Thursday, 15 November 2007
Voluntary Health Insurance (Amendment) Bill 2007: Committee and Remaining Stages
This amendment is associated with the proposal in the new section 7, which I will introduce later, to allow the board of the VHI to establish a subsidiary company for the specific purpose of carrying on its health insurance and health related insurance schemes. The intention is that the board will, on the appointed day, transfer all of its health insurance business to the new subsidiary. This transfer will take place within the VHI group of companies. The transfer will not affect any of the rights or entitlements of existing VHI health insurance policyholders on the transfer day.
Section 13 of the Assurance Companies Act 1909 and section 36 of the Insurance Act 1989 are intended to protect the interest of policyholders in circumstances here where one insurance company is taken over by another or where one insurance company merges with another. As the transfer proposed in this Bill does not involve any external company, these provisions should not apply. The Bill, when enacted, will provide the statutory basis for the transfer of the health insurance business from the VHI board to the new subsidiary established for that purpose.
When the Minister introduced the Bill in the House she spoke about a number of amendments she would bring forward to deal with concerns people expressed about the proposed change to the structure. She might comment on that when addressing this section.
A number of competitors in this field made the point that, at its most basic, the Bill appeared to give the VHI further commercial freedoms and a huge change in its capacity without requiring it to become subject to regulation. The issue of dominance was raised by many people. The Minister said that she would deal with that issue in her amendments. The VHI will remain exempt from company law requirements, for example, meaning that legally it could not be put into insolvent liquidation like any other company and that it would retain its unlimited state guarantee. The Minister said she would deal with that issue.
A number of other points were raised about inserting dates for solvency, etc. The Minister might broadly address under this section some of the changes she said she would introduce in regard to the concerns expressed about the dominance position of the company, the solvency date and the structures.
I am happy to do that. I indicated when we discussed the Bill on Second Stage that I intended to introduce a date by which the VHI had to become authorised and that date is dealt with in a further amendment, with which we will deal later. Senator Fitzgerald has an amendment tabled to this section which provides that the VHI shall not engage in any further new business before its becomes solvent. We provide in our amendments that the VHI cannot engage in new activities until it becomes authorised, which has the same effect. That is desirable and it has to establish separate companies for that purpose.
Senator Fitzgerald has an amendment tabled to a later section relating to the Competition Authority, which I will be happy to accept. However, in regard to overall market share, the VHI holds approximately 75%, Quinn Healthcare approximately 20% and Vivas Health approximately 5%. With the benefit of hindsight, one could say that when we opened up the market in the mid 1990s perhaps we should have examined the possibility of breaking up the VHI. That would not have been easy to do. The then Government would have been reluctant to do so because it is difficult to understand how one would have made it happen in reality without people moving to and fro.
Short of customers leaving the company, the VHI has the challenge of trying to remain in business — it will be authorised after the end of next year — and deal with its elderly group of members. Risk equalisation provides for intergenerational support whereby companies with a younger age profile will pay money over by way of risk equalisation to those companies which have older members but that is all subject to litigation. I do not know when the reality of that will happen, even though companies have to provide for it in their accounts and they have to accrue for it.
Short of taking a chunk of its members away from the VHI, I am not sure how in the short term we can effect a change quickly in the size of the company. I would like to do that and I have had discussions about instructing the board to reduce the size of the company. All of these matters will be considered in the context of a report due shortly, commissioned by my Department and the Department of Finance, from outside experts on the best way to help the VHI to become authorised, and whether it needs an injection of capital from private sources or Government in terms of whatever model is required to give it the capital to facilitate it being authorised. I understand that will be a matter for another debate.
I am anxious to ensure we have a competitive health insurance market in Ireland. We are introducing this legislation to establish the VHI on a commercial basis and the reason we are setting a date by which it must be authorised is to facilitate that because there has been a challenge at EU level, there have been complaints to the EU and significant complaints from other players in the market. There even have been complaints from those who have not entered the market because the VHI has a favoured position in not having to put aside 40% of its premium income to meet the authorisation requirements. This Bill addresses many of those deficiencies. It does not address the scale of the VHI in the current market and it is not easy to see how that can happen quickly.
I move amendment No. 5:
In page 3, before section 2, to insert the following new section:
"2—The Board should be solvent and prove itself to be so before any additional powers are vested on it so to ensure fair competition within the market.".
This relates to the solvency issue which the Minister has addressed to some degree. The point we make is that while there is a requirement on the VHI to consider reaching normal solvency levels by considering its pricing, no date has been set for this to be achieved. This is crucial as the primary obligation within the Act is diluted if no date is provided. For example, it is very different to have to price to be solvent by 2008 rather than by 2012. Again, the date needs to be inserted.
There is provision, obviously, for the Minister to issue a date setting out the date to attain solvency and we believe this is important. The new Bill allows the VHI to have subsidiaries, as the Minister has said, but it is not clear how these will interact with the parent company and, in particular, how they will be capitalised and what should occur if they face financial difficulties, for example. Allowing the VHI to have subsidiaries in itself poses a number of regulatory and competition difficulties as again it creates a different regime for the company from that implied to normal insurers. I would be interested to hear the Minister's response.
