Question proposed: "That the Bill be now read a Second Time."

From the perspective of insurers, risk equalisation addresses the competitive imbalance that can occur as a result of risk selection, whether this occurs due to deliberate actions by insurers or inadvertently because of the more mobile nature of the young and healthy and employer-paid insurance. In effect, risk equalisation seeks to tackle risk selection as a source of competitive advantage. This is equitable given that the usual insurance levers of underwriting and risk-based pricing are not available to competing insurers.

The consequence of risk selection is that the per capita claims cost and, consequently, premiums begin to rise for those insurers who are left with a higher proportion of less healthy individuals. This is a breach of the solidarity principle, which is fundamental to genuine community rating. Risk equalisation addresses this by limiting the extent to which certain healthier people, by benefiting from lower premiums, or their insurers, by taking a higher profit margin, can gain at the expense of other health insurance consumers. In short, risk equalisation aims to equitably adjust differences in health insurers' costs that arise due to variations in risk profiles.

The detailed preparation of a risk equalisation scheme has been a complex matter which has involved considerable actuarial expertise and legal input. Earlier I acknowledged the very constructive part played by the Health Insurance Authority in connection with work done by my Department on the development of a detailed scheme.

It has also been necessary to approach the formulation of the scheme in a manner that takes account of considerations that apply at EU level. These relate to matters such as observance of general EU legal principles of necessity and proportionality, competition rules and creation of the Single Market. It is widely known that plans for the regulation of our health insurance market have been the subject of fundamental differences with the British United Provident Association, BUPA, which entered the market in 1997. Given this and the fact that the operation of this country's private health insurance market is subject to EU obligations, the regulatory measures to be implemented have attracted close and recurring interest on the part of European Commission services.

My Department has kept the Commission advised of proposed regulatory arrangements. Although the Commission has formally accepted, in principle, Ireland's entitlement to have specific legal provisions in the interest of the common good in voluntary health insurance, as allowed for under the third non-life insurance directive, it has emphasised the need for necessity and proportionality in any measures that may be taken. Furthermore, ongoing representations and complaints by BUPA have resulted in the Commission revisiting the matter on a number of occasions up to and including the present time.

Further to a complaint by BUPA, the European Union's Competition Directorate General is considering a detailed submission made by my Department. This submission makes the case for the necessity of risk equalisation in a market operated on the basis of community rating, open enrolment and lifetime cover, and that it does not constitute state aid under EU competition rules. It remains my Department's aim to obtain an early decision from the Directorate General on the latest complaint and complete the risk equalisation regulatory framework immediately thereafter. It is contending to the Directorate General that it maintain its previously expressed view that risk equalisation does not give rise to particular state aid concerns. While the experience of European Commission services revisiting the matter of risk equalisation on a number of occasions has impinged on the process of implementing a scheme, I characterise recent contacts with the European Union Competition Directorate General as being positive and constructive.

As I said, this is a short Bill and while some aspects are technical, its provisions are relatively straightforward. Section 1 provides for interpretation. Section 2 arises from a request made by the Health Insurance Authority that it have protection from suit for damages corresponding to the statutory protection given to other public regulatory bodies. Accordingly, the provision gives a broad immunity to the members of the authority and its staff where they are engaged in the discharge of their functions in good faith. It has been drafted having regard to a similar provision in the Irish Takeover Panel Act 1997.

Section 3 amends Part II of the Second Schedule to the Defamation Act 1961. As part of its functions, the authority will be required to make reports and recommendations on the question of commencing financial transfers between insurers under a risk equalisation scheme. The effect of the provision is to add the authority to the bodies which have qualified privilege in respect of a copy or fair and accurate report or summary of any recommendation that the authority may produce. Again, qualified privilege of the same nature is contained in the Irish Takeover Panel Act 1997.

Section 4 refines certain procedures that will apply in the steps to be taken after a risk equalisation scheme has come into effect. The limited changes being made arise from consultations with the Health Insurance Authority. The first subsection deals with the requirement for the authority to include in its report to the Minister a recommendation whether he ought to commence risk equalisation payments under a scheme. The legislation, as it stands, makes it clear that recommendations by the authority are for that purpose alone. The amendment is entirely consistent with the current position but clarifies that the authority shall not include a recommendation on the matter in a report where the Minister has already exercised the power to commence risk equalisation transfers under a scheme. The health insurance legislation already contains a provision requiring the authority to submit annual reports with respect to the operation of a scheme, once risk equalisation payments have been commenced. The legislation provides that the Minister shall cause such reports to be laid before each House.

