James Reilly (Dublin North, Fine Gael) | Oireachtas source

We have been putting in place the building blocks for universal health insurance, UHI, including the introduction of money-follows-the-patient funding. We are currently working on a White Paper on UHI, which will be published before the end of the year. This involves the development of detailed policy proposals covering issues such as the design of the UHI model, the UHI basket of services and funding mechanisms.

Revised risk equalisation credits to protect community-rated health insurance are an essential part of maintaining our community-rated system. I would like to focus on the specific changes made to these credits and corresponding stamp duties, which will apply from 1 March next year. The risk equalisation scheme, RES, provides for risk equalisation credits based on age, gender and level of cover in respect of insured people aged 50 and over. Under the Health Insurance Acts, the Health Insurance Authority, HIA, the statutory regulator of the industry, makes recommendations on the applicable rates to the Minister. Having considered the expert analysis provided and consulted with the Minister for Finance, I then set the rates for the risk equalisation credit and the Minister for Finance sets the rate of stamp duty required to fund those credits.

A critical element of risk equalisation is to ensure it promotes efficiency. In its assessment of the required support levels, the HIA compares data across the market. Using market average data means that an insurer with higher than market average claim costs will continue to lose out to its competitors and will, therefore, have a strong incentive to reduce its costs towards, or even below, the market average. The availability of cheaper entry level products in respect of which there is no increase in stamp duty may encourage more young people into the market and may encourage others to remain in the market. This measure is intended to encourage sustainability, therefore, from the perspective of the market as a whole. This is in keeping with my overall commitment to community rating in the first instance and to progressively increase the extent to which risk equalisation compensates for the costs of insuring older customers. Otherwise, health insurance would become prohibitively expensive for older customers, the majority of whom would be forced to leave the market at the time in their lives at which they are most likely to benefit from having it.

Without an efficient RES, there are clear negative implications for older or less healthy customers. In addition, there are serious potential consequences in terms of the promotion of fair and open competition, the stability of the market and the sustainability of insurers. The scheme levels the playing field among all insurers by providing a mechanism for sharing risk and attendant costs in order that an insurer with a less profitable risk profile is not obliged to charge higher premiums than the market average or incur significant losses, other things being equal. Where premiums are higher than the market averages, an insurer is more likely to lose younger than older customers, and its worsening risk profile may oblige it to increase premiums further, resulting in a cycle that could drive the insurer from the market. This is the so-called death spiral. On the positive side, an effective RES creates an incentive for insurers to focus on innovation, greater efficiencies and improved customer service rather than selecting customers based on risk. This is the kind of competition that is best for consumers.

With regard to policy development, it would be valuable to set out a basic road map for risk equalisation for the next three years. I am committed, at a minimum, to maintaining the current level of effectiveness by age group as measured against market average claim costs; adjusting the hospital bed utilisation credit, HBUC, as a proxy indicator of health status pending the introduction of a more refined measure, while ensuring the rate never creates an incentive for unnecessary hospital stays; introducing a more refined measure of health status, for example, through the use of diagnostically-related groups, DRGs; and incrementally increase effectiveness between 2014 and 2016 with a view to further increasing effectiveness to 85% for those aged over 70 years and to 90% in respect of customers aged over 80 years. In line with existing legislation and other requirements, these policy aims are subject to the following critical requirements: annual expert current market analysis by the HIA; scheme rules relating to overcompensation as agreed under EU state aid approval; and the final decision on applicable RE rates set by me in consultation with the Minister for Finance in line with the governing legislation. The measures being introduced will continue to protect community-rated health insurance, which is a vital part of our health system now and in the future as we move to UHI.

I have outlined the mechanics of how the RES works in terms of risk equalisation credits and corresponding stamp duties and what it is intended to achieve, which is the support of community rating, by ensuring older persons have access to affordable health insurance. I refer to the consequent improvements to the effectiveness of the scheme and I would also like to dispel some myths about the monetary impact of the revised rates for consumers. The stamp duty for advanced plans will increase by €49 for adults and €15 for children. This does not mean that each plan will increase by these amounts. It is up to the health insurers to decide their own pricing plans, an issue to which I will return in due course. These changes are necessary to further improve the effectiveness of the RES. I am fundamentally committed to progressively increasing the extent to which risk equalisation compensates for the costs of older customers.