As I indicated in my comments, the purpose of Senator Fitzgerald's amendment has been encompassed in the amendment I have tabled. Amendment No. 9 deals with the date issue, which is to be by the end of 2008, quite an onerous date in many respects. The intention originally was by 2012, so we have effectively brought it back by three full years, and I believe that will be onerous on VHI. In all the circumstances, particularly as regards fair competition in this market, other major benefits of the VHI are being authorised, as far as consumers are concerned, under the supervision of the Financial Regulator, which I may deal with later, and so on.
Amendment No. 6 is a technical drafting amendment to open the section further to enable the inclusion of paragraph (d). Amendment No. 7 provides for subsection 5 being subject to subsection (5A) which follows as amendment No. 11. Amendment No. 11 sets out in greater detail than contained in the present section 2 the means by which the board may accumulate the reserve required to secure authorisation from the Financial Regulator. It is appropriate that the VHI should have the maximum flexibility as to how it achieves the level of solvency required to satisfy the Financial Regulator.
As regards paragraph (e), the provision of any capital by the State, either by way of a loan or in return for shares, would only take place on an arms length commercial basis. The Government and the European Commission would have to be satisfied in advance that any such investment by the State did not constitute state aid.
Obviously the VHI has to build up its reserves. To be authorised it will have to meet the 40% requirement its competitors have to meet. The Financial Regulator will not authorise the VHI unless it puts aside approximately 40% of its premium income by way of a reserve fund. At the moment it has——-
That is correct — 28%. This amendment says, in effect, that there are a number of different ways by which there could be an injection of outside capital, for example. It could do it by reinsurance — offloading a certain number of policy holders and having them reinsured. There are various mechanisms the VHI can use and this gives it maximum flexibility so that it can meet the end of 2008 deadline.
On the Second Stage debate it became clear that if the VHI has to increase its reserves to 40% it will need to get €140 million before the end of next year. While the Minister says it has the option to use reinsurance, such mechanisms incur costs which will eventually be passed on to the consumer. There is no need for a health insurance company to have reserves equivalent to 40% of its premiums. Health insurance is not like waiting for hurricanes or storms to occur. It is pretty much a standard operation and does not change dramatically year on year. If one compares the VHI's historical performance with that of life assurance or accident insurance companies, one sees nothing has changed dramatically in this regard over the past decade. The €300 million VHI has at the moment is more than adequate to cover it.
From the viewpoint of the consumer, and I am sure the EU would have no objection, the Minister should lower the reserve limit to 30%. At least that way customers will not find themselves making up the shortfall on behalf of VHI for no apparent reason. There really is no need. It is like banks or any other financial service one could talk about. Health insurance does not require such an enormous reserve.
I raised that specifically on Second Stage and I was hoping it would be dealt with. We must look at this from the customers' viewpoint. I raised another issue, too, on Second Stage. As with the Dáil, if the Seanad is to have these debates on Second Stage that specifically deal with customers, they should warrant attention. The VHI, to all intents and purposes, holds a monopoly position. The strength of that monopoly is evident in the way Quinn Healthcare has responded to the hospital consultants. On coming into the market it was going to be much more aggressive to change things. However, the consultants told Quinn Healthcare, in effect, that they would not see its patients unless they paid the same rate as the VHI. That is what a vested interest did within the health service, demonstrating the power the consultants have. The Minister can understand this because she is well informed on contract negotiations with the consultants. Effectively, the customer has no say. Once the VHI and the consultants decided what would happen, it did, and Quinn Healthcare had to toe the line.
One of the points I raised on Second Stage bore out this scenario and perhaps the Minister might insert this in the legislation before she loses complete control of the VHI. This legislation is about the Minister losing control of the private health insurance market as well. Before she does that, she should provide in the legislation for some type of nod in the direction of the customers. One of the things I asked for was detailed itemised bills, as with any other private health insurance company on the European market. That should be included in the legislation. If we take the trouble to make Second Stage contributions in the Seanad that might help the legislation, I would appreciate it if the Minister would say whether what is being suggested is completely wrong.
My three points are that there is no need for a large reserve, the VHI is a monopoly that does not protect its customers and the Minister should push for itemised bills so that customers know what they are paying for.
I agree with Senator Twomey about the scale of the reserve required. However, it is not a matter for me as this is the requirement of the Financial Regulator, which is independent. The regulator in Ireland takes a much more conservative view compared with other countries. In Britain I believe it is of the order of 25%. In fact when VIVAS Health was incorporated in Northern Ireland and Britain, as with BUPA, that was the type of scale it had to meet, namely, a reserve of around 25%. However we do not have political control and it is appropriate that these matters should be dealt with by an independent regulatory authority.
In carrying out its duties in this regard, the Financial Services Regulatory Authority is independent of ministerial direction. It broadly comes under the auspices of the Minister for Finance and his Department. When it comes to its operational issues, it is independent in how it carries out its functions. Its establishment has led to greater protection and control for consumers generally.
