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

I am pleased to address the House on Second Stage of the Health Insurance (Amendment) Bill 2012. As Senators will be aware, the Bill passed through all Stages in the Dáil recently.

As Minister for Health, my objective is to reform the current health system and to deliver a single-tier health service in which access to health care is based on need and not on ability to pay.

The programme for Government sets out the high-level principles for the introduction of universal health insurance, UHI, in Ireland, a system of compulsory insurance in which every individual will have a choice of health insurer and will have equal access to a comprehensive range of services. The Government is committed to the delivery of a single-tier health system, supported by universal health insurance. The system will be based on a multi-payer model and will be underpinned by the principles of social solidarity with access based on need and not on ability to pay, as I noted.

The introduction of UHI is a complex and major undertaking that requires careful planning and sequencing over a number of years. In order to assist the Department in this regard, I established an implementation group on universal health insurance. The group was established in February and met on six occasions over the course of 2012. Its role is to assist in developing detailed and costed implementation proposals for universal health insurance and in driving the implementation of various elements of the reform programme. The group will also support the Department of Health in preparing a White Paper on universal health insurance. The White Paper will outline details of the UHI model in addition to the estimated costs and financing mechanisms associated with the introduction of universal health insurance. Preparation of the White Paper is a complex process. It will involve significant financial modelling to support analysis of different design options and to help estimate the cost of UHI. As a precursor to the White Paper, the Department will produce a preliminary document, which will outline progress to date and scope out the major issues which stand to be addressed on the path to UHI.

The main object of the Health Insurance (Amendment) Bill 2012 before the House today is to provide for a robust system of risk equalisation. Its purpose is to ensure that the burden of the costs of health services are shared by all insured persons by providing for a cost subsidy between the healthy and the less healthy, as well as between the young and the old. The maintenance of a healthy and functioning private health insurance market is an essential step to facilitate the transition to a market-based universal health insurance system and the risk equalisation scheme provided in the Bill before the House today is a crucial element towards achieving this.

Before outlining further detail on the specific provisions of this Bill, it may be useful to reiterate some of the key principles underpinning the operation of the health insurance market, particularly the principles of the young supporting the old and the healthy supporting the less healthy. Community rating is a fundamental cornerstone of the Irish health insurance market. It means that the price of health insurance for all persons should reflect the principle of intergenerational solidarity, that is, that the entire community of privately insured persons should contribute towards the higher costs of claims for older people and less healthy people. Under community rating, everyone is charged the same premium for a particular health insurance plan, irrespective of age, gender and the current or likely future state of his or her health. The only exceptions to this rule relate to children of less than 18 years of age and students in full-time education. Community rating therefore means that the level of risk that a particular consumer poses to an insurer does not directly affect the premium paid. Other important principles in health insurance which apply are that health insurers must accept all applicants for health insurance, all consumers are guaranteed the right to renew their policies regardless of their age or health status and insurers must provide a minimum benefit level prescribed by legislation.

The pricing of risk across the community of insured persons clearly requires robust mechanisms to share costs when there are several insurance companies in the market. The standard transfer mechanism to support community rating is called risk equalisation. The aim of risk equalisation is to look at the market as a whole and distribute fairly some of the differences that arise in insurers' costs due to the differing health conditions of all their customers. Community-rated health insurance systems across the world use this as a means of providing the necessary support for the market. Members will note that the Bill limits participation in this risk equalisation scheme to those insurers operating in the open market. Several other undertakings exist that mainly provide health insurance for certain vocational groups and their families and restrict membership to those groups. As they do not operate in the open market and do not compete for the business of all customers, it would not be appropriate for them to participate in this scheme.

