Thursday, 18 December 2014
Health Insurance (Amendment) Bill 2014: Committee Stage (Resumed) and Remaining Stages
I move amendment No. 6:
I welcome the Minister back to the House and thank him for being here.
In page 6, between lines 18 and 19, to insert the following:“(4) In prescribing the maximum payments in subsection (1) the Minister shall have regard to average length of stay in hospitals, utilisation management, medically unnecessary admissions, and other excessive costs unrelated to ageing as noted in the Milliman Report (2010).”.
There are a number of important things happening in the health insurance sector. We have seen massive price rises, estimated by the Oireachtas Library and Research Service to be in the region of 58% since 2008 and more than 300,000 people have given up their private health insurance. The Minister's predecessor tried strenuously to tackle costs. The figure given by the current Minister is -2% in that regard. That is on top of an incredible performance in a period when there were no real increases in incomes because of the economic crisis. We are making progress but I wish we could have done so earlier. We have moved our approach to the health insurance market from one where the State's health insurance company, VHI, was protected at all times from competition. Given that the policing of efficiencies in the health service is difficult for the Department, as the main employer, why not use competing health insurance companies as the mechanism through which this is done? That is the emphasis that has been missing to date.
I welcome the Minister's announcement that the regulation sector for financial purposes will be moving to the Central Bank in February. That should have been done years ago. Indeed, a normal feature in December has been the postponement of that decision, which confers a substantial advantage on VHI over others in the market. The main concern in the Milliman report, referred to in my amendment, is that VHI devotes a vast amount of its energy, at managerial level, to proving that it has more older customers than the other insurers. We had an interesting discussion on that point recently and debated whether that fact warrants the kinds of price increases we have seen in recent years. The Milliman report argues that if a fraction of the energy devoted by VHI to proving its customers are older and petitioning the Department of Health and the Health Insurance Authority to rig the market was devoted to examining issues like "average length of stay in hospitals, utilisation management, medically unnecessary admissions, and other excessive costs unrelated to ageing" we would see real progress on costs.
I want to see a market in which insurers can charge customers less, not because they have cheated by refusing to insure older people but because they have secured better deals from hospitals, reduced the average length of stay, agreed lower prices for procedures and negotiated better deals with the drugs companies. In that context, insurers should be able to confirm to the Minister that people, both young and old, can be treated at a lower cost and that any savings made will be passed on to consumers. That would be a very welcome development. None of that happened in the period during which health insurance costs rose by 58%.
The average length of stay in hospital, according to the Milliman report, is ten days but best international practice is 3.7 days. Since 2010, when the report was published, some of the efforts of the former Minister for Health, Deputy Reilly, to focus on cost control have had an impact, albeit only to the tune of 2%. The Milliman report suggested that there was huge scope for improvement in utilisation management and also pointed to a high volume of medically unnecessary admissions, with young people in the full of their health admitted overnight for tests and so forth. Such overnight stays are costly to the insurers. The report argues that issues such as poor administration, poor management and a lack of attention to issues such as the average length of stay are more important than the ageing factor. Such issues are independent of age and improvements in this regard could make a big difference. The former Minister for Health appointed Mr. Pat McLoughlin to try to administer change. The potential savings identified in the Milliman report were far greater than the 2% we have seen thus far.
The version of the Milliman report supplied to Members of this House was redacted in over 55 places. However, reading between the lines and between the redactions, one can see that the system is inefficient. The get-out clause for VHI was that it was insuring all of the older people and therefore must continue to receive a State subsidy.
The Minister made reference earlier to his previous role as Minister for Transport, Tourism and Sport when he appointed the boards of the NTA and of CIE. In the case of health, the Minister appoints the boards of the Health Insurance Authority and of the VHI. In both cases, I think the relationships are too close. While there is a social role for our transport system, the cheque goes overwhelmingly to one company which happens to be owned by the State. That said, I know that the former Minister intervened on a number of occasions where there were lower cost providers in areas like Portlaoise and let them tender for contracts.
