changes to be introduced on 1 January 2014 must be notified to the HIA by next Monday, 2 December, at the latest. We therefore need to know immediately the rates the Government intends to impose in order that we can run a sustainable and compliant business. The failure to take into account the negative impact on our business of tardy decision–making is symptomatic of a wider absence of joined-up thinking on health policy.

As a private commercial organisation operating in a tough market, we are well aware of the difficult decisions the Government must make and we support it in the actions it has taken. However, the crux of the matter is the introduction of public bed charges was, in itself, a major policy initiative with the capacity to disrupt the market and to follow it up within three months – totally out of the blue - with a decision to substantially reduce the tax relief available to those who have private health insurance is baffling. Did anyone in government join up the dots and ask what is the impact of these two measures on our health system? It is estimated that the industry as a whole provides an income stream of approximately €500 million in payment for the services provided to our insured customers by the public hospital system. The steady increase in the numbers leaving the market or downgrading their coverage reduces that income stream. Inevitably, the shortfall must be made up by the Government on behalf of the taxpayers. In this situation, everyone loses out, namely, the Government, the taxpayer, the industry and most of all the patients, whether insured or not.

However, as the McCarthy report points out, a community-rated system requires a sizable cohort of younger and generally healthy members to offset the high costs incurred in meeting the claims that arise from older members. The latest available figures available by the Health Insurance Authority, which members will find in the annexe, show that over the last five years, 175,000 people under the age of 50 have dropped their health insurance, while the number over 50 has increased by 51,000. The cumulative impact of the Government’s actions over the last six months will inevitably exacerbate this trend and consequently drive up premiums. Community rating is a long-standing core element of social policy in this country but it is in danger of being undermined by the impact of the two most recent budgetary initiatives affecting health policy.

As it stands, the community rating system hangs in the balance and the Government may have undermined its chances of fulfilling its ambition to introduce a universal health insurance system.

When we were last before the committee, we spoke about the need to control costs in the market. This is an issue which has come to the fore of public discourse and members of this committee and the Minister regularly refer to it. In July, the Minister asked the health insurance consultative forum under the independent chairmanship of Mr. Pat McLoughlin to examine the drivers of cost in the market. We thank Mr. McLoughlin for his hard work and dedication to this process to date. We, along with others in the industry, have engaged with him and supported him in his work. This year, Aviva has introduced a number of initiatives to control costs. We have robust negotiations with all our private providers including consultants; we develop, with the advice of our medical council, protocols for medical treatments, encouraging early intervention and treatment in the community; and we have made significant savings through our claims investigation unit which reviews and monitors the billings of providers. These initiatives are a source of competitive advantage to us.

However, there are other ways in which the insurers can work together, with the support of the Department of Health, to manage claims' costs and, therefore, maintain the sustainability of the market. These are issues that have been addressed by Mr. McLoughlin and once we receive a copy of his report, we would welcome an opportunity to address them with the committee.

The Government still has an opportunity to reduce the public hospital charges by amending its July legislation. We thank the committee for providing a forum for this sector to engage with legislators on these crucial matters at a defining moment for the health insurance market and, by extension, for the entire health system in Ireland. Mr. John Armstrong and I will be happy to answer questions.