To better understand the requirement to provide for a transfer mechanism such as risk equalisation in the private health insurance market, it may be useful to provide some information on the current market position. The total premium income for the three insurers in the market in 2011 was ¤1.92 billion, an increase of ¤360 million or 23% more than the 2008 figure of ¤1.56 billion. As of the end of September 2012, approximately 2.1 million people or 46% of the population, held inpatient plans. In terms of market share, the VHI has 57%, Laya Healthcare has 21.5%, Aviva Health has 17.3%, restricted membership undertakings have 4% and GloHealth, the most recent arrival, has 0.4%. Laya Healthcare and Aviva Health combined have a 48% market share in the 30 to 39 year age group but only 11% of those aged over 80 years. At the same time, VHI Healthcare continues to have a much greater proportion of members in the older age groups. In the first six months of 2012, it had six times the proportion of members in the over 80 year age group compared with Laya Healthcare and five times the proportion compared with Aviva Health.

It can be seen that there is a clear disparity in the membership profile, and thus the associated costs being incurred, across the various commercial insurers. A consequence of this is that insurers with the worst risk profiles either have to charge higher premiums or incur heavy losses. Therefore, the risk equalisation scheme is designed to compensate insurers which have older, less healthy customers and as a result, higher claims costs, compared with insurers which have younger, less costly customers. It does so by a system of credits, based on age, gender and the level of cover held by persons. The scheme is funded by a stamp duty payable by health insurers in respect of each health insurance policy written. Ultimately, this Bill seeks to strengthen and maintain stability in the private health insurance market. It is important to note that levels of compensation are set at a level so as not to encourage inefficiencies. Insurers should then compete for market share by providing better services rather than competing for younger healthier lives.

Without a robust risk equalisation scheme, there are potentially serious consequences for the stability of the market and the sustainability of registered undertakings. In designing the future UHI model, there also is a need to ensure it meets the needs of Irish citizens and achieves the best outcomes for patients in a manner that is cost-efficient and financially sustainable. An important additional challenge now, therefore, is to implement and oversee the necessary arrangements that will deliver increased efficiencies in the current private health insurance market in advance of the introduction of UHI. I continue to focus on a number of key areas in this regard. I have raised consistently the issue of costs with health insurers at a number of levels and am keen to explore all available measures to reduce the costs related to health insurance. My Department continues to focus on the need for the VHI to address its costs, both in terms of the underlying cost of procedures and treatments for which it pays and in terms of volume. The VHI has also been strongly focused on this aspect of its business. An external review of its claims costs is nearing completion and I look forward to its implementation. The VHI reported recently that its cost containment programme has saved ¤200 million since 2009 by applying various cost containment measures including the reduction of consultants' fees by 15%, the reduction of the prices its pays for various procedures by between 13% and 53% and the introduction of a revised payment system for radiologists and pathologists. The VHI is also focused on claims recovery through the work of its special investigation unit, which resulted in savings of approximately ¤7 million during 2011.

I am mindful that health insurance is becoming harder to afford, especially for older people, as insurers increasingly tailor their insurance plans towards younger, healthier customers. In order to address this issue in particular, I established a consultative forum on health insurance to bring forward ideas for achieving cost savings and for reducing the cost of health insurance overall. The forum was set up originally with a view to generating ideas to help address health insurance costs. Its core focus has been on identifying ways of addressing costs throughout the industry, while always respecting the requirements of competition law. The forum also has provided a vehicle for engagement and consideration of issues relating to the introduction and implementation of this Bill.

Current practices concerning payments for procedures carried out also need be examined, to identify improvements and efficiencies that can be made, in particular the practice of paying by the day rather than paying by procedure. Improved clinical audit of insurers will also be introduced, whereby a like-qualified clinician or surgeon may challenge the providing surgeon on why various procedures which may not be deemed necessary were carried out. Improved audit, in ensuring procedures claimed for were carried out, is also being considered. It is being more than considered; it is being actively pursued. Practices which are being introduced in public hospitals, whereby the focus is moving towards same-day admission and reduced re-admission rates, must be introduced in private hospitals. The VHI has engaged with the clinical programmes in this regard. Not all innovation takes place in the private sector; much of it takes place in the public sector and it then transfers back to the private sector.

