Oireachtas Joint and Select Committees
Thursday, 28 November 2013
Joint Oireachtas Committee on Health and Children
Health Insurance (Amendment) Bill 2013: Discussion
9:30 am
Jerry Buttimer (Cork South Central, Fine Gael)
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I apologise to the witnesses for the lengthy delay. We had a number of matters to discuss in private session and it took longer than we had anticipated. I thank witnesses for their patience and welcome them to the meeting. Today's discussion is on health insurance. We will hear from the Health Insurance Authority and the health insurance providers on the Health Insurance (Amendment) Bill 2013 which will be before the committee next week. Given the large number of groups I urge everyone to keep their contributions tight. We are discussing the Health Insurance (Amendment) Bill as opposed to a more wide-ranging or in-depth discussion.
From the Health Insurance Authority I welcome Mr. Liam Sloyan and Mr. Jim Joyce; from VHI Healthcare, Mr. John O'Dwyer and Mr. Declan Moran; from Aviva Health Insurance Ireland, Mr. Brian Dunne and Mr. John Armstrong; from GloHealth, Mr. Jim Dowdall and Ms Teresa Kelly and; from Laya Healthcare, Mr. Donal Clancy and Mr. David Muiry. Witnesses are protected by absolute privilege in respect of their evidence to this committee. However, if they are directed by the committee to cease giving evidence in relation to a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice and rulings of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.
Mr. Liam Sloyan:
I thank the Chairman and members of the committee for inviting us to the meeting. In this presentation I will briefly outline the role of the authority and discuss the reasons for having a strong risk equalisation, RE, system and a community-rated market. I will discuss the main amendments to the Bill and in doing so I will describe the impact of risk equalisation on the health insurance products for individuals and insurers in the market.
Our main function involves regulating compliance with legislation, providing consumer information, monitoring the market and advising the Minister. With respect to risk equalisation, we advise on credits and levies, administer the payment system and the risk equalisation fund and ensure the system does not overcompensate any insurer.
Ireland has a community-rated market and the need for a strong risk equalisation system in a community-rated market is well understood. Older people have a much higher rate of claim than younger people. For example, the average claim cost for a male over 80 is projected to be approximately €5,000 per annum, which is four times the average for all consumers. In a market where everybody with a certain product must be charged the same premium therefore the incentive is for insurers to insure younger healthier consumers, avoid older less healthy consumers and to segment the risk profile so that older and less healthy consumers can be charged more. Without RE, there are incentives to adopt behaviours that undermine community rating. It also means competition is distorted and insurers with a worse risk profile are at a disadvantage.
Risk equalisation support community rating and competition by reducing the incentives for behaviours that undermine community rating and by reducing distortions between insurers with different age and health profiles. Specifically, community rating is supported by reducing the net claims costs of insuring older and less healthy people. It also increases the net cost of insuring more younger and healthy people. It is also important to note that risk equalisation is neutral with regard to market costs. It supports community rating by redistributing funds in the market to support older and less healthy people. It does not take funds out of the market.
In Ireland, risk equalisation is provided for in the Health Insurance Acts. The risk equalisation fund is managed and administered by the Health Insurance Authority. Credits are paid out of the fund to support older and less healthy people. The credits are funded by a levy on all insurers in respect of the people they insure. The main amendments to the Health Insurance (Amendment) Bill 2013 provide for changes to the credits and stamp duties provided for in the Bill; the date from which new credits and stamp duties apply is also changed; and there are some clarifications on the process for assessing whether overcompensation has occurred.
The process for determining the risk equalisation credits and the levy is also set out in legislation. The authority analyses data and advises the Minister, based on support for community rating, market sustainability, competition, and the avoidance of overcompensation. The authority recommends a levy it considers would be necessary to meet the cost of the credits. The Minister for Health and the Minister for Finance decide what credits and levy to propose to the Oireachtas. The credits and levy are as enacted by the Oireachtas.
The credits and stamp duties proposed in the Bill are set out in the table shown on slide No. 8. The committee will note that credits for advanced products are higher than those for non-advanced products and the credits for males are higher than credits for females. The amount of credits increase rapidly with age. All of that reflects the different claims experience of the various groups in the market.
The stamp duties proposed are also set out. They vary between adults and children and by level of cover. The chart on slide No. 9 shows the impact the credits and stamp duties are projected to have on claims costs for individuals by age. The blue line represents the gross claims costs and it can be seen that increases rapidly with age. The red line represents the market average claims cost while the green line represents the claims costs net of risk equalisation payments. It can be seen that risk equalisation significantly reduces the net claims costs arising in respect of people over the age of 60 and it increases the net claims costs for people under the age of 60.
When examining the impact of risk equalisation it is also important to look at the combined impact of stamp duty and the credits rather than looking at either one of those in isolation. When that is done it can be seen that increasing the strength of risk equalisation reduces the net claims costs of products covering more older people while also increasing the net claim costs of products covering more younger people.
Accordingly, it is worth noting that risk equalisation reduces the net claims costs of some products with all three of the more established insurers. That is a reduction in net claims costs from risk equalisation. For one significant product in the market the net claims costs are reduced by approximately €700 from risk equalisation. For products covering a few older people the net claims costs increase, although not by the full cost of the levy because all products will cover some older people and some people who are in hospital. In terms of the net claims costs, the VHI was the net beneficiary of risk equalisation and the net payers.
We project that the impact of the Bill would be to increase the impact of risk equalisation and reduce the net claims costs for insured person in VHI Healthcare by approximately €15 versus the impact of risk equalisation in 2013. On the net payers, we project the impact will be to increase the net claims costs on average across the insurers by €10 per insured person. The members should note that these changes are approximately 1% of the market average premium. They should note also that the precise impact for each insurer and product will depend on the proportion of older and less healthy people insured in that product.
On the quantum involved in risk equalisation, it is projected that approximately €570 million of credits will be paid out of the risk equalisation fund in respect of policies commencing or renewing in 2014. This is funded by stamp duty payments of approximately the same amount in respect of the same policies. In this way an amount approximately equal to 25% of health insurance premiums is redistributed through the risk equalisation fund to support the higher claims costs of older and less healthy people.
9:40 am
Jerry Buttimer (Cork South Central, Fine Gael)
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I thank Mr. Sloyan. I call Mr. John O'Dwyer from the VHI. Mr. O'Dwyer is very welcome.
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.
9:50 am
Jerry Buttimer (Cork South Central, Fine Gael)
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I thank Mr. O'Dwyer and invite Mr. Brian Dunne, chairman of Aviva Health Insurance Ireland Limited, to make his opening statement.
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.
10:00 am
Jerry Buttimer (Cork South Central, Fine Gael)
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I thank Mr. Dunne. The next participant is Mr. Jim Dowdall, CEO of GloHealth, whom I welcome.
