Mary Harney (Dublin Mid West, Independent)

I move amendment No. 1:

To delete all words after "Dáil Éireann" and substitute the following:

"— welcomes the action by Government to reduce unacceptable waiting times for patients in emergency departments and to pursue the target of ensuring that all patients are assessed, treated and discharged or admitted within six hours of registration at an emergency department;

— welcomes the roll-out of the acute medicine programme which will provide that every medical patient presenting to hospital will be seen by a senior medical doctor within one hour and will provide access to same day diagnostics;

— endorses the Government's strategy that the best way of achieving a stable health insurance market, where policies are relatively affordable for older and sicker people as well as younger and healthier people and where health insurance can evolve in a way which supports overall health policy objectives, is a situation where:

— the core policy of community rating is supported by an effective, transparent risk equalisation scheme;

— the State does not act as both regulator of the market and owner of a company in the market, particularly one with a large or dominant market share; and

— there is a more even balance of older customers between companies in the market;

— notes that, following the Supreme Court decision in July 2008, the Government introduced interim loss compensation arrangements through the taxation system with effect from 1 January 2009 which to date has provided for the transfer of €89 million and is estimated to allow for the transfer of a further €70 million in 2011;

— underlines the Minister's intention to publish legislation this year which will provide for the development of a full, robust risk equalisation scheme which will protect the fundamental objective of community rated premiums, with transitional measures in place pending the introduction of the full scheme; and

— welcomes additional comprehensive actions being taken on private health insurance which include:

— arranging the sale of the VHI, with appropriate capitalisation and authorisation in advance of this; and

— pursuing measures to achieve a more even balance of customers among companies in the market."

I was very disappointed by the decision of the VHI to raise its prices so substantially from 1 February next, a decision of which I was not aware until the morning it was announced. By any standards the increases were remarkably high, ranging from 15% for Plan A, parents and kids, life stage choices and one plans, to as high as 45% for Plan B Options.

I am keen for as many people as possible to continue to buy private health insurance and a price increase of this magnitude could make this difficult. However, I emphasise that there are several alternative, cheaper products which offer similar coverage. There are many alternative plans within the VHI and in the other two companies, Aviva and Quinn Healthcare, which offer the same or similar benefits for a lower price.

The recent price increases have highlighted the extent of choice in the Irish market. The best place to go for independent, comparative information on prices is the Health Insurance Authority. The HIA is an independent statutory body, which advises me as Minister for Health and Children on issues relating to the private health insurance market. The authority has an excellent website that informs people of their rights as consumers. It has a user-friendly system to help customers compare prices and benefits offered between and within the health insurers. In addition, the HIA has been providing telephone advice on the same basis. Its website has had 70,000 hits since the increase was announced and it has dealt with more than 2,000 queries. At my request, it has increased the staffing of its helpline to help customers of health insurance companies.

It is interesting to note the variations in prices on offer, both within and between companies. From 1 February 2011, VHI Plan B will cost €1,224 for an adult, whereas the VHI teachers plan, offering the same hospital cover as Plan B, costs €772. This plan must be open to everyone and is not, as its title might suggest, only available to teachers. Similar differences in price are available for VHI Plan A and its comparable VHI First Plan Starter. Equivalent cover to VHI Plan B is provided by Aviva, with its Smart Plan costing €759 and Quinn, with Quinn company Heath Plus costing €690. Deputy Naughten asked a question on this detail. I have all this information and I would be pleased to send the authoritative information to all Members. The information is easy to follow and compares like with like. The Plan A to which I referred costs €698.93 but the VHI First Plan Starter costs €495. In quoting these examples, I do not recommend one company over another. Clearly, it is possible to get very good value even when switching within plans in the same existing company. The examples show that it is possible get better value in health insurance in Ireland.

It is important that the other insurers in the market, which have indicated their willingness to take on all customers, take the initiative now and offer plans to older persons that will attract them to move between insurers. In this way, the market could begin to move towards a more equal sharing of older customers among insurers and we could see competition driving efficiencies in services provided.

Crucially, people in Ireland still have a choice. Health insurance is voluntary. This is unlike the system advocated by Fine Gael whereby people must pay compulsory health insurance as in the case of the Dutch system. Under that system, a person living in Amsterdam must pay between €88 and €111 per month for the most basic package. In addition he or she must pay 6.9% of salary for a health compensation fund. In real terms, this means that a couple on a combined income of €50,000 would have to pay €5,562 towards health insurance.