The issue of a European-wide level of reserve will be the subject of an upcoming directive but this will not come into effect for a considerable period of time. In the meantime, we must meet the requirements of the Regulator. Although the Central Bank comes under the ambit of the European Central Bank as far as prudential matters are concerned, the Financial Regulator is free to set the reserve requirement it feels is necessary to regulate companies in an Irish market context. The Barrington group made recommendations on this, on which I have previously commented but ultimately, it is up to the regulator to make a determination on these issues.
It is a fact that the price setting is carried between the VHI and hospitals. The sheer size of the VHI and the clout it has by virtue of its size and scale are factors. I met a consultant recently who told me that he had recently begun to deal for the first time with claims from other insurers. Until recently, he had only dealt with one insurer, which demonstrates the scale and size of the VHI and the fact that perhaps the younger members of other companies are not yet interfacing at hospital level.
On the other hand, the sheer size of the VHI has been advantageous in dealing with consultants and hospitals. Basically, the VHI carries out what are broadly called deals, as all insurance companies do. If somebody in a hospital does a deal for a particular procedure and pays for four days in hospital, the hospital will gain if it can get him or her out in two days and lose if it keeps him or her in for eight days. There are swings and roundabouts in all of this.
In the context of talking with the HIA around consumer-related issues, I am a fan of informing patients. Many insurers will now telephone patients as a matter of routine. I understand that BUPA on average used to contact about 10% of patients about matters like their experiences, the procedures they had and the length of time they spent in hospital. Companies do this all the time in order to verify the claims that have been made. A higher number of patients will probably be contacted in the future.
The Barrington group made recommendations about informing patients and having clear notices at the bottom of renewal notices. I will require all insurers to tell people that there will be no penalty if they switch. Last weekend, I met a fairly well-informed person who did not know that if they switched from the VHI to another company they would not have to spend six months without cover. I frequently meet people who do not know this. We must give subscribers much more information in an understandable form. In fairness, the HIA has advertised this widely but we need something akin to what happened in respect of motor insurance renewals. When people suddenly receive information and renewal notices, it is very powerful in effecting change.
We have been having discussions with some insurers because we want insurers to insure health as opposed to sickness. To be fair to VIVAS, it is introducing a considerable amount of what I would call wider cover in its policies to encourage people to engage in preventative measures around their health and to take more responsibility for it. I would like to see health insurance here going in that direction because it is important from a number of perspectives, including that of chronic illness. Financial incentives by way of insurance premiums can be enormously powerful in affecting behaviour.
I remind Members that we are on Committee Stage and that they should confine their remarks to the amendments before us because Second Stage gave us the opportunity to raise all these issues. I do not wish to stifle comment but there is a procedure to be followed.
At the same time, we should expect a reply at some stage in the legislation. I cannot move an amendment looking for itemised bills from the VHI but it is still very relevant to the legislation about which we are discussing. There is no opportunity have the legislation provide that an itemised bill should be issued to every customer. At the same time as I raised this issue——
I intend to have discussions shortly with the HIA in respect of consumer protection issues, including itemised bills. It is not a matter for legislation but Senator Twomey made a valid point about consumers and informing and involving people. I will address that issue.
I move amendment No. 8:
In page 4, line 5, after "shall" to insert the following:
"foster competition within the health insurance market and refrain from engaging in any actions which may hinder the operation of competition within the market. It shall also".
The Minister has spoken about the competition issues that arise in the health insurance market. In respect of the previous discussion, I very much support what she said about mechanisms or actions which we can make to support the taking of health promotion measures by individuals and to encourage health insurance companies to support such measures. Does the Minister believe the Bill in its current form addresses competition issues in this area?
The Bill does not specify whether the subsidiary companies will be permitted to cross-sell and tie products to the health insurance products and, hence, further lock in the VHI customer base. The VHI has leveraged a 35% market share of the travel insurance market. The Competition Authority, the HIA and the Barrington report all recommended that the VHI should immediately cease its policy of cancelling members' travel insurance policies should they chose to switch health insurers. However, the VHI has refused to implement this change, further perpetuating the inertia within the market. If there is no positive obligation within the Bill to prohibit the VHI from tying the rest of its new products, it will effectively lock in its 1.6 million members through cross-selling. Does this concern the Minister or does she think this issue needs to addressed?
The VHI has in excess of 75% of the health insurance market and 35% of the travel insurance market. Does the Minister believe that allowing the VHI to expand its commercial business lines to further tie its customers will increase its massively dominant position and continue to distort competition? If the VHI is to be allowed to engage in further commercial activity, should there not also be an obligation to engage in a market share reduction policy in health insurance?
The risk equalisation scheme will mean a convergence of prices between all competitors in the market and, in some instances, will force competitors of the VHI, which must maintain solvency reserves and pay huge risk equalisation payments, to price their products above the VHI. As the Minister is aware, all consumer research to date indicates that the primary factor leading to the customer switching within the market is price differential. Once this price differential is eliminated and the VHI can cross-sell and tie its ancillary business lines, is there not a danger that the VHI will not only maintain its massive market share but will also increase it through the vertical integration and tie-ins in respect of this?