Mr. Jim Dowdall:
I thank the Chairman and the committee members for providing GloHealth with the opportunity to discuss such important matters. I am joined by my colleague, Ms Teresa Kelly Oroz, our legal and regulatory director.
To start with, I acknowledge the significant challenges facing the Minister and the Department of Health. Reduced budgets, fewer staff, more demand and flash fires every week, such as medical cards, top-up payments and waiting lists, present an intimidating, daunting and formidable set of challenges and no Department is under such pressure. It is not surprising that this pressure and the environment create their own responses which, unfortunately, include a bunker mentality of extreme defensiveness and self-justification, a focus on short-term measures - what will get one through today, this week or this month - and no focus on essential reform or planning.
In the health insurance area, we see all of these traits.
Jerry Buttimer (Cork South Central, Fine Gael)
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Do Mr. Dowdall's remarks refer to the private health insurance or the Department of Health in general?
Mr. Jim Dowdall:
I refer to the private health insurance issues that we are discussing.
In the health insurance area, we see all of these traits. There is a clinging adherence to a health insurance levy that has long failed as a policy, a tendency to blame everybody else for rising costs and persistent ignoring of independent advice on the issues. The introduction of stealth taxes to fill a funding hole is a key issue for the sector and for health insurance customers, and there are promises which are quickly forgotten and reversed.
The victims of this approach are ordinary citizens, those who are prepared to invest their hard-earned money in providing themselves with some assurance that, if needed, they will get access to the quality health care they require. Given an affordability challenge which is created by policy, these coping subscribers, in the tens of thousands, have given up health insurance or are just hanging on. As they are being discretely targeted through these hidden stealth taxes and health insurance levies, they do not march on Leinster House. They do not fill Dawson Street or shout slogans or insults. They probably do not even go to the members' clinics. However, they will recognise the impact of these charges when their renewal date comes around. That is when they see the impact of the reduction in health insurance tax relief, the impact of double taxation by now having to pay twice for a public bed in a public ward in a public hospital. That is when over €200 million of increased costs now being imposed on health insurance customers will become real and obvious.
Health insurance customers cannot believe their costs are going up by so much. They shop around, they pay up, they trade down or they give up. Over 0.25 million customers have already given up their health insurance. When these subscribers give up their health insurance, there are three impacts: over 0.25 million fewer, typically younger, persons are in the pool to support older members; over 0.25 million persons go from paying for their treatment to costing the public health system money; and the goal of universal health insurance becomes much more distant.
Jerry Buttimer (Cork South Central, Fine Gael)
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Has Mr. Dowdall a copy of his presentation because what I have is a copy of his written submission? We are at a disadvantage in that we have received his written submission but would normally get the presentation also.
Jerry Buttimer (Cork South Central, Fine Gael)
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A copy would assist members in following his presentation.
Jerry Buttimer (Cork South Central, Fine Gael)
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I thank Mr. Dowdall.
Mr. Jim Dowdall:
In October 2012 and in February last, we spoke to the committee about the looming crisis for health insurance customers and we painted a picture of what would happen if Government did not change its approach. Matters, far from improving, have got even worse with the short-sighted decisions to cut the tax relief on health insurance, to increase the health insurance levy and to implement charging for public beds.
Nothing would be easier than to sit here and condemn the Department and the Minister for these failed policies, but it would fall on deaf years. There is an opportunity. In a representative democracy such as ours, the Executive should be accountable to the Oireachtas and the members, as a health committee. In a recent debate on Seanad abolition, much play was made on improving the powers of committees and of empowering legislators to challenge, to demand answers and to demand change.
Jerry Buttimer (Cork South Central, Fine Gael)
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Will Mr. Dowdall deal with the Bill and the health insurance matter rather than reform of parliamentary democracy?
Jerry Buttimer (Cork South Central, Fine Gael)
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I do not want to engage in an adversarial banter with Mr. Dowdall and ask that he stick to the specifics.
Mr. Jim Dowdall:
Certainly, Chairman.
It is recognised that this committee has done much valuable work over recent years and there is an opportunity for it to make a contribution on behalf of 2 million health insurance customers. There are five solutions I want to talk about. First, the Minister needs to live up to his promise, referred to by other insurers earlier, on public hospital rates and stop putting his hand deeper into the pockets of health insurance customers.
Second, research suggests that if the health insurance levy was cut and the reduction was passed on to consumers, lapsed policy holders would be inclined to return to the market and an increase in the number of younger insured persons would make health insurance more affordable for all. This should be done immediately.
Third, the Health Insurance Authority survey shows that older members are reticent to change insurer. Instead of blaming insurers for the customer mix, the Government should look at measures to end the dominant position of the major insurer and create a more equitable spread of customers across all insurers in the market. If this was done, it would create a paradigm shift which would help create a stable market and also remove the excuse from the Department of Health to continuously use the health insurance levy as another tool to favour its own insurer.
Fourth, the Government needs to implement lifetime community rating early in 2014. This has been on the Statute Book since 2001 and despite repeated requests from all insurers, it still has not been implemented. Fifth, the Government needs to make positive measures to encourage younger members back into the market, allow further discounts, lower the levy for young members and remove the levy from children.
Earlier this week the Tánaiste suggested that it was time to provide some relief for hard-pressed families and I did not see anybody disagreeing with him. A good place to start would be in the area of health insurance where 2 million persons are being seriously impacted by current policy. I hope that the committee can lead the way and be a force for positive change in this area.
Jerry Buttimer (Cork South Central, Fine Gael)
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I thank Mr. Dowdall. I welcome the final contributor, Mr. Donal Clancy, managing director of Laya Healthcare.
Mr. Donal Clancy:
I thank the committee for having myself and my colleague, Dr. David Muiry, here today. We welcome the opportunity to discuss what we see as a critical part of the community in Irish society, that is, the health insurance sector.
First, I want to highlight, as I do in the second slide of my presentation, that we are the second largest health insurer in the market. Our ethos is to ensure that we provide essential care. By that we mean to provide added value and ensure that as many persons are in the community rated market as possible. We support community rating, as we do the principle of risk equalisation and the inter-generational solidarity that goes with it.
In the current market, no doubt since we met previously - we discussed it in previous sessions with the committee here - much of what my colleagues have already alluded to would support the contention that the price spiral continues. We are talking, in particular, about the charge for public hospital beds. It is the latest one. Initially we did not like it as it was supposed to raise €30 million.
The current position is that the independent assessors, the HIA and Deloitte, came up with a figure in the region of between €115 million and €130 million. That seems to be a factor of what was actually supposed to have been collected. No matter what way one balances or puts this, if one has to pay out that money, one has to collect it.