I remind the House that when the VHI was the sole provider of private health insurance in Ireland the Minister had responsibility for approving price increases. However, this would be counter productive in a competitive market. I believe the right decision was made in leaving that function to the VHI itself since the advent of competition. This was recognised by the removal of the provision for ministerial consent for the VHI board to carry out health insurance schemes in the Voluntary Health Insurance Acts.

As Minister for Health and Children, I have responsibility for governance matters relating to the VHI, such as board appointments and the receipt of its annual report and accounts. In this context, I asked my Department's actuarial advisers, Milliman, to carry out a detailed examination of the VHI's claim costs last year. I was conscious that while the VHI faces a difficult market environment, partly owing to the high age profile of its members, it was important also to look critically at the way in which the cost of claims it receives are managed. With the co-operation of the VHI, Milliman conducted a detailed assessment of the situation.

I received the Milliman report in September last and it was given to the board of the VHI as well as to the Health Insurance Authority. Owing to the extensive commercial sensitive data in the report, I have not published it. To do so would unfairly reveal information which would put the VHI at a disadvantage as regards its competitors which have not had to reveal similar commercial information.

I believe, however, that the time is now right to release as much of the information contained in the report as possible, subject to the requirements of commercial confidentiality. To this end, I have asked my Department and Milliman to examine what could be released in redacted form as soon as possible.

I will now outline some of the Milliman report's main findings. The study concluded the VHI has given limited focus to what it is paying hospitals. The VHI could potentially make savings of a minimum of 5% to 10% in this area regardless of the risk profile of the insured population, even though the company has a very high proportion of the older population. The report concluded savings of this order are still possible but acknowledged such an improvement would take some time to implement.

The Milliman report also concluded the VHI has been concentrating on the issue of risk equalisation to the exclusion of improving its techniques for managing claims effectively. It found that while moving to a more effective management of claims would require an investment by the VHI in staff and other resources, this could be more than offset by the savings it would produce in the cost of claims.

Milliman reviewed the VHI's experience of claims costs between 2007 and 2009. It found a high trend for utilisation of day cases at private hospitals but also substantial increases in average costs for inpatient procedures. The report also found there were material increases in the utilisation in high-tech hospitals which have higher unit costs than other acute private hospitals, increasing rates for day case utilisation at acute private hospitals combined with substantial increases in average costs for inpatient procedures, and the claims costs per person between 2008 to 2009 rose by 19% while premium increases were 13% over the same period. Premium increases have inevitably been constrained by the competitive landscape in which the VHI operates.

The Milliman report concluded the VHI had made impressive progress in the past two years, including a 15% reduction in consultants' fees, a 6% reduction in private hospital fees and a reduction in its own internal administration costs. The study pointed to several important issues which the VHI must address regarding how it manages its claims. There is no doubt the VHI operates in a challenging marketplace and faces particular challenges from having the great majority of older customers who, understandably, give rise to greater costs of care. However, the lesson from the Milliman report is that the VHI can and must address its claims costs aggressively rather than relying on other elements such as risk equalisation or large price increases to help sort out its difficulties. I have discussed the various issues raised by the report with the VHI's chairman and chief executive officer. Without interfering in the running of the company, I believe I am entitled to insist that these issues be addressed. This is made all the more important given the VHI's decision to increase its premiums by so much.

It must be emphasised it is open to all consumers to switch health insurance policies without penalty. Those who have a policy can switch to the same level of cover without any extra costs and without waiting times for cover to apply. Neither do customers have to wait for their policy renewal time as they can switch whenever they choose. These are key principles of the market.

All customers have the right, guaranteed in law, to switch between or within insurers to get better value. This includes switching to a different plan with their existing insurer or another insurer to get better cover to reduce their premium costs. This rule applies regardless of the age or health of any individual consumer. Health insurance customers can switch easily without having to serve added waiting times and cannot be refused by another insurer. Provisions in the relevant health insurance legislation ensure switching is as easy and seamless as possible for customers.