Do we have any evidence that the new entrants to the private health insurance market refused to insure older people? I do not think there is any such evidence. In fact, none was produced in any of the many court cases related to this issue. A subsidy is provided, as illustrated in table No. 2, for older people without any assurance that the Department of Health is getting the best value for that money.
There must be some mechanism to extract the productivity gains that were so strongly - I cannot emphasise the word "strongly" enough - pointed to in the Milliman report as being necessary to achieve. As I said, we know the new entrants did not refuse to insure older people. It would have been illegal to do so in any case because we have open enrolment, community rating and lifetime cover. No witnesses were produced in the court cases to give evidence of such practice.
On the other hand, we do have evidence that there are people who will not change provider because they do not mind higher prices, just as some people will opt to use a more costly airline. In addition, some people consider it too much hassle to change provider or feel there are not significant savings to be made by so doing. There is literature setting out the reasons people do not change their provider as they get older. As such, it is difficult to say that being older should be the basis for a subsidy. There are lower-cost options and a stimulatory effect from cutting costs. For example, if person A goes to a lower-cost company, VHI will respond just as Aer Lingus had to respond when it was faced with competition. To give out a subsidy without having a strong productivity basis for so doing, as advised in the Milliman report, seems unlikely to give an efficient result. I would like to see insurance companies competing on the basis of getting better deals from hospitals. Perhaps when hospitals achieve their independence, they will begin to compete in this way and the benefits of that will be passed on to customers. However, simply deciding that because company A has lots of older customers, those older people should be subsidised and there is no need to pursue much in the way of analysis after that is not the way to get an efficient result.
The premia that are attached to older people go up to €3,275, as set out in the table on pages 6 to 9, inclusive, of the Bill. I am proposing in amendment No. 7 that these premia shall be reviewed annually by the head of financial regulation of the Central Bank. The Minister has indicated that will be done in February. I am anxious to ensure it is done before the new rates are charged on 1 May, because it has been postponed so many times. Why, for instance, should the last category of persons in the table, at line 30 on page 9, get a subsidy of €2,475? Is there a danger in putting these figures into law and having them there forever? Will any provider reduce costs if there is a guaranteed, upfront subsidy? Surely these amounts should be subject to some review? Are the proposals in line with the recommendations in the Milliman report as to what these courses of care should cost or are we looking at an old-fashioned subsidy that is not subject to appraisal? Is what is proposed here actuarially sound and does it reflect efficient costs of treatment?
At the moment, the major insurer of older people - this is one of the complaints about it - submits its costings to the Health Insurance Authority, but one has to wonder whether it is really the old Ryanair system of charging £208 to get to London because the Department has been persuaded and there is regulatory capture going on. May we, as servants of the taxpayer interest, shop around to see whether we can achieve better value? Health insurance is essentially a financial service. As such, can we ask the Central Bank to take a broader view on what these alternative companies could and should charge? We must have some public debate on these issues rather than putting specific sums onto the Statute Book forever.
I have tabled amendments Nos. 6 and 7 in the context of a health insurance industry in which we have seen an increase in costs out of all proportion to any other increases people have had to bear in recent years. We have a report which shows the potential for substantial savings in the sector. In terms of the incentive structure, the question arises as to whether older people are seen as a guaranteed source of income by hospitals, as referred to in the Milliman report. We might look at VHI as an insurer against risk, but to medical sector providers it is a guaranteed source of income. Is that why the average length of stay was found by Milliman to be so long in comparison with best international practice? Are these incentives the wrong ones in a system where we are trying to reduce health service costs? Are they actuarially sound as well as based on what hospital costs should be? The Oireachtas should discuss why this sector had such a massive cost increase and assist the Minister in any way we can in making sure that issue is addressed. If there are more large cost increases, we will lose another 300,000 people out of the sector. I support the Minister in his attempts to address these costs. Assuming it could never happen that an insurance company would be able to treat both older people and younger people at a lower cost and pass on savings to both groups, maybe that is the wrong assumption on which to proceed. Has the heavy degree of protection of VHI by the State caused it to become, until very recently, less than cost conscious? It is in this context that I tabled amendments Nos. 6 and 7.