My colleagues alluded to tax relief at source and its impact. This involves another €170 million. These figures keep adding up. Irrespective of what we say here and how we dress it up, our customers and the community must ultimately pay for it.
There is no doubt but that the more who leave that community the more the remaining people must pay and the more they will be regarded as higher risk. The more people who leave the market, the greater the spiral. I will allude to that further.
There is also no doubt that reform is required to achieve our objective on universal health care. Much of what we have been talking about concerns that reform. This needs to be addressed now.
There are two critical points in our presentation that I would like to emphasise. First, we need young and healthy people to stay in the market so the overall community can be sustained. We must achieve this and we must have a system of reform for the future. Second, to incentivise the young and healthy to stay in the market, we must move towards a system whereby everything is equalised on a standard benefit. We need a standard set of benefits whereby everyone get equalised, not a set of benefits that incentivises those on a higher premium to pay the same levy as those on the lower end who can least afford it. There is no doubt about but that the current system, as implemented, is a crude one and needs to be reformed.
My presentation highlights these particular issues but many of them have arisen in previous conversations. I would like to highlight the movement in the market, in particular. People leaving the market is a substantial driver of the cost. In addition, there is an element that does not get highlighted, namely, the fact that people are downgrading. Time and again, people are going further down the line in respect of the average premium. I hear my colleagues talk about the percentages associated with the various age bands. With regard to the over-70s, our percentage is close enough to where we need to be with regard to the market ratio. We welcome all comers, no matter what their age. We want to participate in this market, have a community-rated system and be part of the community. However, those who are leaving are primarily between 18 and 30, or up to 40. From the age of 50 onwards, people are joining. This is the fundamental factor that needs to be addressed. Those over 50 are more than welcome to join but we need to keep those who are young and healthy in the market to sustain this trend. That is the purpose of the diagrams I have shown the members on the price spiral and the market implications.
This leads to the idea of reform and the associated technicalities. Let me summarise much of what has been said. We talk about lifetime community rating of some form. This relates to incentivising the young and healthy to stay in the market. We talk about having a different system to ensure that its effectiveness does not encourage inefficiencies. This is related to many of the cost initiatives that now exist. Very simply, it is sure that the cost initiatives that now exist will yield results. As the current monopoly player becomes more efficient and the market itself and funding get straightened out, there will be reforms. However, in parallel to effecting the funding resolution, one must solve the provider problem. The issue of providers, with the funding, gets resolved through universal health insurance. We advocate using a standard set of benefits.
Credit is due to those involved in the consultation processes that have taken place on most of the major issues in the past two years. Where consultation did not take place on the major issues, there has been discord, to put it mildly. The market has gone into shock and the Government has ended up forcing young, healthy people out of it. Market sustainability should be a primary concern. Risk equalisation, in its current form, needs to be reformed and there needs to be an ability to keep the young and healthy in the market.
With regard to what the Minister has done with public hospital beds, his stated intention of collecting only €30 million seems to be at variance with the facts. Three or four times more will be collected as matters currently stand. The burden of supporting the now-failing community-rating market will fall right back on the public system. Therefore, I strongly recommend and would like to be part of future systemic reform through genuine consultation
10:10 am
Jerry Buttimer (Cork South Central, Fine Gael)
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I thank all contributors for their presentations.
Billy Kelleher (Cork North Central, Fianna Fail)
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I welcome the various health insurers. Not much has changed since we last spoke to the insurance companies; circumstances have just become progressively worse. I will say again today everything I have said publicly. If one were to visit this country and examine the policies of the Government, and the Department of Health, in particular, one would assume they are trying to dismantle private health insurance through the various policy changes. The most recent one, concerning the cap on tax relief at source, beggars belief. We must revisit that issue.
There is a lot to be discussed in this area. There is a price spiral and a shrinking insurance market. There is an unbalanced market and a very dominant player with a legacy issue involving a very old cohort of policyholders. There are younger, more nimble and flexible insurers in the marketplace. They all have a story to tell but they do not always coincide with each other in terms of the way forward.
The issue of lifetime community rating is a key issue. It is argued that if the Minister were to pursue lifetime community rating, he might as well admit that his universal health insurance policy concept is aspirational as opposed to real. If there were universal health insurance, lifetime community rating would be a non-issue in the first instance. Perhaps there is reluctance to move in that regard. In the meantime, there are circumstances in which all the insurers will find it difficult to sustain their customers' age profile.
The VHI has outlined the position on compliance with the Central Bank regulation with regard to licensing and the difficulties it will have in getting its ratios and reserves in place. It also has a legacy issue. I have a question for the other insurers, however. Their various insurance products do not exhibit a yearning and policy-driven approach to attract older customers. Could they explain their position on this? Although they are saying the health insurance market requires intergenerational solidarity and community rating, which we all buy into in one way or another, I do not see them actively and aggressively targeting older people with a view to attracting them from the VHI. Could the delegates respond on this?
Another key issue arises. The HIA is the agency charged with oversight. Consider the assumption that the Government takes, or at least receives, advice from the HIA. I do not believe that the Government takes very much advice from it and, if the truth be told, that it does not even take it seriously. I will take this up with the authority later.
This time last year, we were led to believe there would be a number of advanced and non-advanced health care packages, with the latter attracting a lower stamp and rating. However, when the care packages were published in March of this year we found that the vast majority were in the advanced category, thereby attracting the higher rating. I cannot understand the change from what was said in the Dáil last November or December to what happened in March of this year. We must get to the bottom of it because it is critical in terms of analysing the difficulties that occur. People are trading down their packages, for example. They are reducing their cover because of the higher levy and duties associated with advanced care packages, which are no longer affordable.
I find amazing the position taken on the HIA and an independent expert having agreed that the levy for private patients in public beds will, in a full year, bring in €130 million. Without being overtly political, I contend the Department of Health has never been very good on its figures on health insurance. It is incredible that we are talking about €100 million in the difference between the two sides. I hate to say it but that €100 million will not be coming from the insurers because they are obligated to trade in a profitable manner. The money will come from the premium holders, ordinary families throughout the country. We must revisit this very quickly.
The HIA is due to publish its report in a matter of days or weeks. The Minister has it on his desk and it will be subject to redaction.
However, I would like to know what recommendations were made by the HIA to the Department and the Minister concerning the levies.
We may talk about attracting younger healthy people, the debt spiral and inter-generational solidarity, but if the Minister and the Department are reluctant to admit that universal health insurance is now probably more aspirational than possible, do we need statutory change? Is legislation in place that could allow the Minister to implement life-time community rating or will we need primary legislation?
There has been much debate about tax relief at source. Is the Minister satisfied with the figures he published on the costs that insurance companies and premium holders would incur? Was that information independently verified and what is the HIA's view of it?