That said, I am aware the Health Insurance Authority has received some complaints about insurers apparently giving incorrect or somewhat misleading information to customers, especially those in the older age groups who want to get better value. I regard any such practice very seriously and am calling on all insurers to deal honestly and appropriately with all consumers. I would be very concerned if any company was trying to discourage customers from joining or from moving plans.

I have asked the Health Insurance Authority to monitor the situation closely to ensure all customers are given accurate information about their right to switch policies without penalty. In particular, I am anxious to ensure customers are not misled by any insurer about the ease with which changes can be made or about the requirements that must be met before switching. The Health Insurance Authority will play an important role for customers in ensuring they have accurate information and protecting them through monitoring the implementation and enforcement of the health insurance Acts. The authority can enforce the Acts, which require community rating, through the courts.

Since the announcement of the VHI price increases, there has been much criticism about the alleged failure of the Government to put in place a system of risk equalisation that ensures community rating for consumers. Community rating means there is no distinction between young and old or healthy and sick consumers in the open market. Everyone is charged the same premium for a particular plan subject to several exceptions. These exceptions include children where the premium must not be more than 50% of the adult premium, full-time dependent students under the age of 23 years where the premium may be reduced but by not more than 50% of the adult premium, and members of group schemes where the premium may be reduced by up to 10%.

We need risk equalisation in a market in which there is more than one insurer in order that community rating can be protected. When the VHI was the sole provider before the market was opened up in 1996, it could offer community rated plans without the need for risk equalisation. Since there was no other insurer, it could set its premia at a level that spread the risk across all age groups. There was no danger of a competitor seeking to attract the good risk - younger customers - while leaving the VHI with the older clientele.

Health insurance operates on an unfunded basis which means moneys paid in through premia are paid out in claims while also paying for administration and overheads. Moneys are not paid into a fund towards customers' future health which means in a community rated market protections for customers' interests through risk equalisation are of such importance.

With competition, there is every danger that one insurer, whether the VHI or another company, is left with the highest costs simply because of the age of its clients. It is clear, therefore, that we need a risk equalisation scheme that subsidises the cost of health care for older and sicker people across the market of health insurers, especially where one or more companies has a substantially greater share of older or sicker customers.

For historical reasons, because it is providing health insurance since 1957, the VHI has a disproportionate share of older customers. This means it has a preponderance of the claims costs in the market with some 62% market share but 80% of the claims. The Government has worked hard to establish a legally sound system of risk equalisation since the rejection of the earlier scheme by the Supreme Court in July 2008.

Following the court's decision, the Government moved quickly to safeguard community rating. It was clear an interim risk equalisation scheme for a period was needed to allow the complexities of a full new system to be worked through. It is a very complex area and it was not possible at the time, contrary to some recent claims, simply to make minor technical amendments to the legislation to fix the problems identified by the Supreme Court.

Within months of the Supreme Court's decision, the Government had put in place an interim scheme effective from 1 January 2009. It will operate for three years, ending on 31 December 2011, with some carryover to 2012 for policies renewed during this year. While not as far-reaching as full-scale risk equalisation, the interim scheme has been a very important form of protection for older customers.

The scheme works by transferring resources from insurers with good risks to those with poorer risks. For policies commencing in the period 2009 to the end of 2011, the scheme will provide for a net benefit to the VHI of an estimated €159 million, from Aviva and Quinn Direct. This amount comprises €41 million in 2009, €48 million in 2010 and some €70 million in the current year. The true extent of these transfers under the interim scheme is not commonly realised. It is the first scheme which has actually transferred funds from insurers with lower risks to an insurer with higher risks.

I do not intend to go into the technical details of how the interim scheme works. Suffice it to say that it allocates tax credits to insurers for persons in three age bands and that it is funded by the payment of a levy by all insured persons in the market. In addition, the scheme is Exchequer neutral. When I first introduced it in 2009, the scheme allowed insurers with additional costs arising from insuring older people to be compensated for up to 50% of these costs. This year, following advice from the Health Insurance Authority, HIA, the Government increased the level of compensation from 50% to 65%. This is a significant level of support in respect of older customers and it has played a valuable role in assisting with the stabilisation of the health insurance market in advance of a full risk equalisation scheme.

