Dan Neville (Limerick West, Fine Gael)

I wish to share my time with Deputy Mitchell.

On behalf of Fine Gael, I welcome the opportunity to discuss the Bill and its implications for VHI and the health insurance market. Fine Gael realises the importance of market driven consumer focused competition in the private health insurance market. While the health insurance market has been open to competition since 1994, there are only three players and the cost of health insurance has risen exponentially. Despite the cost associated with private health insurance, 62% of the population have signed up for cover. This may reflect the reality that people have lost faith in the public health service, a matter that will be debated at length later this evening during the discussion of the Labour Party Private Members' motion of no confidence in the Minister for Health and Children.

There is a crisis in services for the diagnosis of breast cancer; there is MRSA, waiting lists and many more issues which have caused the public to lose faith in the health service. VHI celebrates its 50th anniversary this year with a share of 75% of the health insurance market, approximately 1.6 million members and a profit in excess of €70 million.

Recent years have seen substantial changes for VHI with it widening its business to include other commercial activities such as travel insurance, Swiftcare clinics and dental clinics. Now it has the possibility to move into other insurance sectors such as pensions and financial services. While the Minister claims to be an advocate of fair competition she has allowed VHI to engage in these wider activities for some time while simultaneously enjoying the derogation from solvency granted to it under the first non-life directive of 1972.

It was not until a former Government Minister, EU Commissioner, Charlie McCreevy, blew the whistle on the preferential and advantageous treatment the Government has allowed VHI that it took steps to make this a fairer health insurance market. The Government was left with no choice but to address the unfair advantage afforded to VHI.

In the past ten years this Government should have enhanced, assisted and encouraged competition within the health insurance market. Instead VHI has been facilitated in maintaining its dominant position and has continued to operate as market leader. The consequence of this is that there are only three providers in the market and the customer has seen the cost of health insurance subscriptions rocket. This Bill allows the Minister for Health and Children, Deputy Harney, the opportunity to address the anti-competitive anomalies which VHI has enjoyed for some time. I hope these changes will see a fairer health insurance market which will encourage and facilitate the entry of new players resulting in a better outcome for the consumer.

Under the terms of the Bill VHI continues, to some extent, to report to the Minister. The current position of conflict, whereby the Minister acts as regulator of health insurance through the Health Insurance Authority, owner of the largest health insurer in the country and supplier of the largest part of health insurance products through public hospital facilities, is not resolved. A number of the current problems in the market are directly traceable to this relationship with the Minister and it seems that this favourable relationship will continue until the end of 2008 when VHI becomes authorised by the Financial Regulator.

The Government published the VHI Bill in May 2007 and it is supposed to be a stepping stone towards achieving, facilitating and strengthening competition in the health insurance market. While I fully support competition in the market I do not believe the current context of this Bill will achieve it. The Bill aims to regulate existing commercial activities while giving VHI further commercial freedoms in the future. While the Bill requires VHI's future commercial activities to become subject to regulation by the end of 2008, it allows existing commercial activities outside its core health insurance business, such as travel insurance, Swiftcare clinics and dental clinics to continue unregulated until that time.

This exemption has allowed VHI to have a significant competitive advantage over other health insurance providers and has strengthened its position, while making it more difficult for new entrants to penetrate the market. In the interests of a fair, equitable and competitive health insurance market it is vital that VHI be required to achieve solvency levels for its core business, in addition to existing and future wider activities.

This Bill also raises questions about the level of reserve VHI must meet. I understand the Financial Regulator has set the solvency reserve at 40%, but the EU average is just 25%. Can the Minister confirm whether the Financial Regulator is considering amending the level of solvency health insurers are expected to reach? If so, are the Department of Health and Children and the health insurers involved in this process? If VHI is expected to reach a solvency level of 40% of its premium income by the end of 2008 it will have to raise €140 million by the end of next year. VHI already has a reserve of 28% which could be applied without any financial impact on customers. If VHI is expected to raise this amount, does the Minister agree it is likely the cost will be passed on to the costumer, who as already seen VHI premiums raise exponentially in recent years? VHI customers have seen subscription rates rise by 25% in the past two years. Perhaps the House should examine this issue with a view to benchmarking the health insurance level of reserve to that of other EU countries, which require a reserve of 25%.

The Bill proposes that VHI be permitted to borrow moneys in order to finance its solvency. Under the third non-life directive insurance companies are permitted to borrow funds for the purpose of meeting solvency requirements, subject to highly restrictive conditions on the extent and terms of such borrowings. It does not appear that these conditions will apply to VHI and this will lower the cost of capital for VHI giving it a further competitive advantage over its insurance rivals. Perhaps the Minister could clarify whether these preferential conditions will apply to VHI.