The Bill does not indicate whether the subsidiary companies will be for-profit companies or whether they will simply be required to break even. Furthermore, there is no provision in respect of whether subsidiary companies must make a return to Government on any profits they make. Will the profits be used to subsidise health insurance business and maintain premiums below cost, albeit that the VHI will potentially also receive huge risk equalisation payments from its competitors to bolster its profit margins?
There is also no indication within the Bill about how the money will flow between the products sold by these companies to the VHI, for example, if they were unprofitable or during their start-up phase, and whether funding will be provided directly from the VHI out of the health insurance business. Does the Minister agree that the VHI and subsidiary companies should be required to make some form of return to Government so as not to distort competition within the financial services market? Will she comment on this aspect?
The Bill is broadly drafted in respect of the differing commercial activities in which VHI will be permitted to engage. The previous limited restriction, that the activities be related to health, has been lifted. Permitting the VHI to engage in any activity effectively allows the State to participate in normal markets where previously it had no presence. In addition to the history of State protection of the VHI a differing regime is still being implemented for VHI in a number of markets. Under the terms of the Bill, the VHI will continue to report to the Minister for Health and Children to some extent. The current position of conflict with the Minister is not resolved. The Minister acts as regulator of health insurance through the Health Insurance Authority, owner of the largest health insurer in the country and supplier of the largest part of health insurance product in public hospital services. There is an obvious conflict of interest. The amendment is an attempt to reflect this concern and to deal with the contradictions to which the dominant position of the VHI may lead. Will the Minister support this amendment in order to address these issues?
I do not disagree with the need for competition in everything we are trying to do. We seek to foster competition from an imperfect position. This legislation will make the VHI subject to the Financial Regulator and authorised on the same basis of its competitors. Competition is at the heart of that.
Senator Fitzgerald referred to the Minister as the regulator of health insurance but the Minister will no longer be the regulator after this Bill is enacted. The VHI will be regulated by the Financial Regulator on the same basis as every other financial services company, which is desirable.
Many of the consumer issues to which the Senator referred must be appropriately addressed. It is the remit of the Competition Authority to foster competition in the market and the Financial Regulator in respect of some consumer issues mentioned.
Regarding tying health insurance and travel insurance, a new competitor in the market is offering three types of insurance — car, house and health — for the price of one. Senators may have heard the advertisements on the radio. Vivas also offers travel products. VHI's competitors have complained to the Financial Regulator regarding the link between the two types of insurance. The complaints have not been upheld. There is much merit in what the Senator suggests. Will we tie people to one product by virtue of another product? This must be addressed with consumer related measures, whether by the Financial Regulator, the HIA or a combination of both.
The purpose of giving VHI greater freedom is to allow it to operate like its competitors. Most of the issues raised by Senators Twomey and Fitzgerald relate to the size of the VHI. Its competitors have more than 600,000 customers between them, approximately 465,000 with QUINN-healthcare and 150,000 with Vivas and both are growing rapidly in respect of new entrants. I have been a member of the VHI since I entered this House 30 years ago and I never left it. Perhaps many of us are complacent but I have received a good service in so far as I have used it. Many people are like me, loyal to those who provide a good service. The only way to affect the size of VHI in the short term is for the Government to take a section of customers and hand them over to the competitors. This would engender major problems even if we felt it was desirable from the point of view of competition. We would have no way of keeping the customers with the competitor the next year. We must use all the tools at our disposal, short of the break-up of the company. It would take years to effect the break-up of the company if we decided on it and it would be chaotic. I appeared in this House during the previous Seanad at a time when risk equalisation was not paid and I heard a different story. People said I was not protecting the VHI then and in debating this legislation it is suggested I am doing too much for the VHI.
I am the first to suggest we are operating from an imperfect position. The incumbent in the market has been there for 50 years and has built credibility among customers. It will take quite some time to find a better balance. I am examining whether we can mandate the board to reduce the size of the company in the market over a number of years. That has been suggested to me by the competitors and it would be desirable that we could effect this but I do not know if it is possible in the short term. I will consider advice from advisers regarding how capital could be accumulated to provide for authorisation, in the context of regulation by the Financial Regulator. Most of the complaints made by competitors related to the derogation that VHI did not have to meet the same solvency requirements as its competitors. They felt that 2012 was too late for this to end and it will now end by the end of 2008. This will not solve all the problems and we must examine consumer protection issues in conjunction with the HIA. The Financial Regulator has built considerable consumer confidence since it was established four years ago and it will do much in this area as well.
I appreciate that we are not operating from a greenfield site and the difficulties regarding the dominance of VHI. If this legislation allows subsidiaries to develop and the VHI to enter these markets, does it make the dominant position of VHI more of a problem? I raised questions about subsidiaries and whether there will be cross-subsidies that may exacerbate some of the difficulties outlined. Will profits be used to subsidise the health insurance business and maintain premiums below cost? These matters could add to the problem of dominance rather than deal with it. The amendment is an attempt to address this.
Are there some consumer issues that will arise but which will be dealt with by legislation related to the Financial Regulator?
We cannot start breaking up VHI. I appreciate that we are not operating from a greenfield site but that is a good thing. Every Member who contributed on Second Stage was proud of the VHI and felt a sense of ownership. Some of us have been members of VHI since we were born.