In summary, the Government remains committed to keeping down both the cost of health insurance, so that it is affordable for as many people as possible, and the general cost of health care delivery, as part of measures to ensure the sustainability of the private health insurance market in the transition to a UHI system. An additional consideration regarding the cost of health care delivery concerns the charging for public bed occupancy. Under the current legal framework, private inpatients who occupy public beds in public hospitals are not levied the daily maintenance charge which ranges from ¤586 to ¤1,046 in most public hospitals. The Comptroller and Auditor General reported in 2010 that 45% of inpatients treated privately by consultants were not charged maintenance costs because they were not occupying designated private beds in public hospitals. I have previously announced my intention to bring forward legislation to provide for the charging of all private patients in public hospitals, irrespective of whether they occupied a public or private bed.

As part of budget 2013, I announced further detail on legislation to provide for the charging of all private patients in public hospitals. Primary legislation will be introduced during 2013 to provide for charging of private inpatients in public hospitals where they are not in a designated private bed. On that basis, budget 2013 has provided for additional patient income of ¤60 million in 2013. The implementation date will be announced during 2013 when the new legislation is in place. In the meantime, the maintenance charges for private inpatients in public hospitals remain unchanged. An additional ¤5 million in patient revenue during 2013 arises from increasing the daily inpatient charge by ¤5 from ¤75 to ¤80. The date of implementation will also be announced later in 2013. Those measures are designed to recoup some of the cost of treating private patients in public hospitals and to generate much needed income for the public hospital system.

I now wish to return to the Health Insurance (Amendment) Bill 2012, before the House today, and to broadly outline some of the main provisions. The key measures in the Bill comprise first, the provision of risk equalisation credits, payable from a new risk equalisation fund and administered by the Health Insurance Authority in respect of private health insurance premiums by insured persons aged 50 years and over, based on age, gender and type of insurance cover and each hospital stay involving an overnight stay in a hospital bed in private hospital accommodation. Second, the payments from the fund will be made by a stamp duty payable by open market insurers in respect of each insured life covered. The stamp duty will be collected by the Revenue Commissioners and transferred to the risk equalisation fund. There will be four rates of stamp duty, depending on whether the policy provides for advanced cover or non-advanced cover and whether the insured life is a child or an adult.

The scheme will take effect from 1 January 2013. The legislation provides for a range of credits to be payable to insurers on behalf of insured persons. In the case of policies taken out or renewed between 1 January and 30 March 2013, inclusive, the applicable rate is set at the same level as applied in 2012. That is intended to allow insurers time to plan and to "trade-in" to the new rates which will come into effect on 31 March 2013. The credits will depend on the age, gender and level of cover held by the customers of each insurer. There will be an additional hospital bed utilisation credit, HBUC, payable to insurers in respect of customers who stay overnight in designated private or semi-private accommodation in a hospital.

I recently announced the revised rates for 2013 which will, from 31 March onwards, increase the support levels in respect of older and less healthy customers, so that health insurance will be made more affordable for them. Without this support, health insurers have a strong financial incentive to "segment" the market by offering policies targeted at younger, healthier people. The credit is provided at source, that is, the cost of the policy is reduced by the amount of the risk equalisation credit. The credit is in addition to the standard rate income tax credit on all health insurance policies. The measures are designed to result in no overall increase in premiums paid in the market and to spread the risk more evenly between the healthy and the less healthy, as well as the old and the young.

It is important to note that the scheme is designed to be Exchequer-neutral, in that the level of credits is covered by the stamp duty payable. It involves the distribution of the stamp duty collected from insurers in respect of healthier customers, back to insurers in respect of less healthy customers, in the form of age, gender and hospital bed utilisation credits. It is not intended to increase the overall costs in the market. The Minister for Finance has proposed that the current payment structure will be modified from a once annual payment in September to quarterly payments, as follows: levy for policies from 1 January to 30 March payable on 21 May; levy for policies from 31 March to 30 June payable on 21 August; levy for policies from 1 July to 30 September payable on 21 November; and levy for policies from 1 October to 31 December payable on 21 February 2014. The necessary changes to stamp duties legislation will be made by the Minister for Finance by way of the Finance Bill.