The new Bill allows VHI to have subsidiaries but it is not clear how these will interact with the VHI. Under normal insurance regulation in Ireland insurance undertakings are not permitted to have subsidiaries as they may have a financial impact on the parent company. A group structure of companies is generally formed whereby a parent holding company would have a number of subsidiaries, one of which would be the insurance undertaking. This parent holding company would need to be approved by the Financial Regulator as would each subsidiary that is formed. Under the current legislation it is not clear what the relationship is between the subsidiaries and VHI. If these subsidiaries face financial difficulties does the Minister expect that they will be capitalised by VHI or will they have the capability to borrow money in their own right?

The Bill does not indicate whether these subsidiaries will be for-profit companies or if they will only be required to break even. Will these companies return any profits they make to the Government or will they be used to subsidise the core health insurance business to help maintain premiums at a lower level?

VHI will potentially receive substantial risk equalisation payments. How will this money flow throughout the business and will it be used to finance subsidiary businesses? If these subsidiaries are not profitable, particularly in the initial years, will money be transferred directly from the VHI health insurance business to assist them? I am sure the Minster will agree it is important that VHI and associate subsidiary companies do not have any further competitive advantages and that every effort is made to ensure that health insurers operate and compete on a level playing field.

The Bill does not specify whether subsidiary companies will be permitted to cross-sell and tie their products to health insurance products. Customers who wish to retain VHI travel insurance are not currently allowed to change health insurance provider. The Competition Authority, the Health Insurance Authority and the Barrington report have recommended that VHI cease its policy of cancelling members' travel insurance policies should they choose to switch health insurance provider but to date VHI has refused to implement this change. Why would VHI jeopardise its 35% share of the travel insurance market if it did not have to?

In the interest of consumer-focused and market-driven competition, it is crucial that the relationship between VHI and subsidiaries is clear and that anti-competitive anomalies are removed. To allow VHI to expand its commercial business could potentially tie in customers, which would only serve to strengthen the company's dominant position and distort competition. This provision should be the same for all insurance companies that provide alternative services. Does the Minster intend to address this anomaly through the legislation?

To date, six co-location facilities have been approved by the HSE, with a further two locations awaiting approval. This is intended to introduce 1,000 new private beds into the system. Under the Minister's co-location plan, the main source of revenue of the new hospitals will be health insurance premia. Considering that VHI holds 75% of the health insurance market, a contract with VHI will be of critical importance to the co-located hospitals. Without coverage from VHI, it is unlikely that a co-located hospital could operate in the market.

VHI's publicly stated policy is that there is no need for any further private beds. Its annual report states:

The single biggest challenge facing private health care in Ireland is the unprecedented increase in private hospital capacity which has been encouraged by generous tax relief for such investment. VHI Healthcare has questioned the wisdom of such tax incentives particularly since there does not appear to be any significant demand from the public sector to use these new facilities. The cost of financing the new capacity will place huge pressure on our objective to provide our members with quality health care at affordable prices.

This new (private hospital) capacity far exceeds what is required on the private side and there is no evidence of any significant transfer of public demand into these facilities. VHI has consistently argued against this tax relief scheme.

It is likely that insurance rates set out for assessment of co-location hospitals will be far in excess of the current rates paid. The new rates will undoubtedly drive the cost of health insurance upward, thus making it unaffordable. The small number of competitors in the health insurance market and the dominance of VHI make the operators of the new co-location hospitals dependent on the company. No co-located hospital could survive without coverage from VHI and the level of its profitability will be dependent on the level of cover VHI will supply to it.

If there were more health insurers and a more evenly distributed market, this dependence on VHI would diminish and competition would be encouraged. This would lead to lower premia, less dependence on one player, greater bargaining power for customers and enhanced stability within the market. To date, however, fair competition has not been facilitated in this market. It is essential that the changes in the Bill support, encourage and facilitate fair competition. Perhaps the Minister of State will outline the Minister's plans for the future of VHI. Does she intend to break up the company or bring forward legislation to reduce its market share?

Why is psychotherapy, which is now recognised as of great importance in the treatment of mental illness, not covered by VHI? Everybody accepts it is absolutely necessary that there be an increase in psychotherapy services to facilitate a multidisciplinary delivery of mental health treatment. The Irish College of Psychiatrists is strongly supportive of such an approach. Why are patients limited to six months' treatment in a psychiatric hospital but there is no limit for general hospital patients? VHI is discriminating against patients with psychiatric illnesses.

A report last week from the Health Information and Quality Authority, HIQA, outlined conditions in hospitals throughout the State. Why were psychiatric hospitals not assessed as part of this review? When I raised this issue with the Minister in last week's meeting of the Joint Committee on Health and Children, she responded that psychiatric hospitals are not under the remit of the HSE. That is no excuse. HIQA itself is not under the umbrella of the HSE and there is no reason that it should not examine psychiatric hospitals simply because they come under the remit of the Mental Health Commission.

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