Leo Varadkar (Dublin West, Fine Gael) | Oireachtas source

I am pleased to address the House today on Second Stage of the Health Insurance (Amendment) Bill 2014. As Senators will be aware the Bill recently passed through all Stages in the Dáil unopposed.

Risk equalisation is a necessary support underpinning our community-rated health insurance market. The main purpose of the Bill is to specify the risk equalisation credits, the rate of the hospital bed utilisation credit - the H book - and corresponding stamp duty levies required to fund the credits to apply from 1 March 2015. In addition, the Bill specifies the allowable rate of the net premium payable for young adults and provides for the transfer of an insured person from a restricted membership undertaking without the application of an additional waiting period and makes some other technical amendments to the Health Insurance Acts 1994 to 2013.

The private health insurance sector has experienced great difficulties since the economic downturn. The ageing market, reductions in membership and a sustained growth in claims have resulted in premia increases year-on-year. Coverage has fallen from a peak of just under 51% of the population in 2008 to 44% in June 2014. I have set as one of my objectives as Minister to arrest and begin to reverse this decline. Average claims costs per insured person rose by 12.6% from 2008 to 2012.

However, more recent data are a little more encouraging. For the first time there was a welcome reduction of 2% in average claim costs in 2013. We will monitor data to ensure this is part of a continuing downward trend. In particular, I am pleased that the size of the market contracted less in the year to July 2014 than it did during the previous 12 months. The reduction has improved from a fall of 63,460 members in the year to mid-2013, to a reduction of 36,538 in the year to mid-2014. The third quarter of 2014 recorded a small increase in the number of people with health insurance for the first time in many years. This is a positive development, but it would be foolish to read too much into any one quarter.

The continued improvements in the economy create a positive backdrop. Employment grew by 2.4% in 2013 and the ESRI is now forecasting a 1.8% growth in employment in 2014 and 2.7% growth in 2015.

Recently, I announced a package of measures to address the rising cost of private health insurance premiums, as I want to make private health insurance affordable again. These measures and the Bill before the House today are designed to work as a package which aims to ensure that health insurance is affordable to as many people as possible in a sustainable, competitive market.

The measures include lifetime community rating, reduced rates for young adults, a reduction in the levy which funds the Health Insurance Authority and no increase in the stamp duty levy for the risk equalisation scheme. I will detail each of these measures in turn.

I am introducing lifetime community rating from 1 May 2015. Lifetime community rating is a modification of community rating to reflect the age at which a person first takes out health insurance. Its primary purpose is to encourage people to purchase health insurance at a younger age. This spreads the costs of older and less healthy people across the community, helping to support affordable premia for all. Those who take out private health insurance earlier in life, and retain it, will pay lower premia than those choosing to join when they are older.

From 1 May 2015 there will be late-entry loadings for people aged 35 and over who purchase private health insurance for the first time, or renew after a break in cover of more than 13 weeks. The loadings are set at 2% per year starting at age 35, up to a maximum loading of 70% at age 69 and over. There is a grace period until 30 April 2015 to allow as many people as possible to take out health insurance. During this period no penalties will apply. Following expiry of the grace period, there will be credits for previous periods of health insurance cover and credits of up to three years for unemployment since 2008, to reflect the impact of the recession.

The Health Insurance Authority will run an extensive communications campaign to publicise this significant change to the health insurance market. It is important that members of the public have enough notice of its introduction and sufficient opportunity to take out health insurance before the introduction of loadings.

I have also decided to remove the very large step-effect increase in premia that occurs for most young adults after their 21st birthday. For many, premiums can increase by double or more. The Bill provides for the introduction of a young adult rate of premium that is age based rather than student based and is designed to smooth out the rise in premia between child and full adult rates. Insurers will retain discretion with regard to whether to provide these rates. Where an insurer chooses to provide young adult rates, it must also provide the full range of rates within the specified bands. This policy change will also remove the requirement to be the dependant of a policyholder or a full-time student dependent on parents. It is reasonable to expect that the introduction of lifetime community rating and young adult rates from 1 May 2015, combined with the improvement in employment levels, will result in the numbers insured either holding steady or increasingly modestly during the next year.

