James Reilly (Dublin North, Fine Gael)

It is unusual to get such pregnant silences here.

As far as I understand it, the purpose of this Bill is to meet requirements coming from Europe to regulate the VHI to allow it engage in the activities it has been involved with before this, and SwiftCare and travel insurance in particular. There are many issues and concerns surrounding this.

It is quite clear we need competition in the insurance market because it brings the best service to people. Any doubt can be dealt with through the following example. The VHI has been controlling demand by limiting supply, meaning it has made it extremely difficult for people in the past to access various private facilities, particularly MRIs, CT scans etc. The advent of VIVAS into the market changed this, as they allowed direct referral from the GP. Before this, the patient had to be referred to a consultant to get an MRI, although the patient would have known the scan was needed following examination by the GP in the first place.

This was bunging up the system but BUPA followed the lead of VIVAS, and then the VHI followed suit. This freed up much of the consultants' time. For example, in the case of a knee injury it may be determined that there is no requirement for surgical intervention or MRI and the person can get on with treatment in the community through physiotherapy etc. That is one example.

If there is true competition in the market, where are the competitors? There is a small company called VIVAS and the company formerly known as BUPA. Where are the other big insurers we would expect to find in such a market, such as AXA, Friends First and Hibernian? They are involved in many other types of insurance. It is not a very competitive market, meaning it is not attractive.

The Bill addresses European issues but confers many additional powers on the VHI to get involved in financial affairs, fiscal packages, pensions etc. The net effect of what is happening is twofold. As a result of solvency rules from which the VHI has received a derogation, it does not have to keep the same funds in place as its competitors, such as VIVAS, Quinn Healthcare or anybody else coming into the market. There is no doubt that is a net financial advantage.

Current regulations in this country have a 40% figure with regard to solvency but the regulations in Europe have a 25% figure. Is it part of the Minister's plan that when she determines solvency, the rules will change retrospectively so the VHI could suddenly become solvent under the new regime? The 25% figure would relate to VHI but the Minister has hamstrung the new competitors in the market with the 40% level, despite them only being at a start-up stage.

Another issue is allowing the VHI enter other areas of activity. The VHI currently controls a large section of the travel insurance market. If people change their VHI health insurance, they automatically lose their VHI travel insurance, which is an anti-competitive practice. What parts of the Bill would protect people from such action?

In the past number of years we introduced legislation to stop banks from behaving in such a way and make it easier for a person to move bank accounts. I am sure the Minister will acknowledge this issue in the current Bill and take care to address it, as we are going backwards instead of forwards.

The VHI has 76% of its market but the big issue for many in the country has been risk equalisation or community rating. That functions to protect older people from rising premiums, particularly those who have historically been members of the VHI. They paid their share when young in keeping the premiums of the elderly down and they should not be discommoded.

The problem is the rate risk equalisation is set at. It was at 25% and the Minister has proposed to drop it to 20%. No other country has a rate of 20% and Australia, for example, has a rate of 3% or 4%. Leaving the matter aside, the VHI holds 76% of the market and is by far the dominant player, making profits of €70 million last year. Why does the company now need risk equalisation? An argument can be made that as its profits fall because of the growing age of the population then risk equalisation should come in. As its share of the market falls to the 40% level where it should be going, as the ESB has been instructed to do, risk equalisation should then arise. The two should meet half way rather than requiring those entering the market — many are choosing not to enter the market — being asked to pay up-front when the VHI has no issue with profitability at the moment.

The risk equalisation issue goes further than that. One company alone is due to pay €16 million to the VHI. What will that €16 million be used for? I would like to see it ring-fenced for health insurance. However, having spoken to accountants and others, I have ascertained that is virtually impossible because with all sorts of management fees, accounting activity etc. it could be used for anything. Will it use the €16 million from risk equalisation to compete in the primary care sector through VHI Swiftcare clinics or to promote its pensions or travel insurance? It is grossly unfair to everybody else in the marketplace. The VHI should be solvent before it is given any further powers or any greater level of activity.

A normal insurance market has little litigation. There is not that much activity between lawyers either here or in Europe. However, the amount of litigation going on here and in Europe involving BUPA, VIVAS and the VHI is staggering because the market is not level and it is perceived by the players involved — and those who will not enter it — as being grossly unfair. The Bill needs to correct that issue. Rather than being used as a smokescreen to allow it further powers at this time, it should be used to batten down the hatches. In the Seanad we tabled an amendment, which was accepted, requiring the VHI to report to the Competition Authority twice a year. It will be important to see what actions the Competition Authority will be able to take and what the company must report to the Competition Authority. The devil is in the detail.

Some 52% of the population subscribe to private health insurance which is extraordinary in a country that is supposed to have free hospital care. Why do people feel it is necessary? The answer is obvious. It is not that they have lost faith in the public hospital service. They have lost faith in their ability to access it. They believe that by having insurance they will be able to get timely efficient proper health care. They are concerned about Susie Long's seven-month wait and the wait of two years for a mammogram. During the week a lady in Cork got an appointment for 2010. Running our public health service in that manner is leading to people paying for insurance. We have a new phenomenon with some people with medical cards also having private health insurance because a family will club together to ensure that their grandparents or parents have access to speedy care. That is clearly bizarre and not right.

Part of the rationale behind the Bill was that the EU Internal Market Commissioner, Charlie McCreevy, wanted the Government to restructure the VHI. Has restructuring in the VHI that will pass muster with the EU Commissioner happened? Can the Minister confirm whether Commissioner McCreevy is now satisfied that the Bill is adequate, or does she expect that he will seek further and more immediate action from the Government on this matter? In other words must the VHI reach solvency and become authorised at an earlier date before it engages in wider activities?

