John Moloney (Laois-Offaly, Fianna Fail)

I am pleased to address the House on Second Stage of the Health Insurance (Miscellaneous Provisions) Bill 2008. The Bill contains a number of important measures to support the operation of community rated health insurance which is widely supported by all parties in the House since the market was opened to competition. In 1993 in its first report, the seventh joint committee on commercial State bodies, which included four Members of this House, highlighted the threat to community rating that competition could bring while recognising that community rating could be preserved through the use of a mechanism which would channel compensation to insurers covering older subscribers from insurers covering younger subscribers. At the centre of community rated health insurance is inter-generational solidarity between all insured persons through the application of community rating to all insured persons irrespective of their age or health status. It is a policy which successive Governments over many decades have been committed to maintaining.

Approximately 51% of the Irish population holds private health insurance. This figure has typically reflected the numbers of people in employment and there has been a small decline in the numbers insured over the past six months. Given the manner in which inter-generational support operates it is essential the regulatory framework, especially at a time when overall membership is subject to the broader economic environment, effectively supports inter-generational solidarity. Recent data indicate the market share of VHI has fallen to about 66%, while the share of Quinn Healthcare has increased to 22% with Hibernian Aviva, which took over Vivas in 2008, close to 10%. Most relevant to any assessment of the market, VHI continues to have by a considerable margin the highest number and proportion of members over 50 years of age. While Quinn Healthcare's customer profile is maturing, along with Hibernian Aviva it enjoys a significantly younger age profile than the overall market. A community rated market with such a profile requires a mechanism that redistributes the higher health care costs of supporting the elderly.

While all political parties and most academics and professional bodies, including the Society of Actuaries in Ireland, supported the risk equalisation scheme, commercial interests opposed it from the outset and sought to overturn the entire regulatory framework through legal challenges. The challenges ultimately succeeded when, in July 2008, the Supreme Court found the risk equalisation scheme to be ultra vires on a point of statutory interpretation. While the Supreme Court decision did not strike down the principles of community rating, open enrolment, lifetime cover or risk equalisation, it found the scheme to be ultra vires because the legislation did not provide an explicit link between community rating as defined in the Health Insurance Acts and the section of the Acts providing for risk equalisation. The Chief Justice subsequently commented that the decision was not an obstacle to the Government bringing forward a new scheme.

Currently, a system of single community rating applies whereby all individuals with a specific insurer pay a single rate for the same cover, irrespective of age, when entering the market. The Minister will be bringing forward regulations in the early autumn, as provided for under section 7A of the principal Act, with the intention of commencing lifetime community rating by the end of this year. The introduction of these regulations will encourage younger people to continue to take out health insurance as those who delay taking out cover until older will be liable for a late entry loading reflecting the fact that they did not contribute positively to the overall risk pool and intergenerational solidarity when in a position to do so.

Following the Supreme Court decision in July 2008 the Government came to the conclusion that there was an immediate need for an interim scheme to prevent a risk rated market developing in a manner that would make it impossible to revert to an effective community rated market.

There was also a need to ensure the protection of older people, many of whom had been paying private health insurance since their youth and who were now at the point where they needed such insurance most, facing the prospect of no longer being able to afford appropriate cover.

It is also true that the principle of community rating protects all persons suffering ill health, irrespective of age. This is because, under a community rated system, prices for products are the same to all persons, irrespective of age and health status. However, without risk equalisation or related measures insurers are incentivised to focus solely on attracting only younger lives.

The reality 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.

Given this, the Government determined that officials from the Department, with the Health Insurance Authority and legal and actuarial experts, would work to develop an interim scheme which could be put in place promptly to stabilise the market, while a longer term solution was developed. Consideration was also given to submissions received from and representations made by market stakeholders. It is this interim scheme that is provided for in the Health Insurance (Miscellaneous Provisions) Bill 2008.

On the interim scheme, the measures provided for in the Bill were notified to the Commission, DG Competition, on 19 November in the same manner as the 2003 scheme had been notified. That scheme was approved by the Commission and the Commission's decision was subsequently upheld by the Court of First Instance as the previous scheme was recognised as a justifiable measure given the obligation imposed in the common good on health insurance providers. Similarly, the Commission has recently determined that the interim scheme is also an appropriate measure given the nature of our market.

The Bill has been amended since publication to reflect the detail of the Commission's decision, particularly as regards the inclusion of a framework to satisfy the Altmark criteria applied by the Commission and to allow an assessment of whether any overcompensation occurs. I take the opportunity to clarify that the Commission's decision, primarily reflecting the examination of DG Competition, specifically recognised that any action the Commission would take on VHI's historical derogation from having to be authorised would be a separate matter, primarily for DG Internal Market and Services.

The interim scheme consists of two elements: age related tax reliefs granted to individuals who hold private health insurance and a levy, that is a stamp duty, charged on private health insurance companies to be used to finance the age-related tax reliefs.

The details of the relief are as follows. People aged 50 to 59 - €200, aged 60 to 69 - €500, 70 to 79 - €950, and over 80 - €1,175. The existing tax relief at source of 20%, which will continue to apply, will relate to the gross premium paid net of the new credit being introduced.

On the levy, each private health insurance company will be required to pay an annual levy to the Revenue Commissioners. The levy will be remitted to the Exchequer where it will form part of the overall Exchequer funding. The levy will be charged on all adult insured lives at a level of €160. Apart from a reduction to one third of this amount, €53, for insured lives under age 18, to reflect the fact that insurance premiums for under 18s are on average of the order of one third of the adult premium, there will be no differentiation on the basis of age.