I was trying to book a winter holiday and VHI travel insurance is the best value in the market. Not even a credit card company will provide cheaper travel insurance than €49. I would hate to see that removed and I hope the Financial Regulator will not do so. Nothing bars the competitors from introducing something similar.
Senator Fitzgerald asked about subsidiary companies, which must clearly be subject to the Financial Regulator as well.
When one is faced with a group of companies and when one of the competitors is itself a group, it is difficult to identify from where the money comes. It will be a matter for the Financial Regulator to regulate the position in that regard. At present, the VHI cannot become involved in anything other than health-related and other specific business. It launched its SwiftCare clinics on a joint venture basis and these are providing a good service and alleviating pressure on some of the accident and emergency departments in Dublin. I am aware that the VHI plans to expand its activities in this regard to Waterford, Limerick and other places.
It is not a bad thing for any company to have commercial freedom, provided it does not abuse its position. The purpose of the Bill is to facilitate the authorisation of the VHI at the earliest possible date. In my opinion, this will take place just over 12 months from now at the end of next year. That is an ambitious target. Following authorisation, the company will have the same freedom — because it will be subject to regulation in the same way — as its competitors to engage in appropriate activities, whatever those might be. I am not underestimating the fact that the sheer size of the company is an issue in terms of the clout it can bring to bear, particularly in so far as it deals with hospitals and doctors. However, many would say that its competitors have benefited from the VHI being able, by virtue of its size, to do deals with hospitals and consultants.
What most people desire is that the VHI should be subject to regulation and fair play. Of course its competitors and I would like to see its share of the health insurance market substantially reduced. The market would be healthier and there would be increased innovation, competition and better value for money for consumers if there were more players involved. The view of most of the experts is that we probably need five players in the market in order to have healthy competition. To date, the figure effectively stands at three. I hope some of the changes we are making will encourage new players to enter the market.
In the mid-1990s, when 38% of people had health insurance, there were many who felt the market was saturated and could not grow any more. Effectively, the new companies have grown their business by growing the market, which now comprises 52% to 53% of the population. As we become wealthier, as increasing numbers of people enter employment — 20% of people's health insurance is paid for by their employers — and as we change the nature of employment and the way in which people are remunerated, we can grow the market further. There will be opportunities, when the legislation is enacted and when the VHI is authorised on the same basis as its competitors, for new entrants to the market.
The necessity to inform consumers that they will not be penalised if they switch insurers could have a powerful impact on some because people like to support innovation. One of the VHI's competitors covers laser treatment, in which increasing numbers of people seem to be interested. In addition, the VHI itself has a dental care scheme. There are many more new services and products coming into the market and what we are doing will, I hope, give people the opportunity to consider switching once they are provided with the appropriate information.
a fund greater than the minimum guarantee fund that it would be required to possess pursuant to Regulation 13(1)(b) of the European Communities (Non-Life Insurance) Framework Regulations 1994 (S.I. No. 359 of 1994) to enable it to make an application for the grant to the relevant subsidiary (within the meaning of section 1 of the Act of 2007) of an authorisation (within the meaning of those Regulations) to carry on the business of non-life insurance, and".
Amendments Nos. 9 and 10 attempt to achieve something similar. Amendment No. 9 is the first significant amendment to the Bill, as drafted. As indicated on Second Stage, the Government decided in April that the VHI should become an insurer authorised by the Financial Regulator by the end of 2008. As stated at that time, the Government does not believe it is in the interests of either the VHI or the health insurance market that its anomalous status as an unauthorised entity should continue for any longer than necessary.
In April the Government agreed that the Departments of Finance and Health and Children should seek specialist advice on how the VHI could be authorised by the end of 2008. The consultants are due to produce a report for the two Departments by the end of this month. Following receipt and consideration of the report, we will, in turn, provide a report to Government before the end of December. The Government is determined that the VHI should be authorised by the end of 2008 and the provision provides accordingly. It seems prudent to allow, in what will be the new section 2(5)(b)(ii), limited latitude to provide for situations where it is not possible to achieve this objective by the specified date, but only where there are good and sufficient reasons.
Under the Bill, as drafted, responsibility for deciding the date for the VHI to have full capital reserves rests with the Minister. The Minister could impose a date for implementation of the requirement which could cause problems for the VHI. Our amendment would ensure that the date chosen would have to be approved by both Houses prior to its coming into effect. Perhaps the Minister might outline the timetable she envisages for the implementation of the Bill.
What difficulties does the Minister envisage regarding the authorisation of the VHI? It appears that matters should be straightforward when the reserve issue is resolved. The VHI would then be in a position to act according to whatever the market dictates once it complies with the Financial Regulator under existing legislation. It does not appear, therefore, that any major problems will arise. Does the Minister envisage that difficulties might delay the VHI being authorised under the Financial Regulator.
I do not envisage any difficulties and I will be quite insistent in that regard. The Office of the Attorney General advised that, for legal reasons, this proviso should be put in place. However, I do not envisage any circumstances arising in which it might be used. It is being included purely on the basis of legal advice.