The Bill raises questions about the level of reserve the VHI must have. I have already alluded to the 25% and 40%. I am concerned that having forced the newer players into the market with a 40% reserve the bar will drop. If the VHI is expected to reach a solvency level of 40% of its premium income by the end of 2008, I understand it will need to raise €140 million by the end of next year. How does the Minster expect the VHI to raise this level of income? Is the Government considering giving the VHI a cash injection or will the cost be passed on to the customer who has already seen VHI premiums rise by 25% in the past two years? The Bill proposes that the VHI be permitted to borrow in order to finance its solvency. Under the Third Non-Life Insurance Directive, insurance companies are permitted to borrow funds for the purposes of meeting solvency requirements, but subject to highly restrictive conditions on the extent and terms of such borrowings. Will the same criteria apply to the VHI or will it be allowed to borrow at a lower cost of capital that may give it a further advantage over its insurance rivals?

Under the revised legislation it is now proposed to establish a subsidiary services company into which all VHI staff and health services will be moved. This suggests that while the VHI will be subject to regulation, all staff will be put into a separated unregulated company. This would not be allowable for normal non-life insurance companies, which are not allowed outsource their entire business and must maintain a senior management team to control the business, a compliance officer, a senior claims handler etc. Can the Minister confirm if it is intended that the entire business will be outsourced to an unregulated company with all the attendant risk to staff? This services company will allow the VHI to apply economies of scale whereby the same staff work for all the different companies and businesses, allowing the staff in the services companies to do services for health insurance, travel insurance, pensions etc. This is not allowed under normal insurance standards.

Under the current legislation the relationship between the VHI and its subsidiaries is not clear. Will there be cross-subsidisation, to which I have already alluded and which would clearly introduce further uncompetitive practice into the marketplace? 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 these companies be required 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? That is a very important question. Many people would be happy to see a company like the VHI engaging in other activities if those activities were going to be profitable and ultimately feed back into the insurance company resulting in lower premiums for the client.

Should 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? We need to know the status of those companies and whether they are profitable. There is no transparency. We have had considerable discussion about transparency and accountability recently. We need some transparency in this area also.

I have already alluded to the substantial risk equalisation payments the VHI will potentially receive. How will this money flow throughout the business? Will it be used to subsidise other non-profitable areas of activities in which it might care to experiment? The Bill does not specify whether subsidiary companies will be permitted to cross-sell and tie their products to the health insurance products. A customer who does not like the VHI health insurance offering cannot avail of travel insurance with it. If the company widens its remit to get involved in pensions and life insurance, will the Bill address the possibility that it could refuse to continue a customer's pension or life insurance? We need to think long and hard before empowering the VHI with all these additional powers before we address these problems.

Considering the VHI holds 76% of the health insurance market a contract with the VHI will be of critical importance to the survival of co-located hospitals. To date, six co-location facilities have been approved by the HSE with a further two locations awaiting approval. This is supposed to add 1,000 new private beds to the market. A couple of questions arise in that context. Have any of the co-located hospitals done deals with the VHI? If they have not and do not do so, it is extremely unlikely that they will survive. How does the Minister propose to finance the loss of insurance income to public hospitals which are currently paid by the VHI and other insurers when private patients occupy their beds? I have seen nothing in any budget that explains how these 1,000 beds will be funded. The Minister might tell us whether a single planning application has been lodged for any of these co-located hospitals. I understand that no such applications have been lodged. We all know how long the planning process takes in this country. How long will we have to wait until the new co-located hospitals are built? Will they ever be built?

I would like to raise another couple of issues. The publicly stated policy of the VHI has been that there is no need for any more private beds. Its annual report stated:

The single biggest challenge facing private healthcare 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 healthcare at affordable prices.

That is a big issue when considering the co-located hospitals. My understanding is that the current batch of private hospitals would encounter some difficulty if patients were not directed to them by the National Treatment Purchase Fund. The undermining of our public hospitals, in tandem with the encouraging of private for-profit hospitals, is at the heart of the ideology I find objectionable.

I will repeat the point I made two nights ago — the old private hospitals were voluntary hospitals, often run by religious orders, rather than for-profit hospitals. The model of private hospital being proposed is entirely different. Such hospitals will be able to cherry-pick easy forms of treatment, such as elective surgery. As they will not have accident and emergency departments, they will not have staff on call 24 hours a day, or certain types of high-tech equipment, which would be needed if they had to deal with major road traffic accidents. All that stuff will be farmed out to our public hospitals, which will have to bear the strain. When patients have been stabilised and are no longer in too much danger, they will be transferred to these co-located hospitals which will be able to continue to make profits. It strikes me as poor value for taxpayers at every level. What will be the insurance rates for these co-located hospitals? It seems from what the VHI is saying that those rates will be in excess of the current rates. As the VHI admits that the cost of private health insurance will undoubtedly increase in such circumstances, it will become unaffordable for many people.

I also have concerns about data protection. Will the information collected by the VHI when it is selling health insurance be available to that company when it tries to sell life assurance? I find it highly improbable that some type of Chinese wall will be erected within the company. As the VHI will have access to the intimate health care information people have provided over the years, it will be able to use it to assess such people for life assurance and pension purposes. I ask the Minister to look long and hard at the many issues that need to be addressed. The VHI is a very important organisation that has played an enormous role in this country's health care provision. The Minister should put certain safeguards in place. She should insist that the VHI should come to the marketplace on a level playing pitch with everybody else and that its share of the market should decrease from 75% to 40% over the next five years. As it stands, this legislation does not include such safeguards, which gives it the potential to make matters much worse for Irish consumers.

See this speech in context