Both the age-related private health insurance relief and the levy will be subject to annual review to take account of medical inflation and the impact of an ageing population.

The stamp duty is being placed on the health insurance companies for each insured life, and not on the individual subscribers. It is a matter for the companies whether to pass this duty on to their customers.

The additional tax relief under the scheme is being granted at source to the insurer as tax relief at source, TRS. It is granted on the basis that the insurer must charge the same net premium to all persons covered by a plan. The operation of the medical insurance relief at source means the relief is available to all persons, including those whose taxable income would be insufficient to avail of the tax relief. This will be reflected in the fact that each person will only pay the same net premium.

The tax relief being made available under this interim scheme is a fixed sum tax relief. The amount of relief given is fixed, irrespective of the plan held by the insured person and, accordingly, higher amounts of relief will not be available for more expensive plans.

The age related tax relief and the levy will only apply to the commercial insurers operating in the market. They will not apply to the restricted membership undertakings, RMUs, for the ESB, gardaí and prison officers. The option given to the RMUs to choose to be included in the original risk equalisation scheme has been identified as a legal weakness in the regulatory framework.

The main objects of the Bill are to affirm that the purposes of the Health Insurance Acts include, inter alia, ensuring that access to health insurance cover is available to all consumers without differentiation made in respect of age and health status, and providing for the implementation of related measures to achieve these objects.

Section 3 provides that the principal objective of the Minister and the Health Insurance Authority in performing their duties under the Act is to ensure, in the interests of the common good, that access to health insurance cover is available to all consumers with no differentiation made, in particular as regards the costs of health services, based on age and health status.

Section 4 includes revised definitions, reflecting the Supreme Court judgment, of terms such as "community rated health insurance contract" and "community rating", which now encompasses measures that support the achievement of the principal objective.

Section 6 includes a basis for determining reasonable profit. Determination of "reasonable profit" will be assessed in accordance with the Community Framework for State Aid in the Form of Public Service Compensation, which has been inserted to the Bill as Schedule 2. It also substitutes a new section for section 7 of the Act with changes aimed at ensuring community rated health insurance contracts are made available without differentiation, irrespective of age or health status. Insurers are required to offer any particular contract for a period of not less than 31 days and insurers are to charge all persons the same net premium.

Section 7 amends section 7A of the principal Act and provides for a reduction of the age at which the late entry loadings can be applied from 35 to 30.

Section 8 provides that private health insurers are to submit samples of all contracts to the Health Insurance Authority ten working days in advance of offering them for sale to potential customers. This section also provides for the authority to establish a register of health insurance contracts.

Section 9 inserts a new section into the principal Act to provide for the necessary data returns to be made to the Health Insurance Authority to allow monitoring of this scheme. The section provides for an evaluation and analysis of the data returned by the authority and for it to make a determination on the appropriate level of credits and duty for the following year and to advise the Minister accordingly. It also sets out a process for determining net beneficiaries of the scheme and a test for possible over compensation, and for net financial impact being evaluated on a cumulative basis over the duration of the scheme. The section also provides for the insured person being informed of the gross and net premium.

Section 10 amends section 12A of the principal Act. This amendment provides for the use of any data returns made in the calculation of the age-related tax credit and the amount of the levy payable.

Section 11 replaces section 13 of the principal Act which contained limited provisions relating to advertising and promotion of health insurance business. This new section includes much stronger provisions with an emphasis on enhancing the position of the consumer in relation to the provision of information by insurers and regulating the content of advertisements.

Section 12 amends section 14 of the principal Act. This amendment prevents the establishment of new restricted membership undertakings offering health insurance.

Section 13 inserts a new part into the principal Act that enables the Health Insurance Authority to pursue enforcement of provisions where it is of the opinion that an insurer is contravening a provision or is likely to do so again. The section sets out a specific process whereby the authority may take a number of steps to have any contravention remedied, including making an application to the High Court to seek compliance.

Section 14 provides for the amendment and substitution of section 21(1) of the principal Act, which deals with the functions of the authority. It enhances the functions and powers of the authority in line with the provisions of the Bill.

Sections 15 to 21 amend the Taxes Consolidation Act 1997 to provide for a new age-related tax credit in respect of payment of private health insurance premiums during the course of this scheme in respect of persons aged 50 years and over. These sections relate directly to the tax relief elements of the interim scheme which I described.

Section 22 inserts a new section 125A into the Stamp Duties Consolidation Act 1999 to provide for the collection of the annual stamp duty on health insurance companies based on the number of lives covered. The section now provides for four return periods recognising that premium payments made monthly will flow into 2012. The section also provides for benefit in kind assessment on a basis that will not result in an employer who pays insurance on behalf of staff facing higher costs.

Section 26 provides for the application of the levy on the health insurance companies. It has been amended since publication to address issues raised by the industry. In particular, the levy now applies only to contracts renewed or entered into in 2009 and onwards.

Section 27 provides for the amendment of the Insurance Act 1936 with the definition of premium contained therein amended for the purpose of solvency calculation and corporation tax assessment on foot of industry representation.

The combination of measures in the Bill is designed to protect the common good features of the market, in particular community rating and effective open enrolment. These measures need to be put in place while a more permanent replacement for the 2003 risk equalisation scheme is designed. While that work intensified over the next two years the Government must ensure that the regulatory framework does not support product segmentation and the development of niche products directed at attractive segments of the population, undermining community rated health insurance.

The Bill also contains a significant number of new measures, including the establishment of a register of contracts, information provision by insurer, control of advertising, compliance with the principal objective and related enforcement powers for the Health Insurance Authority. I commend the Bill to the House.