The HIA has determined that when luxury benefits are excluded, the revised risk equalisation credits will compensate for 78% of the higher claims costs of people in their 70s, which is up from 75% this year, and for 86% of the higher claims costs of those in their 80s, which is up from 83% this year. These improvements will make a real and substantial difference to older people and are in line with the gradual improvement I am aiming for under the road map I mentioned earlier. It has often been said before that the true measure of any society can be found in how it treats its most vulnerable members and, in this respect, I am pleased to further help and support older persons in our society in having continued access to private health insurance at an affordable price.

The 2013 scheme also provided for a measure of health status whereby €75 per night is payable from the risk equalisation fund in respect of each overnight stay in a hospital bed in private hospital accommodation, including in a designated private bed in a publicly funded hospital. Used as a general proxy for health status, this is called the HBUC and it benefits each insurer who pays for a customer to use an overnight hospital bed. From 1 January, the HBUC will also be payable in respect of patients with private health insurance cover occupying public hospital beds. For policies effected from 1 March 2014, the amount payable under the HBUC will be reduced from €75 to €60.

All of the commercial insurers have declared their support for the principle of community rating, which is welcome. An implication of this support is that when a measure required to further support community rating is introduced - in this case, revised risk equalisation credits and corresponding stamp duties - every effort should be made by insurers to fully explore their capacity to manage their business and its attendant costs as efficiently as possible to minimise the requirement to pass the impact on to consumers directly. Insurers could examine a number of areas to ensure their practices are as cost-effective as possible, including administration costs, which can be a significant contributory factor to their overall business costs.

Under section 7F(1) of the Health Insurance Act 1994, registered undertakings are obliged to maintain and furnish information returns, including a statement of profit and loss and a balance sheet, before 1 April each year, while the Central Bank also requires financial data returns by 1 May. To reduce the administrative burden arising from two separate dates for related data sets, I intend to table an amendment on Committee Stage to change the deadline to 1 May, which will have the practical benefit of providing insurers with an additional month to finalise their preparations and meet the requirements.

Currently, VHI is the sole net beneficiary of the RES. It is open to insurers to reduce their outgoings under the scheme by taking on a fairer share of older lives. The VHI has a disproportionate market share of the older age cohorts. For example, VHI holds 89% of the market share in the over-80 age group, compared with only 6% each for Laya Healthcare and Aviva Health. I am disappointed by the inability of some insurers to offer products that are more attractive to older customers.

The revised credits should make older clients more profitable for newer companies operating in a competitive health insurance market. I look forward to seeing their numbers increasing across all of the insurers.

I am also aware that other factors impact upon insurers' ability to operate efficiently while achieving profit, such as rising medical inflation, increases in claims costs, increases in the average number of treatment days, etc. By way of example, between 2004 and 2008, the average cost of claims per insured person increased by 6.7% per annum but between 2008 and 2012, this increased by 12.6% per annum. Between 2004 and 2008, the average number of treatment days per insured person fell by 12%. However, between 2008 and 2012, the average number of treatment days per insured person increased by 45%. I can see that Deputy Kelleher is as upset about this as I am, particularly when we are reducing the average length of stay in the public health system. There are some lessons for the private hospitals and insurers to take from the public health system, if they care to look at it.

With regard to health insurers’ costs, I have consistently emphasised the need to address the rising cost of private health insurance and the necessity for all private health insurers to address their cost base aggressively. Last year, I established the consultative forum on health insurance to generate ideas to address health insurance costs. In June of this year, I appointed an independent chairperson, Mr. Pat McLoughlin, who is working with my Department and the insurers on a review process to give effect to real cost reductions in the private health insurance market. I want all insurers to address the base cost of their claims, as well as procedures being provided in an appropriate, safe, health care setting. By that I mean I want the patient to be treated at the lowest level of complexity that is safe, timely, efficient and as near to home as possible. I do not want procedures that could be carried out in primary care centres carried out in hospitals, day cases carried out as overnight cases or patients being kept in the day before and for a day later after a procedure. The incentives in the private health system do not seem to drive these types of efficiencies which are now being achieved in the public health sector.

Numerous lower cost plans are available from all four health insurers. As with other types of insurance, it is quite possible for consumers to find the same level of cover in the market for a cheaper price. Members who are on the same private health insurance plan for several years, or who have all the family on the same level of cover, or those who have opted for higher cover for private room accommodation in private hospitals, should review their requirements regularly. It is important to explore the full range of products now available in the market to avoid missing out on potential cost savings.

The Health Insurance Authority, HIA, provides information to consumers regarding their rights, as well as information on health insurance plans and benefits. It plays an important role for customers both in ensuring they have accurate information and enforcing the implementation of the law protecting consumers in health insurance. Its website, www.hia.ie, has a useful plan comparison tool which assists in finding suitable and competitive health insurance plans. With over 256 plans on the market, that advice is badly needed.

