Lucinda Creighton (Dublin South East, Independent) | Oireachtas source

Yesterday the Mater Private Hospital announced that it would axe 95 jobs, citing the fact that 170,000 insurance policyholders have cancelled their cover since 2011 and "the further erosion of resources in the sector due to the cap on tax relief on premiums over €1,000". The reduction in patient services in the Mater Private Hospital and further reductions in private hospitals throughout Ireland will have an inevitable consequence, imposing an even greater strain on the depleted resources of our public health system.

I put a number of parliamentary questions to the Minister for Health asking what impact he felt the change in tax relief announced by the Minister for Finance would have on the number of individuals previously in the private system who will now be seeking to use the public health system. In his response the Minister informed me that there was no basis upon which he could make any such assessment. Surely the example of the Mater provides the sort of financial forecasting required, and I hope there will not be further announcements along the lines of yesterday's statement. Sadly, I am not in any way confident that that will be the case.

As I have stated before, reducing the tax relief on health insurance makes no sense and does not stack up with stated Government policy. The Minister for Health knows this well and I suspect that many of the advisers and officials sitting beside him share that view. This measure was announced by the Department of Finance as a way of shoring up the VHI, and it is essentially an additional private insurance levy for all insurers that is being used to fill the capital regulatory hole that exists in the VHI.

We can debate the philosophical underpinnings of tax reliefs, tax increases or tax cuts but, basically, what the reduction in tax relief means for 1.1 million policyholders is that their premium will increase. That is the inevitable outcome and that has been verified by anyone who understands or is involved in the sector. People do not care about the semantics of the argument, but they do care about the impact it will have on their already depleted household budget.

The Minister said in an interview last February with The Sunday Business Postthat he did not believe another rise in VHI premiums was "fair, proper or right". I agree. Yet, here we are, eight months later and the changes in tax relief mean that tax relief on VHI's health plus extra plan, for example – not a gold-plated plan - will push the premium to €2,096 from €1,837, an increase of a substantial 14% or €260. The Minister is aware that these plans are invariably held by elderly people who are doing their best to avoid higher excesses and to ensure their policies will cover the full amount for common procedures which are run-of-the-mill for older people such as hip replacements and heart bypass operations in private hospitals. As the Minister said himself, VHI has 90% of the elderly health insurance market. The change is a direct increase in premia, the same increase that just eight months ago the Minister said would not be fair, proper or right. That is precisely what is happening. We can dress it up whatever way we want but that is the result for people who are paying the premia.

I am working on the assumption that the Minister for Health does not support the changes imposed on him by the Minister for Finance. We had a flavour of that at the Joint Committee on Health and Children a few weeks ago, but that does not absolve him of the responsibility for it occurring. He is the Minister for Health. Even if the revenue generated from the changes to the relief are to be used for a capital injection into VHI, there were alternative means for how the VHI’s well-flagged difficulties could have been addressed. The matter has been rumbling on for some time since the European Court of Justice ruling in September 2011. We knew that the VHI had to shore up its reserves to the same levels as its private competitors. At the same time we were told that an additional €220 million would be required but it seems from the latest reports that this figure has been reduced significantly as a result of Warren Buffet's reinsurance deal. It has also been reported in the press that this deal is not yet over the line due to concerns relating to the Minister's commitment to the health insurance industry and to risk equalisation. It appears Mr. Buffett's concerns are being adhered to, and that is essentially the purpose of recent announcements but the question is at what price and to whom.

It appears to me that the changes to tax relief and risk equalisation changes in the health insurance levy dealt with in the Bill have absolutely nothing to do with some form of strategic health insurance policy and everything to do with giving a very famous international investor every term and condition he has sought. As far as I can see, this is a large accounting trick, where instead of the State having to account for the €230 million or so additional cash injection for budget 2014, both Ministers have found other means to fill the capital hole and secure Mr. Buffett's investment on his terms. It is a short-term fix that will cause long-term problems. A net saving of €70 million or so to the State for next year’s budget year from Buffett's investment is not justifiable faced with the number of policyholders who will be affected and the 170,000 health insurance policyholders who have cancelled their policy since 2011. I assume most Members will be aware that Mr. Buffett is the world's most successful investor for areason: he maximises returns and reduces risk but that comes at a price. On this occasion, the price is being imposed on 1.1 million Irish health policyholders.