I wish to outline the specific provisions contained in the Bill. Section 1 defines the principal Act as the Health Insurance Act 1994. Section 2 amends section 1A of the principal Act. This amendment, first, broadens the scope for sharing the burden of the costs of health services between insured persons by extending the cost subsidy - currently between the young and the old - to include the more healthy and the less healthy. The more healthy are less frequent users of health services and the less healthy are more frequent users of health services. Second, the amendment adds a further criterion to be taken into account for the purpose of achieving the principal objective of the Health Insurance Acts, namely, the importance of discouraging registered undertakings from engaging in practices such as market segmentation which have the effect of favouring the coverage of the more healthy, including the young over the coverage of the less healthy, including the old.

Section 3 amends section 2 of the principal Act by defining certain words used in the Bill and inserting them into section 2 of the Act. The definition of "net premium" is amended in respect of health insurance contracts effected on or after 31 March 2013 so as to take account of the part, if any, of the premium to be paid from the risk equalisation fund in respect of age, sex and type of insurance cover. A definition of an "authorised officer" was included on Committee Stage in the Dáil.

Section 4 amends section 3 of the principal Act. This amendment provides powers for the Health Insurance Authority to make regulations to categorise products. As the new scheme, including rates for risk equalisation credits and stamp duty levies, are strengthened in future by being set in primary legislation, subsections (b) and (c) are no longer required. Therefore, the Bill removes the requirement for regulations to be approved in advance by the Houses of the Oireachtas.

Section 5 substitutes section 4 of the principal Act to provide for offences. It provides for conviction of persons and organisations who contravene the provisions of the Act. Section 6 substitutes a new section for section 6A of the principal Act. It provides definitions and key terms relating to interpretation of Part II of the Bill and Schedules 3 and 4. Key definitions include "hospital bed utilisation credit", "relevant contract (advanced cover)", "relevant contract (non-advanced cover)", "risk equalisation credits" and "type of cover". Section 7 amends section 7 of the principal Act. In subsection (1)(a) the amendment extends the period of time an insurer must maintain the price of a health insurance contract to 60 days from 31 days. Section 8 amends section 7A of the principal Act. This is a technical amendment arising from the repeal of section 12 of the principal Act dealt with at section 20 of this Bill.

Section 9 provides for the submission of new and "changed existing" health insurance contracts to the authority. Clearly, my priority is the implementation of a robust risk equalisation scheme, RES, while minimising the impact on insurers' ability to carry on their business. My Department had very useful discussions with the private health insurers through the consultative forum. As a result of the discussions, I amended a number of the proposed restrictions on product notifications. These relate, first, to the impact of the product notification periods specified in section 7AB now reduced to 30 days for new and changed products, where the product classification does not change. Where a change to an existing product alters its product classification, such changes will take effect from 31 March 2013 and from 1 January each year thereafter.

Second, the definition of products "not providing advanced cover" now provides for an objective delineation of the product categorisation, which in turn allows the Health Insurance Authority, HIA, to categorise products in a more timely manner than previously envisaged.

Section 10 amends section 7AC of the principal Act. This is a technical amendment to the Act.

Section 11 amends section 7C of the principal Act. This is a consequential technical amendment arising from new section 11C and relates to the gathering of certain information by insurers in respect of insured persons.

Section 12 amends section 7D of the principal Act. This amendment expands the breakdown of information returns which registered undertakings are required to submit to the Health Insurance Authority to include the gender profile and type of cover of each age group in respect of the relevant period.

Section 13 amends section 7E of the principal Act. The current legislation already provides for the evaluation and analysis of data provided by registered undertakings. This amendment provides for additions to the factors to which the authority must have regard in carrying out its evaluation and analysis of information returns.

In recommending the level of credits, the Health Insurance Authority will analyse information returns from insurers which will include historical data relating to numbers of lives insured by age and gender categories, hospital utilisation data and relevant claims data. The information will be provided by more detailed data available, including at product level. Having determined its recommended level of credits, the authority will also recommend a level of stamp duty which it believes is required for the scheme to be self-financing.