The second subsection relates to the giving of advance notice to parties, by either the authority or the Minister, of its proposed recommendation, in the case of the authority, or the proposed exercise of his powers to commence risk equalisation payments, in the case of the Minister. As the legislation stands, notice in such instances must issue to all registered undertakings which are also given the opportunity to make representations. However, the legislation provides that a scheme may include a provision allowing restricted membership undertakings such as the occupational schemes that apply in the cases of gardaí and prison officers to opt out of risk equalisation. It should not, therefore, be necessary to give notice to undertakings about proposed developments relating to the commencement of transfers under a scheme where such an option may have been used.

Section 5 is concerned with the arrangements in place to facilitate and encourage the entry of new insurers into the market to provide greater competition and choice for consumers. The legislation provides for insurance undertakings which have not yet commenced business to avail of a three year exemption from risk equalisation. The purpose of this is to allow new insurers to establish a critical mass of customers and recover start-up costs before being liable to make any payments in respect of risk equalisation that could arise.

The provision in the Bill retains this measure. The main purpose of amending the existing provision is to avoid a possibility that the exemption could be availed of by a subsidiary or some other form of associated company of an existing undertaking. This approach is considered desirable in order to remove any possibility of an issue of avoidance arising in the arrangements. As there has not been any indication that an associated company of an existing undertaking was intent on or interested in availing of the exemption, the amendment is most appropriately regarded as a precautionary one. It aims to ensure the exemption will only apply in circumstances where the added value for consumers of private health insurance is a genuine increase in the choice of insurers and greater real competition in the market.

As I said, the section retains the three year exemption for new entrants. However, it contains provisions aimed at securing a clearer indication of the commitment and serious business intent to actually follow through on entry to the market on the part of insurers which decide to serve a notice of exemption in the future. In that regard, it requires insurers to be registered with the Health Insurance Authority before serving a notice of exemption and that they commence business not later than three months after the date of the notice. Neither of these is an onerous step and it remains in the hands of the new entrant insurer to decide the timing in relation to becoming registered and subsequently serving a notice of exemption.

Section 6 relates to financial arrangements made in relation to the Health Insurance Authority at the time of its establishment. The ongoing operational costs of the authority are funded by the proceeds of a levy on the premium income of registered insurers. The levy is currently set at a rate of 0.14% of that annual premium income. However, the legislation allowed for the Minister to advance funds to the authority and, during 2001, sums slightly greater than €500,000 were advanced to it in respect of initial costs. As the legislation stands, it is obliged to repay the amount advanced. It considers that costs incurred in its establishment should be borne by the State. The authority is a public body and was established to carry out a public service in relation to the common good aspects of health insurance.

This section maintains the option of the Minister effecting repayment of the €500,000 provided towards establishing the authority. It is clear that the provision is an enabling one and does not mean that part or full repayment will automatically be waived – this will be looked at strictly on its merits.

I commend this short Bill to the House for early enactment with a view to moving rapidly ahead with the introduction of a risk equalisation scheme. The scheme, which will follow enactment of the Bill, will meet national requirements for sustaining the operation of the core common good principles of our voluntary private health insurance system, together with taking account of European Commission concerns about necessity, proportionality and competition.

There are also blockages in the system, such as waiting lists, too many staff employed in administration, a shortage of nurses and an excessive workload for nursing staff. A key issue is the role of consultants, without whom our hospitals are nothing. Consultants face the demands of allocating beds and juggling their private and public patients. If the Minister can get to grips with the role of consultants in hospitals, he is a genius.

Private health care is a fast track to treatment. People have been relatively satisfied with the return from VHI premiums and, more recently, from those of BUPA. The danger is that the huge increase in premiums will reduce the number of people who can afford to pay them. This could become a serious problem because it would cement the two-tier system in which the rich receive the best treatment quickly. At the same time, it would increase the number of people dependent on the public purse. The result would be increased waiting lists and the perpetuation of the "beds in the corridor" syndrome we are currently experiencing.