10:20 am
Jerry Buttimer (Cork South Central, Fine Gael)
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Given the absence of Deputy Ó Caoláin and a representative of the Dáil's Technical Group, does Senator Crown wish to speak next?
John Crown (Independent)
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I can be accused of a conflict of interest because I have a private practice and I bill private insurers, but I do have some thoughts on this matter. In the first instance, the various policies we have heard from the Government on private insurance - especially the recent one concerning tax capping - seem to be driven more by a panicky need to meet the bottom line for the HSE, than by any kind of cohesive long-term plan related to health policy.
Do the witnesses think that people understand how this move to a universal insurance model would work? Government policies seem to suggest something entirely different. It is as if the Government will do everything it needs to do to introduce universal insurance at some future stage, but in the meantime it will copperfasten the current system. We need to move quickly to the new model. Things like trying to introduce unitary HSE funding structures across the length and breadth of the public hospital network, do not seem to me like they are building up the skills-set for institutions which will only be reimbursed for what they do in a post-insurance revolutionary model, which is what we are really talking about.
Can the gentleman from Aviva explain why the company will not pay for Ipilimumab for cancer patients but it will pay for homoeopathy?
Colm Burke (Fine Gael)
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I thank all the contributors for a comprehensive overview. One of the things that comes across from the presentations is the lack of stability, which is of concern for them because it does not allow them to undertake long-term planning. We must accept that fundamental changes are ongoing concerning the reorganisation of health services. It would be helpful if they could do long-term planning over three, four or five years. Taking into account that there will be fundamental changes, how can the Department best help health insurance companies in devising long-term plans for the cost of insurance?
The the contributors referred to €30 million which is what the Department said it will be collected from private patients in public beds. If the Department put a cap of €30 million on what it will collect from insurers for the use of public beds by private patients, how would the companies see that being implemented?
The development of medical services is disjointed in this country. According to the HSE's annual report for 2012, €3.27 billion was paid out from the health budget to voluntary hospitals and agencies. What comes across to me is the amount of duplication in the provision of some medical services and the lack of services in other areas. Do the insurers see themselves as playing a part in solving this? If there are three hospitals in one population centre, would insurers only cover certain procedures in each of these hospitals in order to create more efficiencies?
Regina Doherty (Meath East, Fine Gael)
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I thank all the representatives for attending the committee. I wish to ask two specific questions. The first one is for GloHealth, Aviva and Laya because I already have the information from the VHI. The companies' market share figures are freely available but the claim figures from a percentage market perspective are not available. Are the companies in a position to provide those figures?
Mr. Donal Clancy mentioned that there is an inequitable spread of customer profiles across all the insurance providers. It is a given that the VHI has the vast majority of people in the State who are costing money. What measures have the witnesses taken in the past 12 months to encourage older people to be insured by their companies? How has that worked? What reflections have they made concerning the success or otherwise of those programmes? What are their plans to encourage older people to seek insurance cover with them in future?
Michael McNamara (Clare, Labour)
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From the Aviva presentation, we have seen an acceleration in the number of people who are not taking out heath insurance. Can the panel give some indication of the numbers they expect not to renew policies, given the impact of the budget announcement and the costs arising from paying for public beds?
The witnesses blame Government policies, perhaps rightly, for an increase in health insurance, but what, if anything, are they doing to force down hospital prices? Can they confirm that they are all paying the same amount for the same hospital services, or are different insurers paying varying amounts for the same services?
Jerry Buttimer (Cork South Central, Fine Gael)
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I now call Senator Healy Eames, followed by Deputy Creighton.
Fidelma Healy Eames (Fine Gael)
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Tá fáilte roimh an painéal go léir. I meet many people who have difficulties with increasing health insurance costs. Some of these questions are as much for the Minister as the witnesses present, but I will pose them anyway. A customer may attend a public hospital and declare that they have private health insurance. Some people are now asking themselves, however, what is the benefit of declaring that. Is there anything to prevent them from saying that they are there as a public patient and, if not, what would the impact be? I am not directing those questions at any one witness but I would like the panel to address them.
The key question is how can we keep young people in the health insurance market at this juncture. They are paying private health insurance, PRSI and a health levy, which is essentially treble taxation. What are the companies' proposals to get around this issue? I would like the VHI and GloHealth to address that matter.
10:30 am
Lucinda Creighton (Dublin South East, Independent)
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I thank the delegations for their comprehensive opening remarks. To my mind, every health insurance committee should be trying to recruit young members and convince them of the benefits of holding health insurance. I am not seeing any effort, particularly from VHI, to recruit young people, however.
Jerry Buttimer (Cork South Central, Fine Gael)
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There is interference with the microphone system from a mobile telephone.
Lucinda Creighton (Dublin South East, Independent)
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There is a risk that because of State subvention and community-rating with risk equalisation, there is no incentive to recruit young members. It would seem to be a waiting game for lifelong community rating and, in the case of VHI, waiting for the benefits of risk equalisation. Connected to this serious issue is the matter of how many packages are offered and how complex they are. I know of individuals who have been told by honest people working in the VHI that they have been over-insured for 20 years but there is no redress or compensation from the health insurer.
Lucinda Creighton (Dublin South East, Independent)
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I do not think it is my mobile telephone causing that interference.
This is a serious issue that is frustrating people and needs to be addressed, particularly by VHI.
What are the health insurers doing to encourage healthier lifestyles? For young people, if there were an opportunity to offset expenses such as gym membership, more of them would probably take it up.
What are the health insurers’ views on the future of universal health insurance? We are driving people off private health insurance. How are we going to get them back into it to meet the 2016 target for universal health insurance?
I have several other questions to ask, if I may Chairman.
Jerry Buttimer (Cork South Central, Fine Gael)
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Yes, but the Deputy must remember she is not a member of the committee.
Lucinda Creighton (Dublin South East, Independent)
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How many additional perks and benefits do the insurers’ staff receive-----
Jerry Buttimer (Cork South Central, Fine Gael)
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That is not relevant to the discussion today.
Lucinda Creighton (Dublin South East, Independent)
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It is.
Jerry Buttimer (Cork South Central, Fine Gael)
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It is not. I am not allowing that question.
Lucinda Creighton (Dublin South East, Independent)
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Has Mr. O’Dwyer seen the 2011 Matheson-Goodbody report, which has not yet been published? If so, does he agree with its recommendations? Does he believe it would be helpful for the Oireachtas to see that report, so we can consider the options available for the health insurance industry?
Fidelma Healy Eames (Fine Gael)
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The VHI spoke about having more creative and innovative approaches to the market. It is clear there is a budgetary crisis in the health system and the Minister is looking at various ways of funding it. If the State were to split up or part-sell VHI, what effect would this have on the cost of health insurance?