Amendment No. 13 is an alternative to amendment No. 12 and amendment No. 16, to which amendment No. 17 is an alternative, is related. We will, therefore, discuss amendments Nos. 12, 13, 16 and 17 together by agreement. Is that agreed? Agreed.
The principal purpose of amendment No. 12 is to clarify certain functions of the VHI board by setting them out more explicitly than is currently the case in the existing section 3(a). In addition, it provides for the board to establish a service company to provide services to the board itself or to other subsidiaries within the group. It is common practice within the insurance for a company which adopts a parent company structure to establish a services company, which typically employs all the staff in the group. This service company then supplies staff to other companies in the group. Amendment No. 16 mirrors what is provided in amendment No. 12 in respect of new activities.
We have discussed this matter to some degree. Amendment No. 17 was tabled because I wanted to ensure that customers subscribing to subsidiary policies would not be penalised if they chose to change health insurer. The Minister stated that this matter would be better dealt with by the Consumer Protection Agency than it would under the provisions of the Bill.
The purpose of this amendment is to ensure that the VHI does not extend the scope of its functions beyond those in which it already engages until after authorisation is secured. I referred earlier to the peculiar position which the board currently occupies as an unauthorised entity with a derogation from prudential regulation. It is the view of the Government that the VHI should not extend the scope of its activities any further until after authorisation. Senator Fitzgerald has tabled a number of amendments along the same lines as that under discussion.
I move amendment No. 15:
In page 4, paragraph (b)(i), line 44, after "facilities" to insert the following:
"(not including facilities which are co-located on the premises of public hospitals)".
We are opposed to the Government's policy of co-location and the purpose of this amendment is to ensure the VHI does not become involved in running private health care facilities on the premises of public hospitals. The Minister is aware of our position and the amendment is designed to put down a marker to state we oppose this policy.
I will not have a major philosophical debate. The purpose of co-location is to decant private activity from a public hospital into a privately funded facility. Taking Tallaght Hospital in my constituency as an example, 46% of the elective work carried out in 2005 was for private patients. The hospital has a large hive of private activity. The Government is stating simply that it wants those beds to be used for public patients. We have the ironic situation whereby public patients go to the Blackrock Clinic, the Beacon Clinic and the Mater Private Hospital under the National Treatment Purchase Fund while private patients go to public hospitals.
It would be good for Ireland if health insurers got involved in operational issues such as hospitals. I do not believe any of them have plans to do so. It may be the case in the future. Unfortunately, I am not in a position to accept Senator Prendergast's amendment. I reminded my officials that Senator Prendergast is female because they referred to "his amendment". I do not think they will be in any doubt in the future who Senator Prendergast is because she makes a lot of noise on health issues.
I have an open mind on this. My main interest is that it operates fairly and provides fair competition and certainly that its competitors have fair competition. The consultancy employed by the two Departments will recommend to the Government how it can accumulate the capital to facilitate authorisation. Whether this comes from private sources or elsewhere has yet to be determined. My overall philosophy is that if the State does not need to be involved, it should not be. If we can use money realised from disposing of State companies to invest in health, education or justice we should.
Whether the VHI is fully or partly owned by the State or others is not of major interest to me. No plans exist to privatise it. Such a decision has not been made and it must be decided in December or January. Does Senator Twomey have any views on this?
It would be relatively straightforward to do so once this Bill is passed as it will almost have semi-State status. The Government is divesting itself of responsibility for the VHI. Much of the regulation of the organisation will fall into the remit of the Financial Regulator and this will make it easier to privatise it.
Half of the population relies on private health insurance and the VHI provides 75% of this. From the point of view of the customer, concerns are raised about whether it is privatised or remains in public ownership.
I agree with Senator Twomey. One issue raised is that of mutualisation which, I understand, finds favour with many people in the VHI. This effectively means the members would own it. This would lock in everybody. A number of suggestions have been made but no decision has been made. My guess is that it is unlikely to be privatised.
A large number of people have benefitted from the VHI and we owe it a debt of gratitude for the work done over many years. It has served the Irish consumer well and changes to its status would require very careful discussion. However, this does not take away from the fact it raises competition issues which we are discussing. Some of these must be dealt with to open up the market and ensure the consumer can obtain a better deal.
Under normal insurance regulation in Ireland, insurance undertakings are not permitted to have subsidiary companies as they may have a financial impact on the parent company. A group structure of companies is generally formed whereby a parent holding company has a number of subsidiaries, one of which is the insurance undertaking. This parent holding company must be approved by the Financial Regulator as does each new subsidiary company formed. This does not appear to be the case for the VHI which will be permitted to have direct subsidiaries although it will become an insurance undertaking. The VHI will not be regulated as the parent company of these subsidiaries and the creation of these subsidiary companies will not be subject to the approval of the Financial Regulator as is required of a normal commercial insurance undertaking.
It seems different and preferential treatment is afforded to the VHI by the Government. The Minister discussed altering this structure. Will she comment on this because it initially appeared the structure would be different from what would be expected of other companies?
This Bill establishes that separate sister companies must be established for other activities, all of which will be subject to the authorisation of the regulator. I do not believe anything different applies in this case.