Health insurance plays a vital role in the provision of hospital services in that it complements public health services. However, the public-private mix, which is an Irish solution to an Irish problem, is not a real solution.

While researching the insurance market, I discovered the two cornerstones of the health insurance market. Community rating means that all members pay the same premium, irrespective of age, sex, health or other factors. Unlike the position vis-à-vis car insurance, this has the benefit of spreading the burden across the membership. Risk equalisation is fundamentally fair and means a company that cherry-picks from a particular group – for example, the 25 years to 35 years age group – as BUPA has done in a limited way, must pay an equalisation levy to other companies which do not engage in such practices. In our case, the VHI, where the average age of members is 36 years, receives the levy.

Open enrolment, which means entitlement to join a health insurance company for life at any age, is balanced by the ability of the insurer to impose a degree of loading or a delay. This means a person may not join a scheme one day and claim insurance the next.

It is also interesting that employers are not permitted to insure only healthy staff because this would undermine the solidarity between generations, which underpins community rating and spreads the burden. When BUPA entered the market, community rating was a contentious concept which was supported by the VHI and resisted by BUPA. The Government was in favour of BUPA entering the market to open it up because the VHI held a monopoly at the time. BUPA has now done so and additional new entrants will help to open the market further.

Dublin now has six health boards. In 1975, the city had just 95 administrators. This figure has risen to 11,000, whereas Manchester has just 3,000. We have all heard proposals to deregulate and privatise the health insurance market. This would create a two-tier system in which some people could afford to pay, while others, the public patients, who are also the responsibility of the State, could not.

One cannot be too critical of paying patients. They pay for, expect and generally get a reasonable service. I assume they also help subsidise the public health service. Ireland's approach to health care is based on a public-private mix, which is not bad if managed properly. I have already referred to the problems in the private system in the United States. I cannot imagine what happens to a person with no health insurance there. Having watched the television series "ER" on occasion, I am glad we have several players in the market.

I am uneasy about the treatment purchase scheme which takes people abroad – for example, to Northern Ireland or the United Kingdom – for treatment. Last week I learned through the media that a patient who was about to travel to Liverpool for a hernia operation lived within sight of Beaumont Hospital. It is difficult to believe that people who live just yards from a hospital are being sent abroad for treatment.

Another storm is brewing as a result of the State's decision to provide consultants with insurance cover for public work only and insist that they insure themselves for private work. It comes as no surprise that consultants oppose the move.

I welcome the fact that the Bill, according to the explanatory memorandum, "amends the provisions concerning application of the limited exemption from risk equalisation for new entrant insurers to the market." It also "allows for the Minister for Health and Children, with the consent of the Minister for Finance, to waive the repayment of moneys advanced to the authority at the time of its establishment." Is the figure in question €508,000? I agree with the authority's case that the costs incurred as a result of its establishment should be borne by the State.

I welcome the Bill because I believe the scheme established as a result of its enactment will meet the national requirements.

With luck, we will all grow old and it is a fair bet we will need health care more frequently than we did when we were 30 or 40 years younger. The Bill will preclude insurers from cherry-picking the young and able as opposed to the old and disabled. Asking younger members of the community to pay a premium to compensate for the loss incurred for older members of the community is the fair and correct approach.

I strongly support the Minister's commitment to maintaining the operation of our voluntary private health insurance market based on the principles of community rating, open enrolment and lifetime cover. I also agree that we should make regulatory provision for a scheme of risk equalisation as a necessary support to community rating.

In discussing health insurance, it is important to note a particular statistic. In 1979, slightly over 21% of the population availed of private health insurance. That figure now stands at a little over 48%, which gives us an idea of how important private health insurance has become. It is important that fair play prevails if there are new entrants to the health insurance market. The Bill ensures this.

The Department of Health and Children has completed the preparation of a draft scheme to be submitted for approval by each House of the Oireachtas. The Minister made reference to this. The Department has also made a submission to the European Union's Competition Directorate General making the case for the necessity of risk equalisation in a market operated on the basis of community rating, open enrolment and lifetime cover, and that it does not constitute state aid under EU competition rules. That is another important point which should be stressed.

