Mary Harney (Dublin Mid West, Progressive Democrats)

I move:

That Dáil Éireann approves the following scheme in draft:

Risk Equalisation (Amendment) Scheme, 2005,

copies of which have been laid in draft form before Dáil Éireann on 15 June 2005.

The purpose of the three sets of regulations is to bring greater clarity to the reporting arrangement required by the health authority regarding insurers. We discussed these matters at last week's committee and most members were in support. One of the regulations is consequential on my extension of insurance cover to persons over 65 years. Up until now insurers in the Irish market were not required to take on people over that age. This cover is subject to a period of two years, or 104 weeks, during which the person will not be able to claim cover except for an accident or something which is inflicted upon them, as opposed to something which might happen by virtue of their age or medical condition. This extension is to be welcomed. As a result of that, the regulation regarding minimum cover is necessary and the first regulation relates to greater clarity.

The purpose of this morning's short debate is to deal with my decision regarding risk equalisation. Community rating, to which the Government is very strongly committed, is maintained under the Health Insurance Acts. I am a fan of community rating, which effectively means that, regardless of age or medical condition, people pay the same amount for the same policies. This has made insurance much more affordable to a large cross-section of the Irish community. Just less than 2 million people in this country have private health insurance.

VHI has 80% of the private health insurance market, BUPA has between 19% and 20%; and VIVAS Health, the new entrant, has approximately 1%. The Minister for Health and Children is required to introduce risk equalisation. In fact, there is no option. The market equalisation percentage, MEP, must reach 10%, and one cannot introduce risk equalisation if the figure is below 2%. The MEP is the difference between what a particular insurer pays for people in different age categories and what the overall insurance market would pay if it had the same percentage of people in different age categories from the total number of people insured.

When the Health Insurance Authority, HIA, reported on two previous occasions the MEP was 3.7% in the first instance and the authority recommended not to trigger risk equalisation. On the second occasion it was 3.5% and again the HIA recommended not to trigger risk equalisation. It was 4.7% on this occasion and the authority recommended that risk equalisation be introduced. However, in its report, the HIA stated that 0.7% of the 4.7% could be accounted for by one-off factors. BUPA does not have many customers who are over 80 years, but the average pay-out for people over that age is €300,000 which the HIA considered to be an unusually high figure. Therefore it might have been a one-off and not representative of the sort of pay-out for people in that category. It could have distorted the figure by 0.7%. This is relevant in respect of court proceedings.

VIVAS Health, a new company to the market, is required to put 50% of its premium income aside for reserves. VHI has no such requirement; it has a derogation, is protected and does not need to meet that market condition. A case is being brought before the Irish courts by BUPA and another case is being brought to the European Court regarding that derogation. Other competitors in the market must meet a reserve requirement which is not required of the VHI. This is an unsatisfactory and untenable situation.

I want to bring a memorandum to the Government in September with a view to moving towards full commercialisation of VHI. It will take some years before companies do not have such reserve requirements and are able to meet the requirements of the Irish Financial Services Regulatory Authority which currently requires a reserve of 50%. This is particularly high when compared to the UK, where it is 20%, and Northern Ireland. We should have, at European level, a common figure for health insurers in terms of the reserve requirement. This factor clearly affects competition in the market, in particular that brought to bear by the new entrant.

I remain a strong fan of risk equalisation and we cannot have community rating without it. It is not a question of whether we will do it but rather when.

I am required by law, when I get a recommendation, to consult all the players in the market. In this instance, the players were VIVAS Health, VHI, BUPA and the ESB, who are part of the risk equalisation scheme. The Garda and prison officers' scheme decided to opt out of risk equalisation when it was introduced. I am required to write a letter in a certain form, which might have led to the impression that I had made up my mind to do it. I am required before making my decision, notwithstanding the recommendation of the HIA, to consider all submissions made to me, which I did. I read them over the weekend and was particularly taken with some of the comments made by VIVAS Health.

With regard to BUPA, if I was to be influenced by a lobby then the largest lobby is that with 1.5 million and not with 400,000. I am a member of VHI and would have had a particular interest. If a lobby was to affect my decision, it would have been the biggest and not the smallest lobby that did so. I was very much influenced by the comments made in the submissions.

BUPA benefits from risk equalisation in Australia, which has 26 insurers for 8 million people. Ireland has 4 million people and 3 insurers. Until we have more insurers and better competition, we will not get the desired rates and innovation. The reality in many markets is that if there are only two players, they tend to track each other.

VHI has some 150,000 more customers than it had before BUPA came into the market. More and more people are getting private health insurance and many joining today might not have considered it in the past but it is now part of their employment package. This is a welcome development because it extends private health insurance to a new category of customer.

The Minister is required to take advice and a number of years ago the Department of Health and Children appointed Mercer, a leading international actuary firm. The advice is always balanced, and there are very strong reasons to do it and also not to do it. Mercer advised me, on balance, not to do it and I am prepared to make its advice available. I also had the advice of the HIA and my own advisors. This is a close call and could go either way. However, we have not even achieved half the rate in terms of the MEP required to make it mandatory to introduce risk equalisation. The Minister has no option when the MEP reaches 10%. We are only at 4.7%, 0.7% of which might be one-off factors.

These are the reasons behind my decision and people should not say there is no link with commercialisation of VHI. Risk equalisation is important to maintain competition and community rating. It is also necessary for all players to have the same reserve requirement. Otherwise the market is distorted. It is clearly unfair if one company must put aside 50% of its premium income into a reserve fund each year and the dominant market player is not required to do so. That is why there is a link with it being necessary for VHI to move towards commercialisation.

VHI has a travel insurance product which is only available to its own members. One cannot join that scheme if one is not a VHI private health insurance subscriber. This is a huge advantage for the 1.5 million people who are able to avail of the product which is not available to its competitors. VHI requires the Minister's approval to go into new areas of business. I want it to have commercial autonomy so it can make whatever decisions it wishes. I want a healthy, vibrant health insurance market in Ireland and we can have it. However, we need more players.

Once triggered, it is impossible to turn back the clock on risk equalisation. If I trigger it, VIVAS Health will have to come into risk equalisation in three years' time, as would any new entrant to the market. They have three free years. Therefore, we must ensure we are getting it right before triggering something that we know will have a major impact on the market. The HIA said in its report that if I did not trigger risk equalisation, that would not have a major adverse effect on the market. If it was not going to cause instability in the market, clearly I would have done it.

VHI made more profit last year — over €77 million — than it did when it operated in the market on its own. That is a fact. We have a healthy insurance market and I want to maintain that. On this occasion I decided not to trigger risk equalisation. However, that does not mean it might not be done in six months or a year from now. The HIA is required to report to me in six months. There is also a case before the courts where some of these issues will be dealt with and that was clear from our discussions last week. The court has stated the Minister for Health and Children could fulfil her obligations but no payment could be made until it determines the outcome of the case. Therefore, even if I had made a determination to trigger risk equalisation, no money could have transferred from BUPA to VHI and the ESB until such time as the High Court had made a determination on the proceedings before it.

See this speech in context