The object of these major amendments is to provide for the transfer of the health insurance activities of the present VHI board to a subsidiary company to be established for this purpose. The new section proposed in amendment No. 19 consists of a provision to enable the Minister to set a date for the transfer to take place. The new section proposed in amendment No. 20 provides for the transfer of the health insurance business and health related insurance schemes to the subsidiary to be established for that purpose.
This statutory provision is required for this transfer because the VHI board, as a State body rather than a conventional commercial insurance company, is not covered by the Insurance Acts which would otherwise apply. It is linked to the amendment to section 2 and the rights of members and staff are not affected in this instance. It has the added advantage of not requiring the approval of the High Court. The process of securing High Court approval for the transfer is long and complex. It is also not without some risk as it would allow parties which might claim to have an interest in the transfer to intervene. These could include disgruntled VHI policyholders or competitors. If this were to happen, it could seriously threaten the objective of having the VHI authorised by the end of next year.
The new sections 8, 9, 10 and 11 are standard provisions governing the process of transferring business. The new section 12 will allow the Minister to appoint a day on which staff will be transferred from the VHI board to the services company subsidiary to be established for the purpose of employing the staff of the group and its subsidiaries.
The new section 13 sets out the conditions under which the existing staff of the VHI board will be transferred to the new services subsidiary or any other subsidiary established by the board. Although the present intention is that all staff be transferred to the service's subsidiary, the section gives the board a degree of flexibility in having the power to transfer staff to another subsidiary if it so decides. Section 13 also provides statutory protection for the terms and conditions of employment of existing VHI staff. While the board has indicated it has no plans to recruit new staff on less favourable terms than those already applying to existing staff members, these provisions would not prevent it from doing so. Amendment No. 33 is a consequential technical amendment.
"6.—(1) Without prejudice to the generality of section 4, the Board may form and establish or acquire a subsidiary for the purposes of transferring to the subsidiary on the transfer day the business of health insurance schemes and health-related insurance schemes carried out by the Board pursuant to section 2 of the Act of 1996.
"7.—(1) On the transfer day, all land that immediately before that day was vested in the Board and all rights, powers and privileges relating to or connected with the land shall, without any conveyance or assignment, stand vested in the relevant subsidiary for all the estate or interest therein that immediately before the transfer day was vested in the Board, but subject to all trusts and equities affecting the land continuing to subsist and capable of being performed.
(3) Every chose-in-action vested in the relevant subsidiary by virtue of subsection (2) may, on and after the transfer day, be sued on, recovered or enforced by the relevant subsidiary in its own name, and it shall not be necessary for the relevant subsidiary, or the Board, to give notice to any person bound by the chose-in-action of the vesting effected by that subsection.".
(2) Every right and liability transferred by subsection (1) to the relevant subsidiary may, on and after the transfer day, be sued on, recovered or enforced by or against the relevant subsidiary in its own name, and it shall not be necessary for the relevant subsidiary, or the Board, to give notice to the person whose right or liability is so transferred by such transfer.
(4) Subsection (1) does not apply to the rights and liabilities of the Board arising by virtue of any contract or commitment referred to in that subsection where the contract or commitment, as the case may be, is between the Board and a member of the staff of the Board in the member's capacity as such (and whether or not the member only acquired that capacity upon the entering into of the contract or commitment, as the case may be).".
"9.—(1) A claim in respect of any loss or injury alleged to have been suffered by any person, arising out of the performance before the transfer day of the functions of the Board in so far as they relate to the transferred business, shall, on and after that day, lie against the relevant subsidiary and not against the Board.
(3) Where, before the transfer day, agreement has been reached between the parties concerned in settlement of a claim to which subsection (1) relates, the terms of which have not been implemented, or judgment in such a claim has been given in favour of a person but has not been enforced, the terms of the agreement or judgment, as the case may be, shall, in so far as they are enforceable against the Board, be enforceable against the relevant subsidiary and not the Board.
(4) Any claim made or proper to be made by the Board in respect of any loss or injury arising from the act or default of any person before the transfer day shall, where the claim relates to the transferred business, be regarded as made by or proper to be made by the relevant subsidiary and may be pursued and sued for by the relevant subsidiary as if the loss or injury, as the case may be, had been suffered by the relevant subsidiary.".
(2) Every document (including any certificate) granted or made, and every register established, in the performance of a function of the Board in so far as it relates to the transferred business shall, if and in so far as it was operative immediately before the transfer day, have effect on and after that day as if it had been granted or made, or established, as the case may be, by the relevant subsidiary.
(2) Save in accordance with a collective agreement negotiated with any recognised trade union or staff association concerned, a person referred to in subsection (1) shall not, while in the service of the services subsidiary or other subsidiary, as the case may be, be subject to less beneficial conditions of service (including conditions in relation to tenure of office) or of remuneration than the conditions of service (including conditions in relation to tenure of office) or remuneration to which he or she was subject immediately before the staff transfer day.