Jerry Buttimer (Cork South Central, Fine Gael)
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We are dealing with the Health Insurance (Amendment) Bill 2013 rather than the sale of VHI.
Fidelma Healy Eames (Fine Gael)
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I appreciate that but, fundamental to all of this, the reason we have this Bill is because the Minister is increasing costs in the system.
I have an example of a couple in their late 70s.
Jerry Buttimer (Cork South Central, Fine Gael)
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Thank you, Senator. You already had four minutes more than other members.
Fidelma Healy Eames (Fine Gael)
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This is a critical question. I have an example of a couple in their late 70s paying €4,500 for plan C with VHI. If the State were to split up or part-sell VHI, could that couple be served elsewhere in the market and get the same service?
Catherine Byrne (Dublin South Central, Fine Gael)
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I have several questions about health insurance claims not being processed properly. What is the average time it takes for a claim to be processed? Is the health insurance industry examining ways by which it can improve waiting times on processing people’s claims? People are finding it difficult to afford health insurance premia. Despite that, the VHI’s 2012 annual report showed administration costs rose by 11%, as well as a net increase of 91 staff, resulting in a 10% increase in the costs of staff wages. Will the VHI explain the need for an increase in staff at a time when-----
Jerry Buttimer (Cork South Central, Fine Gael)
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In fairness, we are dealing with the Bill rather than specific items from VHI’s annual report.
Catherine Byrne (Dublin South Central, Fine Gael)
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I do not wish to single out any one organisation on this matter. Will the other insurance providers give a picture of their staffing and administration costs? That is very important for me to know as a public representative.
Jerry Buttimer (Cork South Central, Fine Gael)
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It is straying from what we are meant to be discussing.
Catherine Byrne (Dublin South Central, Fine Gael)
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I beg to differ.
Billy Kelleher (Cork North Central, Fianna Fail)
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The Deputy’s point is totally irrelevant.
Jerry Buttimer (Cork South Central, Fine Gael)
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I am chairing the committee, Deputies.
Catherine Byrne (Dublin South Central, Fine Gael)
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I do not often disagree with the Chairman as I believe he is very capable.
Jerry Buttimer (Cork South Central, Fine Gael)
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That is not an issue either today.
Catherine Byrne (Dublin South Central, Fine Gael)
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It is important for me as a public representative to understand why there are such increases.
Mr. John O'Dwyer:
We process claims as quickly as possible with independent quality standards of how this is done. For Deputy Byrne’s understanding, approximately 99% of all claims are paid directly to the provider. In effect, the customer is not caught in the loop. Clearly, we do our utmost to check and validate all claims are correct. Sometimes, this can lead to some delays with providers.
Billy Kelleher (Cork North Central, Fianna Fail)
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I must apologise but I must leave the meeting to attend Leaders' Questions in the Dáil. All of my staff members, however, will be listening into these proceedings, so I would appreciate if all my questions were answered.
Mr. John O'Dwyer:
Our annual report refers to consolidated accounts in 2012. We purchased a company, Home Care, which accounts for two thirds of the additional staff to which the Deputy referred. This is a consultant-led company which provides doctors and nurses to treat people in their homes rather than spend extra time in hospital. Up to 3,000 patients were treated in this way last year which reduces our claims costs and makes our proposition more affordable.
Several members asked about our recommendations on universal health insurance to the Department of Health.
Universal health insurance will be extremely difficult to implement but it is a correct strategy for the Government to have. It will take time but it does not mean we cannot take steps towards it. Perhaps we could look at UHI in some way for children or take the necessary steps by having a standard plan, as alluded to by Mr. Clancy. The VHI has no problem with a standard plan and standard set of benefits in the product and full cover for all the key treatments. Almost 40% of all our pay-out is for heart treatment, cancer and-or orthopaedic treatment. The key for us is that it must be fully supported by a 100% effective risk equalisation because as a country and Legislature, we have decided that community rating is the way we want our health insurance business to be run.
We have talked about whether to split up the VHI but the real issue here is the disproportionate amount of the elderly and sick the VHI has. If we have a community rated market, we need goalkeepers or referees for this thing we call risk equalisation. We need to have that in place to make absolutely sure that we have a fair and competitive health insurance market. The VHI does not have a bottomless pit to pay where we have ineffective competition like this. Distributing the sick and the elderly in a fair way across the market is the real challenge.
10:40 am
Jerry Buttimer (Cork South Central, Fine Gael)
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On that point, do elderly customers shop around or do they stay predominantly with VHI?
Mr. John O'Dwyer:
Elderly customers do shop around but clearly young people shop around more. That happens in all businesses, not just in health insurance.
I will try to cover a couple of questions. Somebody asked about what we are doing to drive down costs. As part of my presentation, I gave some examples. We have moved many procedures from overnight settings to day case or indeed side room settings. Over the past number of years, in excess of 150 of these were moved. We have also significantly reduced lengths of stay. For example, hip replacements a few years ago used to be 14 days in hospital. Now they are seven days. I think hysterectomies were ten days and are now five days. Knee replacements were ten days and are now five days. To do this, we have a team that consistently looks at best practice throughout the world. Other examples in costs include cardiac stents, which was reduced from approximately €1,000 to just over €200 within a new years. One with which we are probably more familiar with is an MRI. A few years ago, an MRI was €600 or €700. The VHI ran a very competitive tendering process and our average price for an MRI including the consultant's fee is now approximately €160. Our information shows that this is the second lowest in Europe. I am not trying to claim in any way that the VHI or the industry is perfect but we consistently make every effort to drive down costs.
Somebody asked what the Minister should do. As insurers, we negotiate with private hospitals separately. Each one of us has its own separate contract and pricing arrangements with private hospitals. I understand that the same applies with consultants. Regarding public hospitals, it is a stated price with no negotiation. As an industry, we would be very pleased to enter negotiations with public hospitals to make sure we get the efficiencies and drive down costs. They are the key points.
Jerry Buttimer (Cork South Central, Fine Gael)
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There is a vote in the Seanad.
Mr. Brian Dunne:
In respect of Senator Colm Burke's question about long-term planning, things that would be useful would be far more consultation with the insurers, far more long-term planning by the Department with the insurers, seeing through commitments that have been made and making sure there are no surprises and things do not arrive without any notice. That has been a feature of the past six months and has not been helpful in respect of a tax change that was not announced and not predicted.
Jerry Buttimer (Cork South Central, Fine Gael)
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That is a budget day announcement. The Minister does not tell me-----
Mr. Brian Dunne:
It is but it has a fundamental impact on this industry. There was much consultation about the public bed charges but that has not been seen through. They are probably the most important things. These are insurance businesses so, therefore, they must be managed on a long-term basis.
