Mary Harney (Dublin Mid West, Progressive Democrats)

I move: "That the Bill be now read a Second Time."

I am pleased to address the House on the taking of Second Stage of this Bill. The principle upon which we meet health care costs as a society is that the young support the old, the healthy support the sick, and the better off support the less well off. These principles are most easily integrated and implemented in taxation-based funding of health care, the predominant means of health funding in our country, at just under 80% of total health spending. However, since voluntary health insurance has had a long history as an integral part of providing for the cost of health care in this country, successive Governments have sought to implement these principles in the realm of health insurance, particularly those principles of the young supporting the old and the healthy supporting the sick.

All insurance is a matter of pooling risk, and thus a sharing of the overall cost. Within an insurance pool, the price of an individual's policy can vary according to his or her claims experience and the risk of that person making future claims, as is the case with motor insurance. Therefore, while there remains risk pooling and cost sharing, the contribution of each person to the pool rises with his or her risk profile. When this risk rating is applied to health insurance pools, the inevitable result is that older people and sicker people have to pay substantially more for the same cover. In recognition of this, successive Governments and the Oireachtas have been committed since 1994 to maintaining the principle of community rating rather than risk rating of health insurance. The purpose always has been that the price of a policy should reflect the risks and costs of the entire pool of insured persons in the community, rather than the risks and costs on a person by person basis, or even the persons within each separate policy. Only in this way can solidarity and cost sharing be effectively implemented between the generations who hold insurance.

The Health Insurance Acts 1994 to 2007 provide the statutory basis for the regulation of the health insurance market in the interests of this common good. The pricing of risk across the community of insured persons clearly requires robust mechanisms to share costs when there are a number of companies in the market. The risk equalisation scheme, which was affirmed by the House in 2003 and approved of by the European Commission that same year, provided a mechanism for sharing the costs of providing necessary care among the insurers. While all political parties and most academics and professional bodies, including the Society of Actuaries, supported the risk equalisation scheme, that scheme and its supporting regulatory regime were challenged in the courts by BUPA Ireland. These challenges were rejected by the European Court of First Instance and by the High Court in Ireland. However, they ultimately succeeded when the Supreme Court found the risk equalisation scheme to be ultra vires in July 2008.

It is important for the House to note that the Supreme Court decision did not strike down the principles of community rating, open enrolment and lifetime cover, nor indeed the principle of risk equalisation. The court found the scheme to be ultra vires because the legislation did not provide for an explicit link between community rating and the specific mechanism provided in the 2003 regulations. The Chief Justice of the Supreme Court subsequently clarified that the decision which found the 2003 scheme to be ultra vires was not an obstacle to the Government bringing forward a new scheme. The Supreme Court decision focussed in particular on the issue of whether the legislation provided for risk equalisation applying across the entire market, given the definition of community rating contained in the 1994 Act. It concluded that the definition of community rating did not allow this interpretation and, therefore, that the scheme that equalised risk on the basis of community rating across the market was ultra vires.

Following this decision in July 2008, there was a need for a prompt response to ensure confidence in the market, and to ensure that market fragmentation due to the introduction of plans aimed at younger, healthier lives did not take place. Some interim scheme is required to ensure this does not take place, while a longer term solution is developed and put in place. I came to the conclusion that there was a need for an interim scheme in order to prevent a risk-rated market developing in a manner that would make it impossible to revert to an effective community rated market.

There was also a need to ensure the protection of older people, many of whom had been paying private health insurance for many years, and who were now - at the point where they needed such insurance most - facing the prospect of no longer being able to afford appropriate cover due to the real danger of re-pricing and the re-design of policies. Actuarial evidence indicates that it is from the age of 50 upwards that the cost of an insured person increases to above the market average, and increases by multiples of the market average by the time the insured person is 70 years of age. The additional cost risk to the insurance provider for older people is an actuarially measurable risk, clearly set out in the reports of the Health Insurance Authority, and action was required to ensure this risk was not translated into age specific products with associated differential prices.