I have been obliged to look closely at the levy payable by insurers under section 17 of the Health Insurance Act 1994. This levy funds the work of the Health Insurance Authority, HIA, the statutory regulator. Regulations made in 2010 set the rate at 0.12% of insurers' premium income. In its annual report for 2013, the HIA indicated that it has a retained surplus of €10 million. As a contribution towards lowering costs in the industry, I have decided to reduce the levy to a nominal rate of just 0.01% for two years. This will result in savings to the industry of €2 million in 2015 and 2016. Thereafter, the levy will be set at 0.09%, still 25% lower than the current level. The HIA is satisfied that this level of funding is sufficient to finance its ongoing operations and the rate of the levy will be subject to periodic review by my Department. I signed the regulation introducing this measure into law last month and it was laid before the Oireachtas on 26 November.

The risk equalisation scheme is designed to protect community rating by making it easier for older people to afford private health insurance. I am committed to making the scheme as effective as possible in a way that promotes fair and open competition. The hospital bed utilisation credit, HBUC, acts as a proxy for health status and is payable for overnight stays in hospital for people of all ages. In line with the HIA's recommendations, this year I am increasing the amount payable from €60 to €90 per night. I am also adjusting the age related credit to the average net claim. Given the large increase in the HBUC being proposed, lower age credits are required to achieve a reduction from the current level of 133% to 130% of the market average claims. The scheme is funded by stamp duties levied on health insurance policies and the money generated is used to pay risk equalisation credits to take account of the higher claims costs to insurers of older and less healthy people.

In recent years, as Senators will be aware, it has been necessary to increase significantly the stamp duty on all policies to fund the rising costs of an older and less healthy population of insured people. The increase on advanced products last year was €49 per adult and €15 per child. I am pleased that, in agreement with the Minister for Finance, there will be no increase in stamp duty rates for products providing advanced cover in 2015. The levy will remain unchanged at €399 per adult and €135 per child. In addition, there will be a significant reduction in the levy for products providing non-advanced cover. The levy in this regard for an adult will be reduced by €50, from €290 to €240, with the levy for a child being reduced by €20, from €100 to €80, achieving reductions of 17% and 20%, respectively. These rates will apply from 1 March 2015 and are based on the formal advice of the HIA.

The effectiveness of the risk equalisation scheme is measured by the extent to which it compensates for the higher cost of older customers. The changes I am introducing will increase the effectiveness of the risk equalisation scheme in 2015. Most people over the age of 70 hold products which provide for advanced health insurance cover in this category. The revised rates will compensate for 81% of the higher claims costs relating to those aged 70 and 88% of the costs relating to people over 80. These improvements will be achieved while reducing the level of stamp duty required to fund the risk equalisation scheme credits for lower level products and maintaining the current rate of stamp duty for products providing advanced cover. I welcome the consequential steps being taken by insurance companies to offer competitive rates to consumers. These changes are also in line with the risk equalisation policy statement announced by my predecessor in November 2013, which set a target of increasing effectiveness rates by 2016 to 85% for those over 70 and 90% in respect of customers aged over 80.

