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

I am pleased to speak to the House today on Second Stage of the Health Insurance (Amendment) Bill 2015. As Senators will be aware, the Bill concluded its passage through the Dáil yesterday unopposed.

Health insurance in Ireland is based on a core principle of community rating and for many decades it has operated alongside our public health service. During this time it has grown and developed. Under community rating all policyholders are charged the same premium for a particular plan which is adjusted to reflect any loadings applicable under lifetime community rating, irrespective of gender, age or health status.

This system of health insurance necessitates inter-generational solidarity, whereby younger and healthier people effectively subsidise older and less healthy people. The understanding is that these younger people will themselves be subsidised by future generations when they reach old age or suffer ill-health. Risk equalisation is essential to the operation of a community-rated health insurance system. The purpose of the scheme and the purpose of this annual update is to ensure that health insurance is affordable for older people and those with a chronic disease, and not only for the young and healthy.

The last 12 months have seen a number of changes in health insurance. Significantly, in July this year VHI Healthcare was regulated as an authorised company by the Central Bank of Ireland in line with the regulatory position of the three other health insurance companies. This is a major achievement by VHI. It is a vote of confidence in the health insurance sector and the improved Irish economy in which it operates.

Encouraging more people to take out health insurance at a younger age helps to spread costs across all policyholders and ensures affordable premiums for all insured people. Health insurers require a steady influx of younger healthy people so they can continue to offer affordable health insurance to older and sicker people.

Clearly, the economic downturn had a significant negative impact on the number and age profile of the insured population. The number of policyholders fell from a little under 2.3 million at the end of 2008 to a little over 2 million in 2014. In response to the decline, the Government introduced two important initiatives from May of this year, lifetime community rating and young adult discounts. These measures work to secure the future feasibility of community rating and protect access to affordable health insurance. Without these necessary measures, there would be a continued deterioration in the age profile of the insured population. This would, in turn, contribute to claims inflation and higher insurance premiums.

Under lifetime community rating, late-entry loadings apply for those aged 35 years and over who buy health insurance for the first time. This is applied at a rate of 2% per year. Since January, 74,000 people avoided loadings by taking out health insurance before the deadline of 1 May 2015. Young adult discounts are based on a sliding scale of maximum chargeable rates up to 26 years of age. This new approach helps to ensure the smooth phasing-in of full adult rates and eases the effect of dramatic price increases experienced when student rates no longer apply, effectively removing the big-step effect that had been in place.

The vast majority of policies now held by people aged between 21 and 26 years offer young adult rates. These rates range from 51% of the full adult rate at 21 years of age to a 100% rate at age 26. These two measures aim to increase the number of younger people with health insurance as well as retaining those already with policies.

I welcome the significant growth in the number of people with health insurance over the past 12 months. We have seen an increase in membership of 100,000. My objective is to keep health insurance affordable for as many people as possible. As a necessary support to community rating, I am committed to making the risk equalisation scheme as effective as possible in a way that promotes fair and open competition.

The risk equalisation scheme has operated in Ireland since 1 January 2013. The scheme is funded by stamp duties payable by open market insurers based on the number of policies written. The money generated is used to pay risk equalisation credits to take account of the higher costs of insuring older and sicker people. Currently, the scheme provides credit based on age and gender as well as a utilisation credit based on an overnight stay in hospital of €90.

From 1 March, the credits payable in respect of age and gender for those aged over 65 years on policies written from that date will be increased. I propose to set credits for the 60 to 64 age group at zero as of 1 March 2016. It is not only old people who have high claims, so I remain committed to developing a refined health status measure in the risk equalisation scheme using data based on diagnosis related groups, DRGs. This will also be necessary for the move to activity based funding. This will require the collection and coding of all hospital activity data for public and private hospitals under the system overseen by the healthcare pricing office, HPO. Legal and structural changes will be required over time. The immediate priority for the pricing office is to provide the main technical support for implementation of the activity based funding in public hospitals.Next year, 2016, is the conversion year for this new funding system which will see hospital budgets translated into activity-based funding allocations for the first time. In the meantime, I want to improve the health status measure we have. In addition to allowing for the overnight credit of €90, I propose to expand the setting in which utilisation credits will be payable to include day case admissions. These will be paid at a lower rate of €30. This enhancement to the scheme will increase the support provided for less healthy people of all ages. Providing a utilisation credit reflects that 30% of hospital inpatient activity for insured members is now carried out on a day case basis. It will also incentivise clinically appropriate treatment on a day case basis, freeing up overnight accommodation for those who need it more or need it at all.

