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

Following the Milliman report in 2010, my predecessor as Minister, Deputy James Reilly, spearheaded a focus on managing claims costs across the market. In addition, he appointed Mr Pat McLoughlin as independent chair of the consultative forum on health insurance, which produced two reports on measures to reduce costs in the private health insurance market. This focus resulted in a 2% reduction in claims costs in 2013. This welcome and significant reduction has facilitated a reduction in stamp duty for 2015 for non-advanced products and the maintenance of stamp duty for advanced products at 2014 levels. We will need to be vigilant to keep costs under control and make sure this achievement was not a one-off blip.
Under Section 7E of the Health Insurance Acts, in October each year the Health Insurance Authority submits a report to the Minister for Health setting out its evaluation and analysis of information returns supplied by insurers for the 12-month period from 1 July to 30 June.

The authority recommends to the Minister the risk equalisation credits and corresponding stamp duty levies required to fund them for the following year, taking into account the changing demographic profile of those insured and market developments, including price and product developments. The risk equalisation credit rates are based on average claims costs across the market rather than on insurance company costs per se. This encourages efficiencies as it compensates insurers for only a proportion of the higher costs of insuring older people and less healthy people. In addition to risk equalisation credits, the Hospital Bed Utilisation Credit, HBUC, provides a specified amount per night in respect of each hospital stay involving an overnight stay in a hospital bed by an insured person.
The Senator will be interested to know that the Department and the Health Insurance Authority, HIA, have commenced work on the development of a more refined health status measure, using Diagnostic Related Groups, DRGs, to enhance the risk equalisation scheme and to improve support for less healthy people at all ages. The HIA conducted an analysis of various international regimes and submitted a report to me on incorporating DRGs into the risk equalisation scheme. That report is now under review at the Department and will inform policy developments in the risk equalisation scheme from 2016 onwards. We are trying to move away from a very crude system whereby we just assume that older people cost more and, therefore, credits and stamp duties are attached to that to one where we will be more defined and put people into different DRGs, based on illnesses and conditions. This is a more refined way of ensuring community rating than the very crude system in operation at present which is based on the assumption that older people cost more.
The HIA is an independent regulator with extensive expertise in all areas of health insurance. I believe it is best placed to evaluate and analyse market developments and determine the appropriate level of credits required to support older people and less healthy people and the stamp duties and levies required to fund them.
I note that Senator Barrett made reference to amendment No.8. In that context I would reiterate what I said earlier, namely, that the VHI will have to be authorised by the Central Bank. It should be treated the same as all other insurers in the market and be required to have the same reserves, capitalisation and so forth, as its competitors. We hope that it will be authorised by the Central Bank in the early part of 2015, that is, within the next few weeks. However, that is ultimately a decision for the Central Bank. It is not appropriate or even possible for my Department to regulate that it be so. The VHI has to put its finances in order and make sure that it has proper re-insurance and reserves. Then it goes to the Central Bank for authorisation and the Central Bank decides if it meets the criteria. It is not for the Oireachtas or the Department to decide that matter. That is why I would not favour putting that into legislation. It is already the law that the Central Bank decides whether an insurer is authorised or not. That is not a decision for the Oireachtas or the Department of Health.
On VHI costs we must acknowledge the very good work by the company in recent years. It is now profitable again, despite the fact that it has fewer customers. It has done a lot of work in the areas of clinical audits and special investigations. It now goes into private hospitals, examines the claims and conducts clinical audits. That has been very successful and has helped to bring down claims costs. This shows that competition is working and I would like to see more of it. I would like to see more clinical audits happening in public hospitals, quite frankly, with the HSE going into hospitals and making sure that unnecessary tests are not being ordered, unnecessary investigations are not being conducted and patients are not being sent for unnecessary consultations. I know that happens; it certainly happened when I worked in the health service and it probably still does. It is very hard to stand over some people on waiting lists not being treated while others are in hospital being over-treated. That is certainly a feature of private medicine but it is also a feature of the public health service too.
Senator Barrett pointed out that I appoint the members of the boards of VHI and the HIA and I do see the conflict in that. I know that in other countries, State-owned enterprises are not under the remit of the same Department that sets policy or regulation. Perhaps that is an issue which should feature in manifestos in a year or so. I would point out, however, that the process has now changed for the appointment of members to the board of VHI. As it is a financial institution just like the State-owned banks, all appointments have to be approved by the Central Bank. I wish the Central Bank had done that with the banks ten or 15 years ago. It does it now for both banks and insurance companies and the Central Bank will call in people for interview before they are appointed to State boards. I have much less discretion over appointing members to the board of the VHI than any previous Minister for Health. Now the Central Bank must be satisfied that each individual is competent and that there is a range of competencies across the board. It is a fairly independent process now, much more so than in the past.
If one talks to consultants who work in private medicine or to staff in private hospitals, one will hear them complain bitterly about health insurers in a way that they never did in the past. To me, that is evidence that the insurers are trying to drive down costs in a way that they did not do in the past. We allow private insurers to negotiate with private hospitals on price but not with the public hospitals. Essentially, a flat rate is set and that is what they have to pay. The insurers are asking for the power to negotiate on price with the public hospitals and that is something I intend to examine. They cannot negotiate on price at the moment even if they wanted to and perhaps that is something which should change.
We intend to initiate a consultation on how to encourage health insurers to cover more treatments at primary care level. Many treatments are currently carried out in hospitals in a way that is quite expensive. I know that Senator Burke has previously raised the issue of haemochromatosis and how venesection for the condition could be done more cheaply at primary care level if VHI and the other insurers would reimburse it. Similar issues arise with minor surgery and chronic disease management. However, it is a tricky thing to do because the insurers will have to be willing to play ball on that, as will the GPs, in terms of clinical governance, contracts, fees and so forth. That said, I am keen to make real progress in this area in 2015.