Dáil debates

Tuesday, 7 December 2021

Health Insurance (Amendment) Bill 2021: Second Stage

 

5:20 pm

Photo of Mary ButlerMary Butler (Waterford, Fianna Fail) | Oireachtas source

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

I am pleased to have this opportunity to address the House on Second Stage of the Health Insurance (Amendment) Bill 2021. This is an annual technical Bill comprising nine sections, all focused on the issue of health insurance. This legislation is needed in order to revise the parameters of the risk equalisation scheme, which is a financial mechanism that supports our community-rated health insurance market.

The amendments outlined in the Bill will ensure the ongoing sustainability of the private health insurance market and seek to keep health insurance policies at an affordable and equal price for all citizens, young or older, healthy or sick. I will begin by briefly outlining the purpose of risk equalisation before providing an overview of the process undertaken to set the 2022 rates and then outlining the specific provisions which will apply next year.

Currently, 46% of the population in Ireland holds private health insurance. This amounts to 2.3 million people and represents a total annual premium income of more than €2.5 billion. Health insurance in Ireland is provided according to four principles, namely, open enrolment, lifetime cover, minimum benefit and community rating. Our community-rated health insurance market means that the cost of health insurance is shared across all members of the market. In general, everyone, with certain exceptions, can buy the same policy at the same price. Insurers cannot take into account personal circumstances such as health status. Older and sicker people pay much less for health insurance than they would in a risk-rated market. Younger and healthier people who are less likely to access health care pay more than they would in a risk-rated market. As young people grow older, their health insurance needs may increase and they too will be supported by community rating. This principle is called intergenerational solidarity.

Community rating is supported by the risk equalisation scheme, which has been operational in Ireland since 2013. In essence, the scheme is a financial transfer mechanism whereby money flows from insurers with healthier members to insurers with sicker members in the form of credits. These credits are funded directly by stamp duty levies on all health insurance contracts when those contracts begin and these levies flow into the risk equalisation fund. Without the scheme, an insurer with older and sicker members would be forced to charge much higher premiums than its competitors to cover its claims costs. None of the stamp duties on health insurance contracts goes to the Exchequer; they are all used to fund risk equalisation credits. The risk equalisation fund is managed by the Health Insurance Authority, the independent regulator of the health insurance market.

The risk equalisation scheme requires state aid approval from the European Commission in order to function as part of the private health insurance market. The current scheme was approved in 2016 following negotiation with the Commission, with similar schemes approved and in operation in Ireland since 2003. To date, the scheme has been considered a state aid which is compatible with the internal market by the European Commission. The current scheme is approved to operate until 31 March 2022 and was extended from 31 December 2020 due to the impact of Covid-19. Negotiations are at an advanced stage with the European Commission for the new scheme and are expected to be finalised by the end of the year.

As Deputies will be aware, a health insurance Bill is needed each year to update the amount of credits paid to insurers under the scheme and the corresponding stamp duties required to fund them. In addition to these standard technical amendments, this year's Bill provides the legislative basis for the introduction of high-cost claims credits to the scheme. Furthermore, the Bill provides for an updated benchmark of reasonable profit and the introduction of a time limit for insurers claiming from the fund. I will set out the detail of these amendments shortly when outlining the specific provisions. These updates are based on the recommendation of the Health Insurance Authority. Each year, the authority carries out an evaluation of the market, focused on the claims costs that every insurer has paid over the year. This evaluation includes information on market conditions, which is particularly important in recent times as Covid-19 continues to have a large impact on the market. Based on that analysis, the authority recommends the level of credits that should apply for the next year. Significant work has also been carried out by the Health Insurance Authority in the past few years in relation to high-cost claims and how high-cost claims credits will be introduced to improve the effectiveness of the scheme. The authority has provided several reports to the Minister for Health on this new addition, including a final recommendation in June of this year following an open consultation which involved health insurers and members of the public.

I will now outline the specific sections of the Bill. Section 1 defines the principal Act as the Health Insurance Act 1994.

Section 2 amends section 6A of the principal Act to include high-cost claim credits in the definition of risk equalisation credits which the insurer is entitled to have paid on behalf of an insured person. This section also proposes to insert new definitions for high-cost claim, high-cost claim credit, high-cost claim quota share and high-cost claims threshold. High-cost claims credits will work by targeting claims costs over a threshold of €50,000 in a rolling 12-month period and compensating the insurer for 40% of the claims cost over this threshold. Currently, health insurers receive no subsidy for these claims. The hospital utilisation credit is the only credit paid related to the health status of customers and is paid when an insured person accesses hospital services. The high-cost claims credit will increase by 25% of the amount of the fund paid directly for health service usage. High-cost claims arise in the Irish health insurance market where an insured person is extremely ill and attends hospital for an extended period and are closely linked to chronic conditions such as cancer. Health insurers must pay claims costs where they are medically necessary and are covered by the insured person’s contract. This new type of credit intends to target subsidies towards the claims costs of sicker customers. This will support the objective of community rating.