The Buffett solution to VHI was not the only solution, nor indeed were increased levies, tax relief and ultimately this major State capital injection. VHI could have been broken down and sold into different parts. The proposal was something we contemplated in opposition as a possible, indeed probable, solution. There clearly is an appetite for further international investment in the Irish health insurance market. That has been demonstrated by the arrival of new companies such as GloHealth. If VHI had been split up, instead of the taxpayer taking the €150 million hit or sweetheart deals being provided to Mr. Warren Buffett, the investors could have made the capital investment and there would not have been a requirement to inject taxpayers’ money.

I do not suggest that we should abandon risk equalisation but let us engineer a far more efficient health insurance market that will benefit Irish taxpayers. At the moment it is simply a question of firefighting. No strategic reform has taken place and VHI is getting everything it wants. Mr. Buffett is getting everything he wants and the taxpayer and the policyholder are paying the price for both. A report was done by Goodbody stockbrokers and Matheson solicitors in 2011 on the future of VHI. It appears that the report has been suppressed. I urge the Minister to make it public so that, as legislators, we can all scrutinise the alternative options that have been put to the Government but have been ignored to date. That would be a healthy, open and transparent way to proceed.

While not specifically dealt with in this legislation, albeit very much linked to the economic rationale for the legislation, the Minister must impose very strict conditions on VHI for receiving this taxpayer investment. Earlier this year it was discovered that the average staff cost at VHI in 2011 was €62,000 compared to €40,000 at Laya Healthcare. VHI continued to pay into a defined-benefit pension scheme for its 900 staff in 2012. In 2011 the pension provision amounted to €7.7 million. I understand former staff receive lifelong VHI health insurance and, equally, current staff also receive this top-up payment. It is important that if we write a cheque to the VHI on behalf of taxpayers that we do so with stringent conditions. The Minister will have no credibility in making statements that private insurers should make greater cost efficiencies in administration – I have heard that repeated by a number of Government backbench Deputies - when the State-owned VHI continues to maintain such disproportionately high staff costs. On average, they are 50% higher than competitors in the health insurance market. VHI staff benefit from large pension entitlements and private health insurance top-ups. That is not sustainable. If we inject taxpayers’ money into VHI there must be substantial, systemic and deep reforms. To date, I do not see much evidence of that.

One of the biggest failings the previous Government made after writing huge cheques and issuing the guarantee for the banks was that it did so without any conditions. I plead with the Minister not to make the same mistake. One could argue that the sum involved with VHI does not compare to the bank bailout in terms of quantity but it is an important principle and it is important to set down such a marker.

Deep and comprehensive changes to salary structures, benefits and pensions benchmarked against VHI's competitors must be the price for this taxpayer injection. No longer must there be any sacred cows.

I urge the Minister to reconsider both the change in tax relief and the alterations in the risk equalisation measures and explore further the scope for breaking up VHI and avoiding the necessity for taxpayer investment that will be funded by these measures.

If the Government remains serious about implementing universal health insurance, it is inevitable that some form of tax incentive will be introduced to encourage people to take up policies. The cost of the tax relief in 2013 will be a future cost in some budget year most likely before 2016 if the universal health insurance policy is delivered when promised. Moving 50% of the population into private health insurance will not be done without some tax relief. I presume the Minister knows this. In the meantime, the very short-term savings to the State will merely impose longer-term costs on our public hospitals. I fear the Mater Private Hospital’s enormous staff reduction, announced yesterday, may be only the beginning as an increasing number of people move away from their private policy and into the public health system, thereby putting increasing pressure on the latter. Is this seriously the outcome the Minister set out to achieve when he came into office? I genuinely do not believe that was the objective but that this is a short-sighted, unintended consequence. It will make it far more difficult to achieve the objectives of universal health insurance. Logically, moving people out of private health insurance, only to try shift them back in the very near future through a universal scheme is simply not going to be practical or possible.

Fine Gael ran on aplatform of ending the two-tier system of health service. The two-tier system, created by the previous Government, led to the unique position in which private health insurance holders were eating up public hospital infrastructure and staff. This reduces the amount of public hospital infrastructure available to the other half of the population that does not have private health insurance. This, in itself, is unsustainable.

The consequence of the policy advocated, which is now enshrined in this legislation, is to reduce the number of private health insurance policy holders entirely, which is resulting in the reduction of services in private hospitals. This has no effect on tackling the two-tier health system; it reinforces it and further damages the public health system. I hope we will have an opportunity to return to this matter on Committee Stage.

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