I will conclude by referring briefly to my amendment No. 8, which seeks to put it into law that we would have a level playing field among insurance providers. That is the approach I am putting forward because it would be valuable to society to tackle the costs this sector has imposed upon us in recent years and push forward the implementation of the Milliman report. I hope these proposals and our consideration of them will be helpful to the Minister as he attempts to tackle the problem of such a rapid rise in voluntary health insurance costs and the loss of so many members. We must ask ourselves whether we acted enthusiastically enough to implement a report which showed us how we could get a lot of those costs down by more than 2%. As always when the Minister, Deputy Varadkar, comes to the House, we have interesting discussions. I do not intend to press these amendments, but it is important that we discuss the issues they raise, which also were raised in the Milliman report.
Following the Milliman report in 2010, my predecessor as Minister, Deputy James Reilly, spearheaded a focus on managing claims costs across the market. In addition, he appointed Mr Pat McLoughlin as independent chair of the consultative forum on health insurance, which produced two reports on measures to reduce costs in the private health insurance market. This focus resulted in a 2% reduction in claims costs in 2013. This welcome and significant reduction has facilitated a reduction in stamp duty for 2015 for non-advanced products and the maintenance of stamp duty for advanced products at 2014 levels. We will need to be vigilant to keep costs under control and make sure this achievement was not a one-off blip.
Under Section 7E of the Health Insurance Acts, in October each year the Health Insurance Authority submits a report to the Minister for Health setting out its evaluation and analysis of information returns supplied by insurers for the 12-month period from 1 July to 30 June.
The authority recommends to the Minister the risk equalisation credits and corresponding stamp duty levies required to fund them for the following year, taking into account the changing demographic profile of those insured and market developments, including price and product developments. The risk equalisation credit rates are based on average claims costs across the market rather than on insurance company costs per se. This encourages efficiencies as it compensates insurers for only a proportion of the higher costs of insuring older people and less healthy people. In addition to risk equalisation credits, the Hospital Bed Utilisation Credit, HBUC, provides a specified amount per night in respect of each hospital stay involving an overnight stay in a hospital bed by an insured person.
The Senator will be interested to know that the Department and the Health Insurance Authority, HIA, have commenced work on the development of a more refined health status measure, using Diagnostic Related Groups, DRGs, to enhance the risk equalisation scheme and to improve support for less healthy people at all ages. The HIA conducted an analysis of various international regimes and submitted a report to me on incorporating DRGs into the risk equalisation scheme. That report is now under review at the Department and will inform policy developments in the risk equalisation scheme from 2016 onwards. We are trying to move away from a very crude system whereby we just assume that older people cost more and, therefore, credits and stamp duties are attached to that to one where we will be more defined and put people into different DRGs, based on illnesses and conditions. This is a more refined way of ensuring community rating than the very crude system in operation at present which is based on the assumption that older people cost more.
The HIA is an independent regulator with extensive expertise in all areas of health insurance. I believe it is best placed to evaluate and analyse market developments and determine the appropriate level of credits required to support older people and less healthy people and the stamp duties and levies required to fund them.
I note that Senator Barrett made reference to amendment No.8. In that context I would reiterate what I said earlier, namely, that the VHI will have to be authorised by the Central Bank. It should be treated the same as all other insurers in the market and be required to have the same reserves, capitalisation and so forth, as its competitors. We hope that it will be authorised by the Central Bank in the early part of 2015, that is, within the next few weeks. However, that is ultimately a decision for the Central Bank. It is not appropriate or even possible for my Department to regulate that it be so. The VHI has to put its finances in order and make sure that it has proper re-insurance and reserves. Then it goes to the Central Bank for authorisation and the Central Bank decides if it meets the criteria. It is not for the Oireachtas or the Department to decide that matter. That is why I would not favour putting that into legislation. It is already the law that the Central Bank decides whether an insurer is authorised or not. That is not a decision for the Oireachtas or the Department of Health.