In respect of our claims figure, we would have about 18% of the insurance market. We have approximately 15% of the claims so this is broadly in line with our market share. In respect of encouraging older people to join, we have a range of plans that attract a range of different people depending on their individual needs. There is an open enrolment system in the health insurance market. We have a range of products. Our people in our call centres engage in detailed individual conversations.
Jerry Buttimer (Cork South Central, Fine Gael)
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How much of a share of the over-70s and over-80s market would Aviva have?
Mr. Brian Dunne:
This year, we began to engage in individual dialogue with our customers that starts with asking what their needs are, telling them the range of plans that might be suitable for their needs and then talking about the focused plans we have introduced. Effectively, we are asking them what their needs are and what they can afford to do, telling them the range of things that might be available and then introducing the best plan for that person rather than talking about an overly expensive plan where the person might be over-insured. We are proactively doing this and the response has been very positive from our customers.
Mr. Brian Dunne:
In respect of the impact of TRS, we introduced a certain number in our script. It is clear that when the Minister announced it on budget day, he expected that the number of adults that would be impacted by the change was between 40% to 50%. It is clear from our data and pricing that the number for us is 92%. Effectively, the impact is very substantial.
Jerry Buttimer (Cork South Central, Fine Gael)
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That would be Aviva's own people.
Mr. Brian Dunne:
It is 92% of all adults. When one looks at the potential impact, as the Chairman will have seen from his constituents, the potential impact on individual customers with some of the larger plans is effectively a multiple of that. We have said €100 on average but the reality is there are people who are getting bills for much more than that. As Mr. Armstrong noted, we negotiate with private hospitals. I do not know what are the VHI or Laya Healthcare rates for private hospitals but we negotiate and do a normal procurement process. Again, we are getting better at that every year by introducing more checks and controls on that. That is something on which we are very focused because we know the impact of all the changes in the market and, therefore, we are trying to keep costs down. We are doing many other things to keep costs down as well.
Mr. John Armstrong:
Senator Crown is no longer here but he did ask about the drug Ipilimumab. We did quite a detailed process where we work with the National Centre for Pharmacoeconomics to review the effectiveness of any particular new drug. We went through a health technology assessment for that drug to which Senator Crown referred. The advice from the National Centre for Pharmacoeconomics was that it did not meet the cost-effectiveness criteria. We have quite a robust process in place for that.
Mr. Jim Dowdall:
I will try to answer a number of questions at the same time because some of them have consistent themes. I will return to the question asked by Senator Colm Burke about how to implement the cap of €30 million in respect of charges for private beds in public hospitals.
That is simple. The Minister has been provided with the detail through the HIA, which demonstrates what their rates would need to be to collect an additional €30 million. The rates in current legislation will collect between €117 million and €130 million. The easy answer to Senator Burke's question is the Minister needs to use the data provided by HIA and amend the rates. That can be done quickly.
There were a number of questions about how we actively target older people and so on. This was important to GloHealth when we entered the market. There is a great deal of confusion about the proliferation of plans. We have a simple range of plans, which are clear and easy to understand, and they are all priced at the same rate per plan regardless of people's age or health status. However, it is not just about-----
10:50 am
Jerry Buttimer (Cork South Central, Fine Gael)
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Is the company actively targeting elderly people? Mr. Dowdall has provided us with graphs in his presentation but none relates to the profile of its membership. Is GloHealth seeking them out?
Jerry Buttimer (Cork South Central, Fine Gael)
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That is not what I asked. Is GloHealth specifically seeking out elderly people?
Mr. Jim Dowdall:
We are seeking out customers across the age sectors in the market. It is important to understand that when one seeks out older people, one also needs to seek out a critical mass of younger people because that is what the principle of community rating requires. One needs a critical mass of younger people to support one's book of older people. We would welcome a redistribution of the customer base in the market and if there is a significant issue for the VHI regarding its older customers, then GloHealth would be happy to take a redistribution of all VHI's book - older members and younger members who are required to support them.
I refer to Senator Healy Eames's question about the value of potentially splitting the VHI. There is an opportunity to redistribute the issue the VHI is talking about where it has the majority of older people but it also has the majority of younger people.
Jerry Buttimer (Cork South Central, Fine Gael)
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Mr. Dowdall did not mention older people in his presentation.
Jerry Buttimer (Cork South Central, Fine Gael)
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I am curious as to why Mr. Dowdall did not.
Mr. Jim Dowdall:
I am happy to respond now. There is an opportunity to rebalance the health insurance market to split up VHI, which would provide an income stream for the Exchequer and remove the need for the Exchequer to provide a solvency bailout to the company, which could amount to €200 million. By redistributing older people-----
Jerry Buttimer (Cork South Central, Fine Gael)
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Mr. Dowdall does not know that. He cannot justify that.
Fidelma Healy Eames (Fine Gael)
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This is important. We are trying to reduce the cost of health insurance.
Jerry Buttimer (Cork South Central, Fine Gael)
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I will chair the meeting to the best of my ability.
Mr. Jim Dowdall:
If I am not responding correctly to the Chairman's question, I will try again.
There is an opportunity to redistribute VHI customers and have a look at redistributing equal proportions of the company's book. That would create the paradigm shift to which I referred earlier to a competitive market, which is essential to ensuring we have affordable health insurance in the long term.
The issue currently is the health insurance levy, which has increased annually over the past five years, has driven up the cost of health insurance. We need to call a halt to that now. I suggest we strongly look at, as Deputy Creighton said, the report from Goodbodys and find ways to structurally change this market in order that it is viable and sustainable in the long term and there is an opportunity to do that. That will address VHI's issue in terms of having a predominance of older people in the market.
Deputy McNamara asked what we are doing to force costs down. GloHealth negotiates with all the private hospitals on an ongoing basis and we find ways to keep our costs competitive. The one entity we cannot negotiate with is the public health system, for which rates are set unilaterally by the Minister for Health and we have no ability to take those costs down. In many cases, it is more expensive to get some treatments carried out in the public health system than in the private health system. We would welcome the opportunity to negotiate with public hospitals to ensure we have competitive rates. That would make a significant difference in the market.
Deputy Creighton asked how we will get people back into the health insurance market, which is critical for universal health insurance. We have lifetime community rating. VHI referred to the opportunity to introduce discounts for younger people. We need to look urgently at those mechanics and find ways to encourage younger people to enter the market but the critical issue that needs to be addressed is the affordability challenge. If we can find ways to make health insurance affordable, we will encourage people back into the market, which will deliver a huge benefit for the older and sicker people who pay higher prices for their health insurance than they need to.