Following the amendment to the Taxes Consolidation Act introduced by the Minister for Finance to limit the relievable amount of premium, I intend to bring forward an amendment to section 7H(b)(ii) of the principal Act so that the statement a policyholder receives from a registered undertaking will clearly set out the gross premium before risk equalisation credits are applied, the applicable premium after risk equalisation credits to which community rating applies and the premium payable by the insured net of tax relief at source.

The key measures in the Health Insurance (Amendment) Bill 2013 are as follows. Section 1 defines the principal Act as the Health Insurance Act 1994. Section 2 amends the definition of “net premium” in section 2(1) of the principal Act. Section 8 of the Finance (No. 2) Bill 2013 introduces new ceilings on medical insurance premiums that will qualify for tax relief as €1,000 per adult and €500 per child. This has implications for the manner in which community rating is applied under the Health Insurance Acts. This amendment clarifies that community rating applies to the gross premium, less any risk equalisation credits and excludes any applicable tax relief. Section 3 amends section 6A of the principal Act. This amendment includes a technical amendment to correct a reference and a consequential amendment to the definition of “hospital bed utilisation credit” from 1 January 2014 to reflect the enactment of section 55 of the Health Act 1970 where private patients will incur a hospital charge in respect of an overnight stay in a public bed, as well as providing for consequential amendment to the definition of ''relevant amount" and the deletion of the definition of “reasonable profit”' at section 6A(2) while a replacement definition is provided for in section 5.

Section 4 amends section 7AB of the principal Act. For consistency, the timeframe by which a registered undertaking which wishes to vary benefits payable under a type of health insurance contract is required to notify the HIA is extended to 1 March from 1 January. This is in line with section 6.

Section 5 amends section 7F of the principal Act. Under this section, an overcompensated registered undertaking is required to make a payment to the risk equalisation fund if it has made more than a reasonable profit. The HIA carries out the overcompensation test on a three-year rolling basis, as provided for in the legislation. This amendment specifies the HIA will take what would constitute a reasonable profit for a registered undertaking in respect of its relevant health insurance business as a return on equity not exceeding 12% per annum on a rolling three-year basis using approved accounting standards and having regard to the European Union framework for state aid in the form of public service compensation. A registered undertaking is not deemed to have made a profit in excess of reasonable profit if its return on equity exceeds 12% per annum in respect of that business for part of that period, the three-year period, but not for all of that period. Further, it defines relevant health insurance business in the State as all of the undertaking's health insurance business in the State and return on equity in the case of a registered undertaking or former registered undertaking established otherwise than under the Companies Act as the equivalent, using approved accounting standards, of a return on equity of a registered undertaking which is a company established under those Acts.

Section 6 amends section 11C of the principal Act to provide for 1 March 2014 as the effective date for revised risk equalisation credits to be payable from the fund. Section 7 amends section 11E of the principal Act. This amendment provides that where the HIA is satisfied that a changed existing contract is now a contract which it classifies as now providing non-advanced cover, it will make regulations accordingly. Where the HIA is satisfied that a changed existing contract now provides advanced cover, the HIA will amend the relevant specification. In addition, provision is made for the HIA to review any evaluation and analysis of sample types of contracts. Where an error occurred in the classification of a product, the HIA will amend the regulations and the register of health insurance contracts accordingly.

Section 8 amends the reference on Schedule 2 to the principal Act. This is a consequential technical amendment to change the reference on the Schedule to section 7F from section 6A.

Section 9 amends Schedule 3 to the principal Act to provide the revised amount payable from the risk equalisation fund in respect of the hospital bed utilisation credit will decrease to €60 in respect of health insurance contracts renewed or effected from 1 March 2014.

Section 10 replaces Table 2 in Schedule 4 to the principal Act. With effect from 1 March 2014, the applicable risk equalisation credits payable from the risk equalisation fund in respect of certain classes of insured persons are revised.

Section 11 amends section 125A of the Stamp Duties Act 1999. This amendment specifies the accounting periods as three consecutive months beginning 1 January, 1 April, 1 July and 1 October. It defines the due date for returns to the Revenue Commissioners as the 21st day of the second month after the end of an accounting period. It then specifies the applicable stamp duty rates for 1 January to 28 February 2014 and 1 March 2014 onwards. Finally, it deletes section 2(A) in each place. Section 12 provides for the Short Title, Collective Citation and Construction.

I commend the Bill to the House.

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