On VHI costs we must acknowledge the very good work by the company in recent years. It is now profitable again, despite the fact that it has fewer customers. It has done a lot of work in the areas of clinical audits and special investigations. It now goes into private hospitals, examines the claims and conducts clinical audits. That has been very successful and has helped to bring down claims costs. This shows that competition is working and I would like to see more of it. I would like to see more clinical audits happening in public hospitals, quite frankly, with the HSE going into hospitals and making sure that unnecessary tests are not being ordered, unnecessary investigations are not being conducted and patients are not being sent for unnecessary consultations. I know that happens; it certainly happened when I worked in the health service and it probably still does. It is very hard to stand over some people on waiting lists not being treated while others are in hospital being over-treated. That is certainly a feature of private medicine but it is also a feature of the public health service too.
Senator Barrett pointed out that I appoint the members of the boards of VHI and the HIA and I do see the conflict in that. I know that in other countries, State-owned enterprises are not under the remit of the same Department that sets policy or regulation. Perhaps that is an issue which should feature in manifestos in a year or so. I would point out, however, that the process has now changed for the appointment of members to the board of VHI. As it is a financial institution just like the State-owned banks, all appointments have to be approved by the Central Bank. I wish the Central Bank had done that with the banks ten or 15 years ago. It does it now for both banks and insurance companies and the Central Bank will call in people for interview before they are appointed to State boards. I have much less discretion over appointing members to the board of the VHI than any previous Minister for Health. Now the Central Bank must be satisfied that each individual is competent and that there is a range of competencies across the board. It is a fairly independent process now, much more so than in the past.
If one talks to consultants who work in private medicine or to staff in private hospitals, one will hear them complain bitterly about health insurers in a way that they never did in the past. To me, that is evidence that the insurers are trying to drive down costs in a way that they did not do in the past. We allow private insurers to negotiate with private hospitals on price but not with the public hospitals. Essentially, a flat rate is set and that is what they have to pay. The insurers are asking for the power to negotiate on price with the public hospitals and that is something I intend to examine. They cannot negotiate on price at the moment even if they wanted to and perhaps that is something which should change.
We intend to initiate a consultation on how to encourage health insurers to cover more treatments at primary care level. Many treatments are currently carried out in hospitals in a way that is quite expensive. I know that Senator Burke has previously raised the issue of haemochromatosis and how venesection for the condition could be done more cheaply at primary care level if VHI and the other insurers would reimburse it. Similar issues arise with minor surgery and chronic disease management. However, it is a tricky thing to do because the insurers will have to be willing to play ball on that, as will the GPs, in terms of clinical governance, contracts, fees and so forth. That said, I am keen to make real progress in this area in 2015.
I thank the Minister and welcome his description of all of these interesting and exciting events, in terms of setting the system up on a different basis from 2016 onwards. It will not be based on the premise that older people cost more. The requirement for Central Bank authorisation, as described by the Minister, is a first. The Minister also made reference to clinical audits and asked why some people are being kept in hospital because they have good insurance while there are waiting lists full of people. Senator Quinn made reference to the Chinese model of paying doctors and keeping people healthy. Perhaps there should be some incentive in place to make sure that people do not stay in hospital for the 10.6 days mentioned in the Milliman Report. I also welcome the news that insurers are driving down costs, even if it annoys people like Senator Crowne when they do so. Hospitals in the private sector are competing on price. Can we not substitute out-patient or GP visits for hospitalisation? At present, only hospitalisation is reimbursed by all of the insurance companies. We should encourage a change in mentality to reduce the burdens on the hospital system. These are all most interesting developments and I thank the Minister for telling us about them. In that context, I wish to withdraw amendment No. 6 and do not wish to move amendments Nos.7 or 8. I thank the Minister for informing us about these exciting developments which have been needed for a long time. As has been said previously, the 58% price increase over a four or five year period could not be sustained.