Mr. Donal Clancy:
I would like to address a few different issues regarding the cost initiatives. Laya Healthcare has been in the vanguard of trying to get market prices correct. For example, we conduct extensive clinical audits and utilisation reviews and, throughout the market, we have instigated discharge policies and scrutinised length of stay. We have zero tolerance of fraud or anything in that range and we carry out prepayment audits. We ask our customers before we pay whether they got the service they were supposed to. We have been doing this for years from our BUPA days and we continue to do so. That is fundamental to our thinking.
With regard to current cost initiatives, I agree with Mr. McLoughlin regarding the tenor of what is happening. We are looking at the settings across the market. For example, is a treatment being done appropriately? Should it be done in the GP's surgery instead of the accident and emergency department or should it be done as an outpatient case instead of a day case or as a day case instead of as an inpatient case? We are again back to malpractice and fraud and what is going on in the market needs to be continuously investigated and examined, as one would have to do with any system. We must also consider admissions procedures and why and when people are admitted and examined, for example, how long people are sitting around on a hospital bed for a procedure, which means we are back to length of stay and everything that goes with that.
We have alluded to high cost drugs. The cost of many of them is too high, although I acknowledge that a great deal of good work has been done in recent times in this regard. However, we want to get to the bottom of this.
We then get into the area of care pathways. We fundamentally believe that much of what we pay for currently should not be paid for on a length of stay basis or at a per diem rate; it should be done by a care pathway. I do not wish to pick on a particular service but, for example, in the psychiatric arena, a patient should be treated in a programme which has a defined care pathway and which gives the patient a reasonable prospect of concluding his or her illness and receiving the episode of care he or she requires. That needs to be an international standard and a recognised way of implementing treatment.
With regard to utilisation reviews, we are in the vanguard going through this with each of the providers in conjunction with them and with their co-operation. We are not alone in doing this. They work constructively with us in the main.
Reference was made to costs and negotiation and what insurers can do but I would like to highlight that we cannot do a blessed thing about up to 40% of our charges other than through utilisation reviews. In the public system, we do not have an option. The rate is set by statute. We would like the option of negotiating these charges.
A member asked about network products. For many elective surgeries, one should be able to pick out who can deliver the right care pathway and service and that should be done in both the public and private health systems in order that the benefit to the consumer is the correct benefit and ideal for their best outcome. That is what network products will provide and the option of going from one hospital to another. It would, therefore, drive further cost initiatives-----
Jerry Buttimer (Cork South Central, Fine Gael)
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Are packages available in the market now?
Jerry Buttimer (Cork South Central, Fine Gael)
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Are some products not worth the paper they are written on? If I enter hospital under plan Z and I do not have full coverage-----
Mr. Donal Clancy:
I started by staying we have an essential care ethos. I want to cross over where we talk about essential care. Laya Healthcare believes that where somebody receives a bill for an orthopaedic hip and he or she has 80% coverage, the remaining 20% is a great deal of money and many people cannot afford it in this day and age. We believe that across the board, one should have a basic set of benefits that provides essential care. That is the ethos by which we operate.
I refer to the issue of the non-advanced products. Whether we like it or not, this is a public product that covers up to 66% of all private care. That leaves a client 34% short, which is a significant amount. The per diem rate in many institutions is between €800 and €900 per day and there is the fixed price of the procedure, which could be anything between €2,000 and €30,000.
Unfortunately, many of them are up at €30,000 for those needing essential care. I do not believe getting 66% of that covered is worth it or it would not cover the individual for much.
Senator Healy Eames mentioned plan C. First, those on plan C are not getting good value. They should come and talk to us.
11:00 am
Jerry Buttimer (Cork South Central, Fine Gael)
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Is this an advertising campaign now?
Jerry Buttimer (Cork South Central, Fine Gael)
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We will not do a marketing campaign here.
Mr. Donal Clancy:
I need to take the opportunity when I am asked.
Deputies Regina Doherty and Creighton asked about attracting new members, etc. In this challenging market we are the second largest health insurer and have increased our membership. I was asked specifically about the over 60s. In the past year among those aged between 60 and 69, we increased by 4,000. Among those aged between 70 and 79 we increased by just over 2,500 and among the over 80s we increased by 400.
I do not know the answer to the question on the claims. I thought they were published figures but I do not have our claims figures with me.
Regina Doherty (Meath East, Fine Gael)
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Can Mr. Clancy get them?
Mr. Donal Clancy:
Yes, I have no problem with working with those.
Deputy Catherine Byrne asked about the timing of claims payment. On the private side, our average is 37 days, which includes more than 30 days for the hospital to get the claim into us. I am talking about the lag times to get to the point where we pay. On the public side, it has come down and is now just in excess of 90 days.
Jerry Buttimer (Cork South Central, Fine Gael)
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90 days?
Mr. Donal Clancy:
Yes. In an effort to make that efficient, collaboratively we got together and tried to introduce electronic claims. We spent a considerable amount of money in an effort to get electronic claims going. Laya Healthcare alone spent more than €1 million trying to get the public system in particular and also some of the private ones to co-operate so that they would submit their claims electronically and get them paid faster. At this point I believe we have one private and non-acute facility operating that. I might stand corrected on that - there might be two non-acute hospitals. However, none of the main tertiary hospitals or the main private hospitals is operating that as we speak.
Jerry Buttimer (Cork South Central, Fine Gael)
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Why is that the case?
Mr. Donal Clancy:
They have many different systems and they have not spent the effort modifying the systems to submit electronic claims. There is not the incentive or will to do it right now. There should be; commercially, it does not make sense based on those figures.
I am trying to be frank in how I answer the queries. I believe we have challenges in the market. There is a version of lifetime community rating that would make sense. We need to incentivise those young and healthy people to stay in the market. It goes back to having a community as broad as possible to pay for those in that community when they get sick. I have a serious issue with those who join late. Some people join late having not paid into the fund for 40 years. Once they know that they are going to get sick and can afford it, they then join.
Mr. John O'Dwyer:
I wanted to correct any misunderstanding here. Further to what Mr. Dowdall said, after 17 years of competition in the marketplace there is little or no competition for groups with the old and the sick. We all know with multinationals it is a very competitive market every year among all insurers. I could outline 30 or 40 group schemes where they are all older. We do not have one ounce of competition in any of these particular group schemes.
I am really encouraged that everybody here seems to be willing to say they would like a fair share of the older customers. I ask for the regulators to think of ways for that to be done.
I want to correct the point about money and solvency. VHI in the solvency calculations is far in excess of the minimum solvency requirements. It is our intention not to ask the taxpayer for any money. It is our intention over the next year for us to fund and find our own capital.
Michael McNamara (Clare, Labour)
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All the insurers mentioned that there is no negotiation about the public beds - it is at a set rate. How does that compare with other European countries such as the UK and France? Is privately insured patients being treated in public facilities a uniquely Irish phenomenon?