Under the scheme, health insurers receive risk equalisation credits from the risk equalisation fund to compensate for the additional cost of insuring older and less healthy members. The credits are funded by stamp duty levies payable by open market insurers for each policy written. The stamp duty levies are collected by the Revenue Commissioners and transferred to the fund which is administered by the Health Insurance Authority, HIA.

In previous years, 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. Last year, to make health insurance more affordable, I took the decision to reduce the stamp duty rates for non-advanced products by €50 per adult and €20 per child to 60% of the rate for advanced products. At the same time, there was no increase to the rates for advanced products. I am pleased to confirm that the levy on the lower level products will be reduced again in 2016 to 50% of the rate for advanced products, down by €38 per adult to €202 and down by €13 per child to €67. There will be a slight increase of €4 per adult to €403 for advanced products and a reduction of €1 to €136 in the case of children.

The decision to set credits at zero for those aged under 65 was taken primarily on the basis that retention of credits for this age group would have led to an increase in stamp duty by approximately €34 for everyone holding health insurance. I believe the credits and levy rates proposed for 2016 strike a fair balance between the need to sustain community rating and the need to ensure younger people continue to avail of health insurance. The credits proposed by the Health Insurance Authority do not fully compensate for the cost of insuring older and less healthy people. The risk equalisation scheme benefits all consumers by encouraging insurers to compete on the basis of value for money, customer service and product design rather than competing on the basis of risk segmentation. This approach supports a fair and open competition, giving those who wish to avail of health insurance access to a range of affordable policies from which to choose regardless of their age or health status.

I will now turn to the Bill before the House. Its main purpose is to specify the amount of premium to be paid from the risk equalisation fund in respect of age, gender and the level of cover from 1 March 2016 and to revise the stamp duty levy required to fund the risk equalisation credits for 2016. The Bill provides for consequential amendments to the Stamp Duties Consolidation Act 1999. A technical amendment to the Health Insurance Acts is also included.

I will now outline the specific sections of the Bill. Section 1defines the principal Act as the Health Insurance Act 1994. Section 2 amends section 6A(1) of the principal Act by the proposed amendment of three definitions. Regarding section 2(1)(a), the proposed amendment replaces the current definition of "hospital bed utilisation credit", HBUC, with a definition of "hospital utilisation credit". The scheme provides for a HBUC as a proxy for health status. Currently, health insurers receive a retrospective payment of €90 per night for an overnight stay in hospital by one of its members. The proposed amendment will expand this credit to include day case inpatient admissions. The HBUC payment will be replaced with a hospital utilisation credit. Under this credit insurers will receive a payment from the fund for day case inpatient admissions and for inpatient admissions on an overnight basis on all policies written on or after 1 March 2016.

Section 2(1)(b) proposes a technical amendment to the definition of private hospital accommodation. The amendment reflects the enactment of section 55 of the Health Act 1970, as amended by the Health (Amendment) Act 2013, where private patients incur a hospital charge in respect of inpatient services provided in a public hospital. Section 2(1)(c) amends the definition of "relevant amount" to include day case inpatient admissions in the calculation of the hospital utilisation credit.

Section 3 amends section 11C of the principal Act. It provides for 1 March 2016 as the effective date for revised risk equalisation credits to be payable from the risk equalisation fund.

Section 4 amends Schedule 3 to the principal Act. It provides for the amounts payable from the risk equalisation fund for the hospital utilisation credit in respect of health insurance contracts renewed or effected from 1 March 2016. Schedule 3 will now contain two amounts, one for the provision of inpatient services on an overnight basis and one for the provision of inpatient services on a day case basis.

Section 5 replaces Table 2 in Schedule 4 to the principal Act with effect from 1 March 2016. The applicable risk equalisation credits payable from the risk equalisation fund for certain classes of insured persons are revised.

Section 6 amends section 125A of the Stamp Duties Consolidation Act 1999. It specifies the applicable stamp duty rates from 1 January to 29 February 2016 and from 1 March 2016 onwards. Section 7provides for the Short Title, collective citation and construction of the Bill.

The intention of the Bill is to ensure health insurance remains affordable for more people by ensuring that, irrespective of whether one is young or old, well or sick, or male or female, one pays the same for the same policy. On this basis, I commend the Bill to the House.