My next priority is to introduce a transitional risk equalisation scheme with effect from 1 January 2012, when the existing interim scheme will expire. To this end, I asked the HIA to advise me on the nature and form that a transitional scheme should take, as well as the approach the Government should take in respect of a full risk equalisation scheme. I received the HIA's report on 23 December last and am considering it at present. I am now working to prepare legislation to give effect to the transitional scheme. I am also working on legislation for the full risk equalisation scheme, which I want to have introduced from 1 January 2013.

Various criticisms have been levelled - not least in the context of this debate - in respect of the time taken to introduce a new risk equalisation scheme. It is important to explain what is involved. Contrary to some claims, this is not a simple or straightforward process that can be put in place quickly. It is complex and technical and requires careful drafting to ensure we have a robust system that is not only legally secure but that will also be capable of easy implementation from an administrative point of view. The compliance costs must be realistic and the benefits of the process must outweigh the costs of implementation.

In order to be fair and accurate, both the transitional and full risk equalisation schemes will need to be based on good data. The latter must be collected by insurers in respect of every insured person and must be analysed appropriately. The logistical aspects relating to putting the data system in place, and the arrangements for calculating fair risk equalisation payments, will take time to complete properly. The necessity for accurate data is acknowledged by the Dutch Government and the lack of this data has caused the latter some concern. Its report on its health system states:

The data currently available cannot yet be adequately analysed in terms of demographic characteristics such as socioeconomic status and ethnic grounds. That makes it difficult to judge whether all people have equal health care opportunities (equity). Much of the current information about health care providers is based on self-reports, and the quality of that information is subject to dispute.

We must prepare clear legislation in respect of what is a complex area and then allow time for the necessary administrative mechanisms to be put into operation.

There are also other considerations. Legislation in this area is subject to scrutiny by the European Commission and must comply with various EU directives relating to non-life insurance matters. The EU Commission has, for many years, acknowledged Ireland's right to introduce risk equalisation in the context of our health insurance system. This support is contingent on a number of key principles being observed and the Commission will examine any proposals from a State aid point of view, as well as a competition perspective. My officials have been in regular contact with the Commission to brief it on Government plans and initiatives in recent times. We will continue this process as new plans and proposals for the transitional scheme develop.

As a result of these practical considerations, it is not simply a matter of our hurrying matters up. I am committed to putting a full system of risk equalisation in place as quickly as I believe is possible - that is, by 1 January 2013 - and, in the meantime, to putting the best possible transitional scheme in place by next January. I am of the view that these deadlines are realistic and I will do everything possible to achieve them.

I wish to take this opportunity to update the House on a number of interrelated measures that the Government has decided to implement in respect of private health insurance. Last May, the Government announced a series of integrated measures to reform private health insurance market. The objectives of these measures were to achieve a stable health insurance market, where policies are relatively affordable for older people, in particular, and where health insurance can evolve in a way which supports overall health policy objectives; to support the core policy of community rating by the implementation of a new, robust risk equalisation scheme; to ensure the State does not act as both regulator of the market and owner of a company in the market by arranging for the sale of VHI, with appropriate capitalisation and authorisation in advance of this; and to pursue measures to achieve a more even balance of older customers among the health insurance companies on the market. These objectives are vital in the context of the provision of an equitable, well-functioning private health insurance market in Ireland.

The steps the Government promised to take, and on which it is now working, include the sale of the VHI, to be preceded by appropriate capitalisation and authorisation of the company - authorisation is the process by which the Central Bank deems it appropriate for an insurer to operate in compliance with all requirements, including solvency, in an open health insurance market; the updating and reform of the minimum benefits that must be offered by all health insurers to their customers; and the implementation of new provisions to promote lifetime community rating, by creating financial incentives for people to buy health insurance at an early age, rather than leaving it until later in life. I wish to deal briefly with each of these promised steps.

It has been the Government's view for some time that there is no good reason for the State to retain ownership of one of the country's health insurers, especially in a competitive market. Indeed, we are of the view that it is not desirable that the State should be both regulator of the private health insurance market and the owner of the largest company in that market. This issue was raised as far back as the White Paper on Health Insurance published in 1999. In May 2010, the Government formally confirmed its intention to dispose of its interest in the VHI and we have now commenced the process of so doing. My Department is currently considering tenders for advisers to provide financial and legal advice on how best to sequence the process for selling the company. It is hoped to award a contract to the successful tenderer in the next month or so.

