James Reilly (Dublin North, Fine Gael)

Such is Deputy Woods's reputation that I shrank in fear up at the back.

I wish to comment on some of the issues the Minister raised in her contribution. She said:

The court found the [risk equalisation] 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 subsequently clarified that the decision finding the 2003 scheme to be ultra vires was not an obstacle to the Government bringing forward a new scheme.

That certainly is the case. I wonder why the Government does not take the opportunity to introduce an entirely new scheme and appoint a regulator.

The Minister also stated:

However the reality of the situation 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 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.

That could be addressed by a strong regulator as is done in Holland.

The Minister continued:

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.

Is that not still the case? We have spoken on the matter before and I have tabled questions to the Minister on it. On 25 November in reply to a parliamentary question she said:

The effect of the measures on the premiums charged for particular policies by individual companies is a commercial decision for the companies themselves, as they set both policy benefits and pricing at the same time. However, they should not in themselves lead to an overall increase in the approximately €1.5 billion in private health insurance premiums paid, as the levy will yield approximately the same amount as the cost of the tax relief at source.

Yet we now know that is not the case. We now know that VHI increased its premiums by 23% and that Quinn Healthcare and Hibernian Aviva followed suit. Although not quite to the same level, they were forced to increase their premia to recoup the levy.

On 16 December 2008 in response to another question on the same issue the Minister said:

Anyone inclined to cancel their insurance now should consider carefully that they may have to pay a higher premium to re-enter the market at a later date. In introducing the measures announced on 19 November, the Government had to choose between allowing older people to be forced out of the market and trying to maintain the key principle of intergenerational solidarity whereby the young support the old.

I would like to particularly focus on the phrase "allowing older people to be forced out of the market". The reality is that many people have been forced out of the market. I have been in contact with the insurance companies which are recording many people not renewing their subscriptions and dropping from higher benefit categories to lower ones, for example from plans D and E to plans B and C. Some might say that is good or bad, but clearly in many cases it is a question of affordability. Clearly younger people in particular faced with paying their mortgages and faced with Government levies are finding themselves in serious difficulty. Many of them have lost their jobs or one member of the household has lost his or her job and they are looking at the increase in their insurance premium and letting it go.

The move has been counterproductive. It has not achieved what it set out to achieve. As I have already alluded to, it could have been achieved through the different mechanism of strong regulation, which has been sorely lacking particularly in our financial institutions.

The Bill allows the new levy to be applied retrospectively from January 2009. The levy applies a charge of €160 to all adults and €53 to all children.

All insurers have increased their premia by more than the average annual medical inflation rate of 10% to reflect the new levy, thereby making health insurance unaffordable and pushing families out of the market. The Government is still awaiting approval from the European Commission on the introduction of this levy. Hibernian Aviva Health and Quinn Healthcare claim they have increased their premia purely because the cost and retrospective nature of the levy automatically put VHI's competitors into a loss making position. VHI has increased premia by 23%, Quinn Healthcare by 16% and Hibernian Aviva by 22%. The latter has stated it intends to keep the moneys made from this increase in a separate account and will refund customers if the Commission does not approve the levy. Presumably that will also be done if the Minister in her wisdom decides to deal with the matter by regulation.

Although VHI is a net beneficiary of the levy in that it receives a substantial increase on tax relief at source on payments for those over 50 years of age, it nonetheless increased its prices by an average of 23% within two weeks of the levy's announcement. This is typical of the dominant player in the market. It was able to do so because it knew its competitors would have to increase their prices to cover the cost of the levy. VHI's competitors argue that in the absence of the levy, the company would probably have made the more usual annual increase of between 8% and 10% to reflect medical inflation. Hibernian Aviva Health argues that we are already seeing the effect of the lack of competitive pressure and that VHI lacks an incentive to lower premia or improve its efficiency.

The levy has unnecessarily increased the price of health insurance for all consumers at a time when other prices are falling. Many observers believe the levy is propping up VHI because it appears to be the sole beneficiary. The levy is clearly not benefitting consumers, VHI's competitors or health services. VHI remains unregulated as an insurer and enjoys significant privileges as a result. It was allowed an extension to the deadline for an insolvency ratio of 40%, which is uncompetitive, and it is not subject to the Financial Regulator's guidelines on asset management and investment funds. This may in part explain last year's fall of 20% in the company's solvency ratio. It was ordered to seek authorisation by 31 December 2008 but the deadline was extended to 31 March 2009. When it also missed the second deadline, the Minister was forced to sign an order to change the date to 1 September. This raises questions about the company's unfair competitive advantage given that it is not subject to the same scrutiny as other health insurers. The Minister will understand why people believe one rule applies to VHI and another to everybody else. It will be interesting to learn Europe's response to this issue.

Due to the crude nature of the levy, health insurers cannot trade into it. If they agree a contract and premium with a customer on 30 December 2008 they cannot adjust the price to cover the cost of the levy, which applies retrospectively from 1 January 2009 until the contract expires 12 months later. In some cases, the new renewal prices which reflect the levy will not come into effect until December 2009.

The Minister claimed that VHI premia would increase by 60% for old people. Given the existence of community rating, how could that happen?

See this speech in context