It is also true that, although the most readily identifiable group with regard to measurable risk consists of those people of 50 years of age and older, the principle of community rating protects all persons suffering ill health, irrespective of age. This is because, under a community-rated system, prices for products are the same to all persons, irrespective of age and health status. However, the reality is that in the absence of an immediate mechanism to support intergenerational solidarity, there are incentives for insurers to design products that are attractive only to healthier lives, thereby undermining intergenerational solidarity and the common good protections. The market is then open to fragmentation and intergenerational solidarity is at risk of being weakened or eliminated.

In the aftermath of the July 2008 Supreme Court decision, there were very real indications in the private health insurance market that this risk rating fragmentation could occur. In the absence of an appropriate response, it would be in the interests of all insurers to focus on products that would be particularly attractive to healthier lives and to minimise features in their products that would be attractive to older people and people with ill health, in the knowledge that there was nothing in the regulatory framework that would counteract the advantages to be gained from pursuing this strategy. This would have conflicted with the common good principles of community rated health insurance and intergenerational solidarity that underlie the regulation of the private health insurance market, and there was a very real danger that private health insurance would cease to be affordable for older people and those with poorer health.

It is for this reason that I instructed officials from my Department to work with the Health Insurance Authority and legal and actuarial experts, as well as considering submissions from the market stakeholders, that is, the three health insurance providers in the Irish market; Hibernian AVIV A, Quinn Insurance and VHI, to develop an interim scheme which could be put in place promptly to stabilise the market while a longer term solution was developed. It is this interim scheme that is provided for in the Health Insurance (Miscellaneous Provisions) Bill 2008.

There are three main companies currently active in the private health insurance market in Ireland. There are three restricted membership undertakings operating for members of the Garda Síochána, prison officers and employees of the Electricity Supply Board. However, as these undertakings do not operate in the open market, they are not included in this scheme. In the case of both Quinn Healthcare and Hibernian AVIVA, health insurance is just one product in a range offered by their parent groups. VHI is currently involved only in the provision of private health insurance and related products.

Approximately 52% of the Irish population currently hold private health insurance. The value of the market is estimated currently to be in the region of €1.6 billion. The customer survey of the health insurance market published in May 2008 by the Health Insurance Authority showed the market share of VHI continuing to fall and that of Quinn Healthcare and Hibernian, formerly known as VIVAS, continuing to rise. At that point, VHI Healthcare's market share was 70%, down from 76% in 2005. Quinn Healthcare had around 20% of the market, up from 17% in 2005, while VIVAS Health, which entered the market in 2004, had a 6% share. The restricted membership undertakings constituted 4% of the market. More recent data indicate that the market share of VHI has fallen to 66%, while the share of Quinn Healthcare is now at 22% and Hibernian AVIVA has reached 9%. VHI continues to have, by some way, the highest number and proportion of members over 50 years of age. While Quinn Healthcare's customer profile is changing, that company and especially Hibernian AVIVA continue to have a significantly younger age profile than the overall market.

Current legislation allows for the introduction of lifetime community rating, which takes into account the age at which an individual commences private health insurance cover and provides for a community-rated loading to be applied to individuals based on their age when entering the market. This encourages younger people to continue to take out health insurance. I intend to bring forth regulations, as provided for under Section 7 A of the main Act, with the intention of commencing lifetime community rating by the end of this year.

I wish to outline the details of the interim scheme provided for in the Health Insurance (Miscellaneous Provisions) Bill 2008 and I will then go into more detail on the Bill itself. The interim scheme consists of two elements, namely, age related tax reliefs granted to individuals who hold private health insurance, and a levy charged on private health insurance companies to be used to finance the age-related tax reliefs. The details of the relief are as follows:

Age Band	Relief provided per insured
0-17	Nil
18-49	Nil
50-59	€200
60-69	€500
70-79	€950
80 years and over	€1,175

The existing tax relief at source of 20%, which will continue to apply, will relate to the gross premium paid net of the new credit being introduced.