Given the increasing use of health insurance in our society, it is essential that the private health insurance market is properly regulated and monitored. In that regard, I welcome the role of the Health Insurance Authority. It is vital that everyone who wants to avail of health insurance should be able to do so. The principles of community rating, open enrolment and lifetime cover should be strongly adhered to at all times. Furthermore, for the Health Insurance Authority to be effective it is essential that it is brought into line with other independent regulators. There has to be a level playing pitch. Accordingly, I welcome the provision of immunity from damages in the context of the good faith statutory discharge of its functions enshrined in section 2.

I further welcome the application of the Defamation Act 1961. This is very important because we are living in a time when mothers are suing brothers and everyone is suing everyone else on the same basis as the provision of immunity referred to in section 3.

Risk equalisation is an essential component of the health insurance area and will be implemented by both the Minister and the Health Insurance Authority subject to certain thresholds. If the community is split between health insurers in such a manner that one health insurer has relatively more younger policyholders, comparatively speaking, than other policyholders, the principle of inter-generational solidarity breaks down because premiums paid by the younger policyholders with one health insurer are not funding the claims of the older policyholders with the other insurer. If that does not take place, the concept enshrined in the Constitution that we cherish all our children equally will be out the window. It is clear that this would cause difficulties, not just for the older policyholders with the latter health insurer but also for the market as a whole. In this regard, I welcome the social inclusion provided for by risk equalisation. I welcome the contribution the Bill makes to developing a health insurance system which is both efficient and socially inclusive.

People in America have a low life expectancy and there is a high infant mortality rate. It is estimated that 40 million American citizens do not have health insurance, but there is a ferociously competitive health insurance industry in that country. In many instances, decisions which should be made by medical experts about where people should go and what treatment they should receive are made by people in the insurance industry. Few terms are more calculated to raise the ire of Americans than that of "HMO", which refers to health maintenance organisations. These are universally loathed and if they make the wrong decision, they cannot be sued due to a clause in the legislation governing their operation.

There is a major issue at stake here with regard to EU competition policy. In France, this area has developed with a multiplicity of insurance companies evolving at around the same time. We are now grappling with the issue of having had a State monopoly which was unaccountable in many ways. Approximately two years ago, the then Minister of State, Deputy Moffatt, was in the Seanad for a debate with Senator Ross, who has a bee in his bonnet about the VHI. Senator Ross was in particularly eloquent form and we learned that the VHI had 400 employees and 40 cars; not vans, but motorised vehicles for the use of their staff. The Minister of State was as taken aback as we were and he undertook to return to the matter but the election intervened.

Any evaluation in the financial press of the comparative costs of VHI and BUPA will state that it comes down to individual preference. I have not seen any authority write with any certainty on the costings of each body and state that one is better than the other. There is an argument that the existence of two insurance companies means neither can take advantage of consumers. I would not be so sure because one leap-frogs the other in terms of increases. If one gets an increase, the other will follow within a period long enough for it to claim an advantage and short enough to claim the money.

In the long term we should think if we want to create a situation where there is a multiplicity of health insurers. This is not consistent with the views of my party but I am sceptical of competition policy and competition in health care.

The Minister mentioned the role of the authority, saying that it will make recommendations on whether or not to commence risk equalisation payments under a scheme. What is the necessity for then saying that the authority shall not include a recommendation on the matter in a report where the Minister has already exercised the power?

When we create this new authority, we should also try to get more men interested in health insurance. If I am paying for my health insurance, I might take more interest in the product I am buying – my health. We should use this as an opportunity to promote men's health. Senator Glynn will agree that men do not go to GPs or look after their health until something is wrong. People say that a man who has a mild heart attack is lucky because he gets a warning.

If the late Deputy Jim Mitchell had faced the restrictions we are putting in place for health insurance when he introduced competition into the airline industry, there would be no Ryanair and it would cost €500 to fly from Dublin to London. If new providers are to enter the health insurance market we must be careful about the legislation we introduce and I am not happy with this Bill.

The Minister described it as a short Bill, simply putting in place further provisions for risk equalisation. Why is the Government once again amending the health insurance Acts? It seems to be pursuing a strategy of strangling competition through the imposition of a risk equalisation scheme. That is the essence of this Bill. Risk equalisation can only be justified in the context of protecting the VHI in advance of allowing that company to be sold off.