This target is subject to the advice of the Health Insurance Authority, the requirement not to over-compensate any insurer, and to Government budgetary decisions each year.
This year the Department and the HIA commenced work on a more refined health status measure using diagnosis-related groups, DRGs, to enhance the risk equalisation scheme by improving support for less healthy people of all ages. The HIA carried out analysis of international regimes and submitted a report to me on incorporating DRGs into the risk equalisation scheme. I will use this report to inform the changes that will be proposed for 2016 and onward.
I am determined to address issues contributing to increased costs in the private health insurance sector. In 2012, the consultative forum on health insurance was established to generate ideas to address the issue of health insurance costs. In June 2013, Mr. Pat McLoughlin was appointed as independent chairman of the forum. The measures I am presenting today are closely aligned to the recommendations of Mr. McLoughlin's two-phase report on private health insurance costs. The first report was published in December 2013 and the second last month. Mr. McLoughlin recommends a scheme of lifetime community rating and discounted rates for young adults, provision for both of which are contained in this Bill. I have also accepted his recommendations on the implementation of a case-based charging system using DRGs for private patients in public hospitals under activity-based funding, also known as "money follows the patient", and the establishment of a steering group to build on the reforms under way in the area of chronic disease. This will focus on the provision of an integrated model of care for patients with chronic conditions.
Other recommendations being implemented include an increased focus by private health insurers on combatting fraud and the establishment of a working group involving the HSE and health insurers to address the recommendations relating to claims processing. Mr. McLoughlin's independent report also makes a number of important recommendations under the headings of controlling costs, care settings and resources, age structure, clinical audit and utilisation management, private psychiatry, fraud waste and abuse, chronic disease management, claims processing, and admission and discharge processes. I have instructed my Department to pursue these, in conjunction with private health insurers and the HSE as appropriate.
All of these measures, combined with the recent decision by my colleague, the Minister for Finance, not to reduce tax relief on health insurance premia and the freezing of hospital bed charges, aim to support a competitive health insurance industry. From now on, consumers' needs will be at the centre of decision making and policy formulation.
I will now outline the main provisions of the Bill. Section 1 defines the principal Act as the Health Insurance Act 1994. Section 2 amends section 7(5)(b)(i) of the principal Act to provide for a sliding scale of young adult rates for health insurance premia up to and including age 25 and remove the requirement that such persons be in full-time education or dependent on the policyholder to benefit. A new subsection (5A) provides that where a health insurer proposes to offer young adult rates, it shall offer the full range of rates within the specified bands. Insurers will retain discretion as to whether or not to provide these rates.
Section 3 amends section 7A of the principal Act. The regulations to provide for lifetime community rating will take effect on 1 May 2015. From that date there will be late-entry loadings for those aged 35 and over who purchase private health insurance for the first time or are renewing after a break in cover of more than 13 weeks. This amendment clarifies that the obligation on insurers to impose lifetime community rating loadings as provided for by regulation is mandatory by replacing "may" with "shall" and clarifying, in subsection (3), that the obligation to require the payment of late-entry loadings is subject to regulations signed into law on 7 July 2014.
Section 4 amends subsections 8(3) and 8(5) and deletes subsection 8(6) of the 1994 Act. The additional provisions proposed in subsection 8(3) and amendment of subsection 8(5) are to clarify that people transferring from one health insurance policy to another are not required to serve additional waiting periods other than those applying to an upgrade in cover. Subsection 8(5) is further amended to provide for the transfer of served waiting times for people transferring from restricted membership undertakings to open-market insurers without the application of any additional initial waiting period. Subsection 8(6) is consequently proposed to be deleted.
Section 5 amends section subsection (11C) of the principal Act to provide that 1 March 2015 will be the effective date for revised risk equalisation credits to be payable from the fund.

Section 6 amends Schedule 3 to the Principal Act to provide for the revised amount payable from the risk equalisation fund for the hospital bed utilisation credit. This will cover the health insurance contracts renewed or taken out from 1 March 2015. Section 7 replaces Table 2 in Schedule 4 to the Principal Act with effect from 1 March 2015 whereby the applicable risk equalisation credits payable from the Risk Equalisation Fund for certain classes of insured persons are revised. Section 8 amends section 125A of the Stamp Duties Act 1999 to specify the applicable stamp duty rates for the periods 1 January to 28 February 2015 and 1 March 2015 onwards. Section 9 provides for the Short Title, collective citation and construction of the Bill.

I commend the Bill to the House and look forward to Senators' contributions.