The first task of the chosen advisers will be to prepare a report on the possibility of rebalancing the market in the context of the proposed sale of the VHI. This task is necessary because of the disproportionate number of older subscribers with the VHI. Ideally, there would be a more even spread of good and less attractive risks across the health insurance market. This would balance the market and help improve competition on the basis of efficiency rather than on that of age or other risks. It would also assist in reducing the extent of risk equalisation payments that is currently necessary between insurers.

The VHI needs to be formally authorised by the Central Bank of Ireland. It is also likely to require a capital injection but the extent of this will only be known nearer the time of sale. The ultimate objective, therefore, is to rebalance the private health insurance market, achieve authorisation and capitalisation of the VHI and divest the State's interest in the company.

Risk equalisation will be a key requirement of a well functioning market. This is a complex and difficult process and critical aspects of it will require EU approval in the context of State aid and competition law. In my opinion, this is the right approach. This agenda must be achieved irrespective of whatever funding model may be used for the health service in the future. Even if it is decided to move away from tax-based funding for the health service as a whole, we will still require a risk-equalised market and we will still wish to sell the VHI following a process of authorisation and capitalisation.

There is also a need to change the current regulations governing the minimum benefits that must be offered by insurers to their customers. The most recent review of these regulations was in 1996, although some minor technical adjustments have been made in the interim. At my request, the HIA has prepared a report on the minimum benefits that should apply in the future. I received its recommendations on 23 December last and am currently considering them. I want to bring forward proposals as soon as possible. The current regulations are almost entirely focused on hospital benefits and changes will be considered which will reflect developments on the market. In particular, I would like the minimum benefit regulations dealing with different approaches to chronic illness management and primary care.

I intend to bring forward new rules to encourage people to take out health insurance at an early age. This will involve gradually higher costs being applied to customers the longer they wait to take out private health insurance for the first time. For example, it would cost a 50 year old person joining a scheme for the first time a higher amount than a 50 year old who was a continuous subscriber since the age of 30.

A break period will be permitted to take account, for example, of times during which it was not possible for the person to buy health insurance due to unemployment or otherwise.

This debate raises key issues about our private health insurance market. Like everyone else, I was very concerned at the extent of the price increases announced by VHI on 6 January last. However, I believe consumers have real choices in the market and I urge them to take the advice of the HIA in this regard. I am determined to ensure consumers are made fully aware of their rights and that they have every opportunity to select the insurance plan that suits them best and is good value for money.

To reply to issues raised in the debate, the risk equalisation legislation was introduced by the then Minister, Deputy Michael Noonan, in a Fine Gael-led Government. When I for the first time triggered the risk equalisation scheme on the advice of the HIA, I was strongly criticised for so doing by Fine Gael. That decision was litigated against by BUPA; we won in the High Court but lost in the Supreme Court. Many issues were advanced in that litigation, although the Supreme Court adjudicated in regard to one matter.

If it had been possible to bring in a simple amendment quickly, there is no doubt there would have been further litigation and we would still be tied up in the courts. What we did instead was to use a levy and tax system approach to transfer money. As I said, by the end of this year, approximately €159 million will have transferred. There was a three year holiday for new companies which did not have to pay risk equalisation, so when BUPA was being sold to Quinn, the latter company was able to avail of the three year holiday. When I introduced legislation in February 2007 to close that loophole, it was opposed by Fine Gael. When we introduced the tax relief at source, it was heavily criticised by Fine Gael. Indeed, Deputy Reilly, despite his motion today referring to the introduction of risk equalisation, challenged me at a meeting of the health committee in regard to the VHI by stating: "With a huge market share and new players trying to come into the market it does not make sense."

Risk equalisation or tax relief at source are about charging more to younger people to subsidise older people. That is the reality, so there is no point saying nothing has happened. We have tax relief at source and money is being transferred over, which is a good thing. However, each time we have triggered an initiative that transfers over money, Fine Gael has objected to it on the grounds it is not warranted.

I am anxious, as every successive Government has been, to ensure we maintain community rating, which the Insurance Acts require. If VHI is in contravention of that principle as a result of the recent price increases around Plan B in particular, it is a matter for the HIA to take action in that regard. I know it will have the support of everybody in that matter.

See this speech in context