In setting the rates for risk equalisation credits I will also have regard to the principal objective. I will consider any reports furnished to me as well as: the aims of avoiding overcompensation of registered undertakings or former undertakings; maintaining the sustainability of the market; having fair and open competition in the health insurance market; and avoiding the fund having a surplus or deficit from year to year based on approved accounting standards.

The risk equalisation credits payable in respect of age, gender and level of cover are set out in Schedule 4. Table 1 provides the rates from 1 January 2013 to 30 March 2013 and table 2 sets out the applicable rates from 31 March onwards. In setting these rates, following consultation with the Minister for Finance, I was conscious of the need to maintain the stability of the market while continuing to protect community rating and enhancing the risk equalisation measures. Having consulted the Minister for Finance, I will also make recommendations to the Minister on the applicable stamp duty rates required to support the risk equalisation credits.

Section 14 amends section 7F of the principal Act. These amendments refer to two linked elements of the risk equalisation scheme, namely, the calculation of risk equalisation credits and the carrying out of an over-compensation test to ensure no insurer is over-compensated under the scheme. Each year the Health Insurance Authority will conduct an assessment of the profitability of any insurer which has been a net beneficiary of the scheme, with a view to determining whether the insurer has been over-compensated.

Section 15 inserts new sections 11A to 11G after section 11 of the principal Act. Provisions for a risk equalisation scheme are set out, including to whom the scheme will apply, how it will operate and how an insurer can make a claim for risk equalisation credits. This section also gives the Health Insurance Authority powers to establish and operate the risk equalisation fund and make regulations specifying which products it is satisfied provides non-advanced cover and the form in which an application is to be made by insurers under the scheme. The section also provides that a hospital bed utilisation credit will be payable from the risk equalisation fund in respect cf each overnight stay in a hospital bed in private hospital accommodation on or after 31 March 2013 incurred by an insured person where the health insurance cover of his or her contract effected on or after 31 March 2013 covers the hospital overnight stay in question. The rate is set out in Schedule 3 and is set at ¤75 so as not to encourage inefficiencies in any way.

One criticism of the current interim scheme has been that younger people taking out products with benefits below the standard level were potentially cross-subsidising standard level benefits taken out by older people. The provision for differentiated levels of stamp duty and risk equalisation credits for the two types of cover - advanced and non-advanced cover - addresses this point. The Health Insurance Authority will be required to evaluate and analyse each type of contract and ascertain to its satisfaction whether a contract provides for advanced or non-advanced cover.

The lower risk equalisation credits and the stamp duty rate will apply to contracts with non-advanced cover. Insurance operators have been consulted on the Bill and I amended the definition of "contracts not providing advanced cover" on Committee Stage in the Dáil. This section also provides that the Minister will make regulations relating to the making and determining of claims under the scheme. These regulations are being drafted and will be in place shortly.

Section 16 amends section 17 of the principal Act. This is a technical amendment to subsection 4 following the repeal of section 12 of the principal Act at section 20.

Section 17 amends the principal Act by inserting new sections 18E, F and G to provide for the appointment of and powers of authorised officers of the Health Insurance Authority. It also allows such officers to secure the enforcement of the provisions of the Act. In addition, it provides for dealing with privileged legal material.

Section 18 amends section 21 of the principal Act. This amendment expands the functions of the Health Insurance Authority by requiring it to manage and administer the risk equalisation scheme. Section 19 amends section 32 of the principal Act and is a technical amendment. Section 20 repeals sections 12, 12A and 33A of the principal Act which refer to the risk equalisation scheme 2003.

Section 21 substitutes a new Schedule for Schedule 2 of the principal Act. The purpose of the framework is to spell out the conditions under which state aid can be found compatible with the Common Market pursuant to Article 86(2) of the EC treaty. An updated Schedule replaces the existing Framework 2005/C 297/04. The revised framework is entitled, Communication from the Commission - European Union Framework for State Aid in the form of a Public Service Compensation 2012/C8/03.

Section 22 provides the Title, collective citation and construction of the Bill. This Bill is critical to ensuring we continue with community rating, which is benefits society as a whole. It is underpinned by the principle that the young subsidise the old and the healthy subsidise the less healthy. I commend it to the House.