Section 3 amends section 7E of the principal Act. It provides that the Minister may require the Health Insurance Authority to furnish a report relating to the high-cost claims credit parameters. The Health Insurance Authority will include the level of high-cost claims credits that should be paid out of the fund, and the basis on which they will be paid, in its annual report and recommendations to the Minister.

Section 4 amends section 7F of the principal Act to provide for a new benchmark of reasonable profit and for transitional arrangements for how it is to be applied for the three-year periods 2020-22, and 2021-23. The benchmark of reasonable profit is used to assess whether an insurer has been overcompensated by the risk equalisation scheme. This is currently set at 4.4% return on sales, gross of reinsurance and excluding investment income. This was agreed with the European Commission under state aid rules in 2015. This section amends the 4.4% return on sales to 6% on the same basis. This was based on the recommendation of a new benchmarking exercise among European and Irish insurers.

Section 5 amends section 11C of the principal Act to provide for a new effective date for revised age-related credits payable from the risk equalisation fund. This section also introduces a time limit on all risk equalisation credits that can be claimed from the risk equalisation fund. There is currently no time limit or cut-off period in the Act restricting how long a health insurer may have to make a claim to the fund. Introducing a cut-off for claims on the fund is expected to have benefits from a data management, administrative and financial reporting perspective for the Health Insurance Authority. There will be a transitional period where health insurers will have an opportunity to submit any claims, which are backdated before this new time limit is introduced.

Section 6 replaces table 2 in Schedule 4 to the principal Act. This table provides for age-related credits, which are payable for insured people over the age of 65. These new credits would be payable from 1 April 2022. This year, the Health Insurance Authority has recommended a marginal decrease in the age-related risk equalisation credits to facilitate the introduction of high-cost claims credits. Age-related credits provide a subsidy for insurers who provide cover for that cohort. These credits cover the expected extra claims costs for insured older people.

Section 7 amends the principal Act by the addition of Schedule 5 which provides the parameters for high cost claims. These are the high-cost claims threshold which will be set at €50,000 and the high-cost claims quota share, which will be set at 40%.

Section 8 amends section 125A of the Stamp Duties Consolidation Act 1999.

This will specify the stamp duty rates that will apply for 2022. As I outlined earlier, the scheme is Exchequer neutral. It is not funded by the State and the State does not derive any funds from it. The amount of stamp duty levy is calculated to offset the costs associated with the payment of risk equalisation credits. Any surpluses or deficits that arise under the scheme are rolled over and included in the recommendation for the following year.

Covid-19 has had a major impact on the private health insurance market in Ireland, as it has on the entire public and private health sectors. The pandemic has restricted utilisation of hospital services, which has impacted claims activity, thereby causing fewer risk equalisation credits to be paid out. That has caused a surplus to arise in the fund. This section provides for a reduction in the stamp duty levy applicable to health insurance contracts from 1 April 2022, which incorporates a surplus of €100 million that had gathered in the fund. The amount of stamp duty payable varies, depending on whether a contract is advanced or non-advanced. The difference between the two is how much private hospital coverage the contract offers, with non-advanced contracts providing for mostly public hospital cover. The stamp duty on advanced health insurance contracts will be €406, a decrease of €43 from 2021 rates. For non-advanced health insurance contracts, the stamp duty will be €122, which is a decrease of €35 from 2021 rates. It is hoped these reductions can benefit customers by way of a reduced premium charged by insurers next year.

Section 9 provides for the Short Title, commencement, collective citation and construction of the Bill. The provisions in the Bill relating to the introduction of high-cost claims credits and the amendment of the benchmark for reasonable profit are subject to approval by the European Commission under state aid rules. The commencement of these provisions will be done by ministerial order.

To summarise, this Bill allows us to maintain the community-rated health insurance market. Its provisions will increase the effectiveness of the risk equalisation scheme, which is a fundamental support to the market. I conclude by highlighting the Government's commitment to improving public health services under the Sláintecare programme. As access to these services improves, the proportion of people who hold health insurance may decrease over time. Importantly, the programme for Government commits to retaining access to private healthcare services for people in Ireland, thereby ensuring choice for those accessing healthcare. While such a high proportion of people hold health insurance across Ireland, it makes sense to maintain the community-rated health insurance market. I commend the Bill to the House.

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