Colm Burke (Fine Gael)
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I apologise for having to leave for a vote in the Seanad. I am not sure if my question on the reconfiguration of hospitals was dealt with. In one urban centre many hospitals may be providing the same service and yet other services are not being provided. Can the insurance industry play a part in that?
Lucinda Creighton (Dublin South East, Independent)
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I am pleased to hear Mr. O'Dwyer say there is no intention to seek a capital injection. It is the stated intention of the Government to provide €150 million. How much of the revenue that will be generated by the stamp duty levy will be used to contribute to plugging that hole?
Mr. John O'Dwyer:
The levy is a transfer of money - circular movement - around the industry. If all the competitors had an equal share of the elderly people consistent with their market share and the sick people, the levies and the credits would match each other. That is how it works. As members are aware, we are looking to enter long-term insurance arrangements, perhaps subordinated debt. That is how we will fund it.
Mr. John Armstrong:
We have historically quite a different mix of public and private delivery of health care from many other countries. However, most countries, particularly in the context of UHI, have moved to competitive contracting as a cornerstone of markets. There is competitive contracting around providers allowing negotiation with individual providers. If we are moving towards a UHI world, we certainly need to have a competitive market within the provider side. Provider contracting and the ability to negotiate separately with public hospitals would be a key part of that.
Lucinda Creighton (Dublin South East, Independent)
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I thought VHI did not need the money.
Mr. Jim Joyce:
Only a few questions were directed to the Health Insurance Authority. Deputy Kelleher asked about the process by which we give advice and how it is considered. I believe it was briefly covered in Mr. Sloyan's presentation. In this area we normally submit a report in October which covers the experience with the market, the changes since the levies and so on were previously determined, and recommendations for the future. In addition, we give a large number of possible alternatives which could be implemented and which we cost.
The Deputy asked about what recommendations we made in our recent report and how they matched what had been proposed in the legislation. Regarding how the authority's advice is taken, this system of levies and what were originally tax reliefs and now risk-equalisation credits was designed by the Health Insurance Authority and was implemented by the Government on our advice. The latest report was made in October. It has been the practice of the Minister to publish the report with some redactions. I expect that will also happen this year.
On recommendations, the structure and financial effects of what is proposed is effectively the same as what we recommended.
There are a few minor variations and one fairly significant variation, the latter being that we proposed a somewhat higher equalisation levy for advance contracts and a somewhat lower equalisation levy for non-advance contracts. One can take various different views on this and the financial effect of the changes compared with what we proposed is negligible. As such, we are quite happy with the current proposal as representing a good development of the risk equalisation system as a whole in the direction in which we would see it going.
Deputy Creighton mentioned the large number of policies on offer. We agree this can be a problem because customers find it very confusing. It is difficult enough to make straightforward comparisons where there are only a few products; it is even more daunting when there are hundreds from which to choose. We have taken steps to minimise the effect of this, such as the requirement to give notice of a certain period before a new product can be introduced, whereas previously it could be done off the bat. In addition, we have tried to combat the practice that was prevalent some years ago of products being introduced for only one day, two days or a week. Now, any such products must be available for a specified period to enable the population as a whole to avail of them. More needs to be done in this regard and it is an area on which we intend to direct our attention.
Mr. Dowdall remarked that the levy has been driving up the cost of health insurance. That is totally incorrect. It may have driven up the cost for some people, but it brought down the cost for others. Overall, it is increasing the effectiveness of the risk equalisation system. If we want to support community rating, we must favour that.
11:10 am
Jerry Buttimer (Cork South Central, Fine Gael)
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In the context of the report that was mentioned and the figure of €30 million to which all the speakers referred, will Mr. Sloyan confirm that the figures cited in regard to the impact on public beds were given by the Health Insurance Authority in respect of 2012? Will he also indicate whether trends regarding the use of public beds were factored into the report?
Mr. Liam Sloyan:
This is an important point to clarify. I am not sure what method Deloitte used but what we did was examine the impact of the proposals based on 2012 data. We did not look at any trends. In other words, we did not say what the impact would be in 2014 but rather what it would have been in 2012. That was the basis on which we made our report to the Minister. I understand the insurers have not seen that report.
Jerry Buttimer (Cork South Central, Fine Gael)
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The €30 million figure is the only point on which we have had uniformity from the insurers this morning. Will that figure will be reviewed in terms of looking beyond 2012 to the future?
Jerry Buttimer (Cork South Central, Fine Gael)
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Thank you, Mr. Sloyan.
Regina Doherty (Meath East, Fine Gael)
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Given that the HIA based its report on actual usage in 2012 without taking account of trends, and given that everybody who has presented here this morning has said the number of private bed stays is actually decreasing, how was the figure of €115 million arrived at?
Regina Doherty (Meath East, Fine Gael)
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I understand that. The HIA came up with a figure of €30 million.
Regina Doherty (Meath East, Fine Gael)
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Sorry, €130 million.
Colm Burke (Fine Gael)
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I referred to the duplication of services in some areas, which results in a higher cost. In the area of cancer care, for example, a major programme of reform has led to the establishment of eight centres of excellence for the provision of services. I am concerned that significant sums of money are going out to the voluntary sector where, in some instances, there is a duplication of services and, in other areas, a dearth of services.
Mr. Donal Clancy:
I referred earlier to our network products whereby we provide coverage through a network of hospitals to ensure patients get the essential care they need but not necessarily in all hospitals. In the case of orthopaedics, for instance, a customer would not be covered in all three hospitals to which he or she might expect to present but in the hospital that offers the best possible outcome - it is the centre of excellence model - for that particular condition.
Jerry Buttimer (Cork South Central, Fine Gael)
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I thank all the witnesses for their contributions to this very positive discussion. We are all agreed that we need to reduce the cost of health insurance to the consumer. The witnesses all come from their own particular vantage point, but for us it is all about the consumer. One of the themes that emerged related to the work being done by Pat McLaughlin. We have had many good ideas and suggestions this morning. I hope all the witnesses, in conjunction with the committee, the Department and the HIA, will work to ensure we have a market that is stable and which incentivises people to avail of health insurance.
Jerry Buttimer (Cork South Central, Fine Gael)
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I was going by the figures in the witnesses' presentation.
Jerry Buttimer (Cork South Central, Fine Gael)
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I am not the Minister and cannot, therefore, enlighten Mr. Clancy on that point.
Jerry Buttimer (Cork South Central, Fine Gael)
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Unfortunately, I do not. I hope we can all work together to ensure prices come down for consumers. I remind members that the select sub-committee will meet next Tuesday, 3 December at 5.15 p.m. to consider the Bill.