Terence Flanagan (Dublin North East, Fine Gael)

I welcome the opportunity to contribute to this debate.

I find it extraordinary that VHI, the market leader in the health insurance market, is an unauthorised insurer. I accept that the Bill before the House seeks to address this issue.

Approximately half of the people have private health insurance, mainly to cover hospital care. Such care is a right that should be delivered to all patients free of charge. That 50% of the population feels the need to pay for private health insurance constitutes a vote of no confidence in the way the public health service is run by the Government.

Members should be aware that they are considering the privatisation of VHI in the context of this Bill — the legislation will lead to the eventual privatisation of the company. After privatisation has taken place, premiums will increase according to market conditions or in line with what VHI wishes to charge its customers.

The former Minister for Health and Children, Deputy Martin, decided in 2001, a year before a general election, not to allow VHI to increase its premiums. Two price increases took place after the 2002 general election, however, which indicates to me that there may be some merit in removing political interference from VHI.

Members should consider some of the problems associated with VHI. Nobody who attends hospital and pays VHI premiums has any idea what he or she pays for, as customers do not receive itemised bills. We do not know what we are paying for as customers of VHI, Quinn Healthcare or VIVAS Health. If the Minister wishes to ensure consumers are not abused as a consequence of the monopoly position of the providers in this market, we must ensure patients are charged in a transparent manner. Therefore, we must consider the possibility of itemised hospital bills.

While I favour competition — much of what the Minister is doing in the Bill will probably prove good in the long term — nothing beneficial will arise from this legislation if we continue to allow VHI to charge its customers in a secretive manner. We need to change the way hospitals and VHI work together if we are to help those patients who are customers of VHI. The Minister is not assisting patients in that respect.

There is no need for large reserves to be held by an insurance company which deals exclusively with health. It is not in the same position as a company dealing with life assurance or accident insurance. There is no possibility of a major calamity that would require a health insurance company to use such large reserves. There is no need for such a large reserve.

I welcome VHI's heavy involvement in the SwiftCare clinics which have been successful. I do not doubt that VHI will get involved in other aspects of health care provision. Therefore, the Minister is privatising and compromising services such as general practice, emergency care and pharmacy care. There has been no clear debate in the House on whether people want to follow this model. It failed when it was followed in Australia a number of years ago — the service to patients became worse, the cost to consumers increased and it did not work out as expected. The quality of care got worse.

We should have a proper debate in the House before we allow a vast company like VHI which will have a significant monopoly in the market to privatise many aspects of health care, apart from private health insurance. The Minister should consider stopping or limiting the process or ensuring greater transparency. The mere privatisation of VHI will create an unholy mess for consumers if we are not careful and do not look at other aspects of this issue.

Fine Gael values VHI and the service it has provided. It established VHI on 1 October 1957 to deliver that service. I appreciate that this amending Bill has been introduced partially in response to a threat of legal action issued by the EU Internal Market and Services Commissioner, Mr. Charlie McCreevy.

It is important to note that many players in this field have become concerned about the lack of policy discussion on the future of the health insurance market. The State has invested significantly in VHI, not only in terms of tax forgone by means of tax reliefs but also in terms of a mechanism about which the Minister has spoken at length — the subsidisation of private care in public hospitals. All citizens who pay VHI subscriptions are grateful for those tax reliefs. While the Minister for Health and Children remains the biggest shareholder, important questions arise for citizens in any discussion of VHI's future. In many ways, the citizens' primary relationship to VHI has pertained to the cost of premiums which for any family constitutes a major expense in the course of a year. What exactly are citizens buying? Most believed that through membership of VHI they were buying fast access to health care, as well as a choice of consultant but which we know is not the case.

This amending Bill will provide retrospective cover for VHI for actions in which it engaged that may have been outside its perceived function. These include the SwiftCare clinics and the provision of travel insurance, to give two examples. The explanatory and financial memorandum to the Bill states its object is to oblige VHI's board to attain the level of reserves necessary to achieve authorisation as an insurer and to provide it with a structure that gives commercial freedom on pricing to the company. It is evident that this is essential. I presume this will give more freedom to VHI to involve itself in other activities outside those in which it has traditionally engaged. Does the Minister believe it should engage in such activities?

For example, the Bill allows for VHI to establish a subsidiary company to provide pensions. This constitutes a major change to its role. What would be the State's liability in this regard? Would such companies be completely separate? For example, if such a company encountered difficulties in the provision of pension or financial services, would there be an ongoing liability for the State? Is such commercial freedom not undermined by VHI's ongoing obligation to continue to do the Minister's bidding? The Minister should clarify this issue. It may be that such companies will be completely separate. The Bill is unclear in this regard. Members are being asked to make a very important decision regarding VHI's future. Answers to my questions would be helpful.

The proposals in the Bill will give additional flexibility to VHI, which is to be welcomed. However, I am concerned about the 50% increase in VHI premia in the past five years, which is not fair to consumers. We must ensure insurance companies cannot cherry-pick members. A facility must be established to ensure risk equalisation payments are made. We must ensure every citizen will have access to health care and, if he or she so wishes, private health insurance at reasonable cost. To this end, the Minister must do everything possible to encourage competition.

We have had evidence of privatisation working in some sectors but not in others. Our role must be to ensure genuine competition and consumer choice. We must also encourage other companies to enter the health insurance market. It is interesting that consumers have a wide choice of insurers in the field of general insurance, whether vehicle, home or property insurance, whereas the number of health insurance companies is very limited. Our political ambition must be to ensure a range of health insurance providers is available to consumers.

With regard to the provision in section 3 removing the requirement that VHI obtain ministerial consent for increases in premia, while I accept the Minister's point that the VHI board is probably best placed to make the final decision on increasing premia, the provision is akin to washing one's hands of the political responsibility for price increases. Given that VHI is still a State company for which the Government is ultimately responsible, repealing this provision sends the wrong signal. Either the Government is in charge of VHI or it is not and price increases, charges and levies go to the core of its responsibilities in this area.

I welcome the legislation as it helps to rebalance the position in favour of smaller companies. This is a positive development because more competition is needed in the health insurance market, an issue which the House will debate again.

The Bill raises questions about the level of reserve VHI must meet. I understand the Financial Regulator has set the solvency reserve at40%, 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 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, will this have an impact on the cost of health insurance premiums? VHI customers have already seen subscription rates rise by 25% in the past two years, which is ridiculous. I suggest the House should re-examine this issue with a view to benchmarking the health insurance level of reserve against the requirement in other EU countries which require a reserve of 25%.

The Bill allows VHI to have subsidiary companies but it is not clear how these will interact with VHI. The Bill does not indicate whether these subsidiary companies will be for-profit companies or if they will only be required to break even. Will they have to make a return to Government on any profits they make or will the profits be used to subsidise the core health insurance business to help maintain premiums at a lower level? Should they face financial difficulties, does the Minister expect they will be capitalised by VHI or will they have the capability to borrow money in their own right? If they are not profitable, particularly in the initial years following establishment, will money be transferred directly from the VHI health insurance business to assist them? It is important that VHI and associate subsidiary companies operate and compete on a level playing field.

I would be grateful if the Minister of State answered those questions.

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