Each private health insurance company will be required to pay an annual levy to the Revenue Commissioners. The levy will be remitted to the Exchequer and will form part of overall Exchequer funding. It will be charged on all adult insured lives at a level of €160. Apart from a reduction to one third of this amount, €53, for insured lives under age 18, to reflect the fact that insurance premiums for under 18s are on average one third of the adult premium, there will be no differentiation on the basis of age. The age-related private health insurance relief and the levy will be subject to annual review to take account of medical inflation and the impact of an aging population.

I take this opportunity to provide clarification on three points. First, the levy is being placed on the health insurance companies in respect of each insured life and not on individual subscribers. It is a matter for the companies whether to pass this levy on to their customers. Neither I nor my Department has any role to play in the settling of premia prices by any of the private health insurance companies, including the VHI. The levy is to be paid to the Revenue Commissioners on 30 September in each of the years 2009, 2010 and 2011.

Second, the additional tax relief under the scheme is being granted at source to the insurer as tax relief at source, TRS. it is granted on the basis that the insurer must charge the same net premium to all persons covered by a plan. Operation of the medical insurance relief outside the income tax system means that the relief is available to all persons, including those whose taxable income would be insufficient to avail of the tax relief. Under the TRS scheme, a person who pays no tax, will pay the same reduced premium as a taxpayer. This will be reflected in the fact that each person will pay the same net premium. Third, the tax relief being made available under the interim scheme is a fixed sum tax relief. The amount of relief given is fixed, irrespective of the plan held by the insured person and, accordingly, there will not be higher amounts of relief available for more expensive plans.

I should point out at this stage that the age-related tax relief and the levy will apply only to the commercial insurers operating in the market. As I stated earlier, they will not apply to the restricted membership undertakings, RMUs, for the ESB, Garda and prison officers. The option given to the restricted membership undertakings to choose to be included in the original risk equalisation scheme has been identified as a legal weakness in the regulatory framework. The members of RMUs are not fully part of the health insurance market and there would be an obvious anomaly in having the customers of the companies operating in the open market contributing towards payments which might be made towards the care costs of members of restricted schemes.

I would like now to deal with some of the specific measures in the Bill. The main objects of the Bill are to affirm that the purposes of the Health Insurance Acts include, inter alia, ensuring that access to health insurance cover is available to all consumers without differentiation in respect of age and health status; strengthening the legislative provisions to achieve this purpose; securing intergenerational solidarity and community rated health insurance and providing for the implementation of related measures to achieve these objects.

Section 3 provides that the principal objective of the Minister and the Health Insurance Authority, in performing their functions under the Act, is to ensure in the interests of the common good that access to health insurance cover is available to all, with no differentiation based on age and health status. Section 4 includes key definitions of terms such as "community rated health insurance contract" and "community rating", which encompasses measures that support the achievement of the principal objective. In keeping with the change of emphasis with regard to community rating, namely, that this will be achieved at net premia, the term "net premium" is also defined.

Section 6 substitutes a new section for section of 7 of the Act, with changes aimed at ensuring that community rated health insurance contracts are made available without differentiation, irrespective of age or health status. Section 7(1 )(a) requires insurers to offer any particular contract for a period of not less than 31 days. Section 7(1)(b), instructs insurers to charge all persons the same net premium. Section 7 amends section 7A of the principal Act and provides for a reduction from 35 to 30 in the age at which late entry loadings can be applied. Section 8 provides that private health insurers are to submit new contracts to the Health Insurance Authority 20 working days in advance of their being offered for sale to potential customers. This section also provides for the authority to establish a register of health insurance contracts.