(3) In relation to persons transferred to the services subsidiary or other subsidiary, as the case may be, previous service with the Board shall be reckonable for the purposes of, but subject to any exceptions or exclusions in, the Redundancy Payments Acts 1967 to 2003, the Protection of Employees (Part-Time Work) Act 2001, the Organisation of Working Time Act 1997, the Minimum Notice and Terms of Employment Acts 1973 to 2001 and the Unfair Dismissals Acts 1977 to 2001.".
I move amendment No. 1 to amendment No. 26:
In subsection (3), to delete all words from and including "the" in the third line down to and including " 2001." in the sixth line and substitute the following:
"the Redundancy Payments Acts 1967 to 2007, the Protection of Employees (Part-Time Work) Act 2001, the Organisation of Working Time Act 1997, the Minimum Notice and Terms of Employment Acts 1973 to 2005 and the Unfair Dismissals Acts 1977 to 2007.".
My amendment corrects an error in the citations, which were updated by Act No. 27 of 2007. The reference to "the Minimum Notice and Terms of Employment Acts 1973 to 2001" needs to be deleted. The citation was updated by Act No. 18 of 2005. The reference to "the Unfair Dismissals Acts 1977 to 2007" also needs to be amended. These citations were already updated, in particular by Act No. 27 of 2007.
These amendments remove the need to seek the consent of the Minister. They are consistent with the desire to give the company commercial freedom, particularly given that the activities concerned will only arise following authorisation.
Yes. The control is as follows. If it wants to get involved in new activities, the Minister for Health and Children will give consent with the consent of the Minister for Finance. That will be done by the Financial Regulator after authorisation. Today the Minister can refuse to sanction increased prices for example. Those powers will go.
Obviously the regulator will be the Health Insurance Authority on health aspects, the Financial Regulator on prudential aspects and the Competition Authority on consumer issues. It will be subject to the same regulatory environment as Vivas and Quinn Health.
This amendment removes the Minister for Health and Children and the Minister for Finance from their roles in regulating the activities of new subsidiaries, which will be the responsibility of the Financial Regulator after authorisation.
I move amendment No. 31:
In page 6, before section 6, to insert the following new section:
"6.—The Board shall report on a six monthly basis to the Competition Authority on its market share in the health insurance market.".
Given that the Minister will no longer have a role and that various competition issues arise with the development of these new subsidiaries given the dominance of VHI, I felt it would be appropriate for the board to report on a six-monthly basis to the Competition Authority on its market share in the health insurance market.
"(3) The aggregate referred to in subsection (2) shall not include moneys raised or borrowed for the purposes of acquiring a fund greater than the minimum guarantee fund that the Board would be required to possess pursuant to Regulation 13(1)(b) of the Regulations of 1994 to enable it to make an application for the grant to the relevant subsidiary of an authorisation (within the meaning of those Regulations) to carry on the business of non-life insurance.".
This is a technical amendment to reflect the wording provided in amendment No. 9. The purpose of the section is to allow the board to access capital for the purpose of seeking authorisation without having any borrowing raised for that purpose included within the aggregate limit imposed on other borrowings.
I move amendment No. 34:
In page 6, before section 8, to insert the following new section:
8.—Any order or regulation made pursuant to the Voluntary Health Insurance Acts 1957 to 2007 shall be laid before both Houses of the Oireachtas as soon as may be after it is made, and, if a resolution annulling the order or regulation is passed by either such House within the next twenty-one days on which that House has sat after the order or regulation is laid before it, the order or regulation shall be annulled accordingly, but without prejudice to the validity of anything previously done thereunder.".
The purpose of this amendment is to ensure that any order or regulation made by the Minister is subjected to parliamentary scrutiny. Under the Bill as it stands there is no requirement to present such an order or regulation to the Oireachtas.
When VHI obtains commercial freedom, as it will be authorised by the Financial Regulator, the making of orders will not arise. If amending legislation is required it would need to come to the House. However, there will be no orders as such.
"INSURANCE BOARD, TO EMPOWER THE BOARD TO FORM AND ESTABLISH OR ACQUIRE SUBSIDIARIES TO PERFORM CERTAIN FUNCTIONS OF THE BOARD, WITH A VIEW TO OBLIGING THE BOARD TO APPLY FOR A GRANT TO THE RELEVANT SUBSIDIARY OF AN AUTHORISATION TO CARRY ON THE BUSINESS OF NON-LIFE INSURANCE, TO SPECIFY THE BORROWING POWERS OF THE BOARD AND SUCH SUBSIDIARIES, AND TO PROVIDE FOR RELATED MATTERS."
The Minister has said she will return to certain issues when the Bill is taken in the Dáil. However, will the Bill allow the VHI, without any partners, to set up swift clinics wherever it wishes? Could this lead to a range of swift clinics, which some people might regard as the corporatisation of general practice? Could that process accelerate with the benefit of this legislation?
I believe the Senator is asking if it could be done without reference to general practitioners. The answer is that I believe it could. If they want to be commercially successful they will have to include general practice.
This is my first time to chair a session of the Seanad. It was my great honour to have been the first female Acting Chairman to stand over a vote in the Dáil during the passage of the Health Insurance (Amendment) Bill 2007. Coincidentally, my first occasion as Acting Chairman in the Seanad has been the debate on this Bill.