We have debated this matter over many hours in various committees and the Minister appears to have rather firm views. I have the gravest doubts about risk equalisation and I do not buy into the spurious argument concerning what is called "cherry-picking". When one asks the reasons for introducing risk equalisation, the simplistic, instant response is that it is to prevent cherry-picking. The consumer is not interested in cherry-picking but will buy into the best package available, irrespective of whether that is provided by BUPA, VHI or any other company. So be it. We should not be concentrating on protecting one company but on strengthening competition in the market.

The Minister referred to our position in relation to EU competition law. In reply to a parliamentary question in the Dáil on 21 November last, the Minister said his Department had proceeded on the basis of the findings of the relevant EU directorate that risk equalisation does not give rise to state aid concerns. However, the Irish Medical News, in its issue of 17 February this year, quoted from the Minister's letter to the EU, which was released under the Freedom of Information Act, in which he said that the competition directorate had advised Department officials at a meeting in Brussels in March 1999 that it did not have particular state aid concerns about risk equalisation. On the basis of that reading, everything seems fine.

However, I also refer to a letter from a senior Commission official to the Irish permanent representative on 20 July 1999 stating that the Commission's views on risk equalisation at that stage were based only on oral explanations offered and pending a detailed scrutiny of the proposals. That differs substantially from the Minister's statement that the Commission did not have particular state aid concerns in relation to risk equalisation. The Commission official went on to stress the need for continued vigilance to ensure that any future reforms of Irish private health insurance continued to take account of considerations stemming from EU law.

The Minister for Health and Children, Deputy Martin, stated on 21 November 2002 that a copy of the Health Insurance (Amendment) Bill 2000, which provided for revised risk equalisation arrangements, was forwarded to the EU directorate for information and did not give rise to any further queries. At best, the Minister was being rather economical in terms of the whole picture, having regard to the fact that, some months later, a senior Commission official stated that the Commission services did not know the contents of measures under discussion and, therefore, could not take any final position on their conformity with EU law.

All is not as clear as the Minister would wish us to believe. The EU has not given any green light or carte blanche to risk equalisation. That does not surprise me as I believe the concept of risk equalisation poses the most serious doubts about competition across the market. In a further communication in November 1999, the same EU official said that a final decision of the Commission services regarding the conformity of the Irish private health insurance regime cannot be taken as long as the process of reform is in course and until the final details are available.

Clearly, as I said, there is no green light from Europe for what the Minister is trying to do in this Bill with regard to the concept of risk equalisation. Final judgment is suspended. However, a judgment has been made by a person of some significance who is a European expert, former director general of competition policy and former head of legal services, Professor Klaus Dieter Ellerman. In his view, which was cited in the Dáil by former Deputy Des O'Malley in December 2000, there is no doubt that risk equalisation in the private health insurance market is an unlawful state aid.

I ask the Minister to be a little more clear-cut as to what he is trying to achieve in this Bill. I ask him to explain, to my satisfaction, why he considers the risk equalisation mechanism so desirable. Will it aid competition or stifle it? If risk equalisation is as positive as the Minister claims, is it not rather surprising that, against this so-called perfect backdrop, no further companies have been willing to enter the health insurance market? By comparison with other EU countries, we have very few health insurance companies operating in Ireland. I suggest that is because the issue of risk equalisation causes the greatest possible problems to small companies. My concerns and doubts about this concept when it was originally introduced have certainly not disappeared.

I wish to see competition in health insurance. Every citizen of this State should have the opportunity to purchase health insurance, whether from VHI, BUPA or any other source. There is a role for all of those companies but if we try to tweak the market or create a false market, competition will be stifled and, in the long run, the consumer will suffer. While the airline industry may not be the best example, we have seen what happened in the absence of competition in that sector and the blockages which were put in place – and are still kept in place by some people – in an attempt to stifle competition. When competition finally burst through, the consumer was the primary beneficiary. I believe the same principle applies to health insurance.

While it may sound fine to describe this measure as a short Bill aimed at facilitating the early submission of a draft risk equalisation scheme, I see it as a short Bill aimed at stifling competition, propping up the VHI and keeping any further competition out of the market. That is a bad move for the consumer, the health market in general and future competition. I ask the House to take those concerns on board.