Section 9 inserts into the principal Act a new section to provide for the necessary data returns to be made to the Health Insurance Authority to allow monitoring of this scheme. This section also provides for the use of data returned. Section 10 amends section 12A of the principal Act. This amendment provides for the use of data returns made in the calculation of the age-related tax credit and the amount of the levy payable. Section 11 replaces section 13 of the principal Act which contained limited provisions around advertising and promotion of health insurance business. This new section includes provisions with an emphasis on enhancing the position of the consumer in relation to information and advertisements. It also provides that certain information should accompany advertisements where it is in the interests of policy holders or potential policy holders.

Section 12 amends section 14 of the principal Act. This amendment prevents the establishment of new restricted membership undertakings offering health insurance. Section 13 inserts a new part into the principal Act enabling the Health Insurance Authority to pursue enforcement of provisions where it is of the opinion that an insurer is contravening a provision or is likely to do so again. The section sets out a process whereby the authority may take a number of steps to have any contravention remedied, including making an application to the High Court seeking compliance. Provision is also made in this section for an insurer to make an application to the High Court to have an enforcement notice cancelled, confirmed or varied and for consideration by the Supreme Court on a question of law.

Section 14 provides for the amendment and substitution of section 21(1) of the principal Act which deals with the functions of the authority and enhances the functions and powers of the authority in line with the provisions of this Bill particularly in terms of the rights of consumers. Sections 15 to 21 amend the Taxes Consolidation Act 1997 to provide for a new age-related tax credit in respect of payment of private health insurance premiums due on or after 1 January 2009 and before 1 January 2012 in respect of persons aged 50 years and over. These sections relate directly to the tax relief elements of the interim scheme I outlined earlier. Section 22 inserts a new section 125A into the Stamp Duties Consolidation Act 1999 to provide for the collection of the annual levy on health insurance companies based on the number of lives covered by policies underwritten by them.

I will be bringing forward amendments on Committee Stage. These include drafting amendments, amendments to address the concerns of the Information Commissioner on the protection of personal information, amendments to the principal Act to facilitate the introduction of lifetime community rating and amendments to expand on the evaluation and analysis that the HIA is to undertake under section 9. I will also be bringing forward amendments having regard to concerns raised by the industry since publication of the Bill.

The terms of the scheme, as provided for in the Health Insurance (Miscellaneous Provisions) Bill 2008, were notified to the European Commission as a potential state aid in November 2008. Initial indications were that the Commission would give its decision on the notification in mid-February. I indicated at the time that I would not seek to move Second Stage of the Bill until the Commission had given its approval to the scheme. However the process of scrutinising the proposal has proven to be more protracted than originally thought. The Commission has sought a considerable amount of additional information on the operation of the scheme. All of the information sought has now been provided and I expect that the formal decision will be notified to us in early June. Given that this new scheme involves the same principles as the scheme approved by the Commission in 2003 and is designed to have a similar common good effect on the market I would hope that the Commission would come to the same conclusion. If the Commission's decision requires any changes to be made to the scheme I will bring forth appropriate amendments on Committee or Report Stage.

As the Bill deals with the regulatory framework for the provision of health insurance, I take this opportunity to signal a review of the minimum levels of benefits insurers are obliged to provide in the health insurance contracts offered by them. The current prescribed minimum levels of benefits have been largely unchanged since 1996. I will be asking the Health Insurance Authority to engage in a consultation process with a view to enhancing the minimum levels of cover that insurers will be obliged to provide.

The combination of measures in the Bill is designed to preserve and sustain the key elements of the regulatory framework for the health insurance market which have had the support of successive Governments. These need to be put in place while a more permanent replacement for the 2003 risk equalisation scheme is designed. Initial work has already commenced on the replacement scheme. While that continues over the next two to three years the Government must ensure that market segmentation through the development of niche products directed at attractive segments of the population does not undermine community-rated health insurance. There is also a requirement to ensure that the market operates in a more transparent manner and that the powers of the Health Insurance Authority allow it to effectively intervene in the market if circumstances demand such intervention.

I commend the Bill to the House.

See this speech in context