Why should we fear competition? Why should we rush to introduce very false, artificial mechanisms to keep the big operators big and keep out the smaller companies. Is there any other industry or system in which the smaller players are expected to hand over 10% or 20% of their income to the bigger players? I find that absolutely bizarre. The explanations given in 2000 and 2001 were not satisfactory. I am concerned that we are going down a very dangerous route where competition will be stifled and the consumer will be hindered.

It has been interesting to listen to what has been said here. We are very anxious to make sure that every citizen is capable of having health insurance. It seems to me that will not happen unless we tamper with open competition and say that we must find a solution to it.

I am not sure that this is the ideal solution. I am not sure the Minister believes it either, but it is the best solution that he has been able to come up with on this occasion. Therefore I feel we have to support it until we can come up with something better.

I would love to think that, as in other areas, we could have competition from many other parties in health insurance. At present, there is only the VHI and BUPA and it looks as though it is unlikely that we will find others easily coming into this marketplace. If we open the doors to normal competition which we should encourage, we will find that we will not be able to cater for some people, particularly the elderly. The younger people tend not to get ill. With normal competition, those who join will be able to come in at a much lower rating and a provider like the VHI, which is stranded with the older population, will not be able to survive in the long term.

This is one of these occasions where I must go against my normal commitment to encourage competition. There is no better solution than this at present. Let us accept this, as it is. There may be amendments on Committee Stage which would improve this Bill but at this stage I support the Minister in what he is attempting to achieve.

It was interesting to note the remarks of Senator Henry in so far as one will appreciate that she has a good knowledge of the marketplace. She made a number of factual points, particularly on the instances in the area of the public hospital system where one may be able to get speedier access to treatment than in the private system. I am delighted to hear this. Where at one stage the opposite was the case, we are starting to see the tide turn in that regard. The national treatment purchase fund has also helped to improve our capacity at public level, as well as of course utilising the private system.

Senator Henry also spoke about an interesting statistic which she quoted. She said that 80% of the population were covered by Plan B insurance, either by VHI or BUPA. In answer to the question of whether BUPA produces separate accounts for its branch operations in Ireland, I can say that they are not required to do so.

There were a number of other comments by Senators Feeney, Ryan and McHugh. All in all, they welcomed the two main provisions of the Bill, providing a broad immunity from liability for damages for the Health Insurance Authority when discharging its statutory functions in good faith, and of course the encouragement of competition. I welcome the comments made on the other provisions in the Bill relating to procedures which will apply under risk equalisation arrangements and funding advancement for the establishment of the Health Insurance Authority.

I want to touch on Senator Bradford's comments. I think he misunderstands the Bill. I might even quote what the Minister said, which puts much of what Senator Bradford said into perspective. The Minister stated that the latest position is as follows:

Further to a complaint by BUPA, the European Union's Competition Directorate General is considering a detailed submission made by my Department. This submission makes the case for the necessity of risk equalisation in a market operated on the basis of community rating, open enrolment and lifetime cover, and that it does not constitute state aid under EU competition rules. It remains my Department's aim to obtain an early decision from the Directorate General on the latest complaint and complete the risk equalisation regulatory framework immediately thereafter. It is contending to the Directorate General that it maintain its previously expressed view that risk equalisation does not give rise to particular state aid concerns.

I hope that adequately answers Senator Bradford's points in a number of areas. The Minister has made it clear, and I am happy to confirm, that we are dealing with the Commission. A large part of the Minister's speech, other than the part I cited, clearly clarifies that issue.

Senator Bradford, in fairness, stated he was not in the House when the Minister commenced his Second Stage contribution. I ask the Senator to study what the Minister has said and the Official Report of this debate, which will indicate that other people had a better understanding of the content of the Bill. If he still has concerns at that stage, I invite him to make contact with our office and we will clarify any misunderstandings.

By and large, those Senators who have had an opportunity to consider the Bill, and who did take the opportunity of studying it, welcomed what we are trying to do in it. I thank them for their contributions in this regard.

Question put and agreed to.

Committee Stage ordered for Tuesday, 4 March 2003.

Sitting suspended at 5.50 p.m. and resumed at 6p.m.