Thursday, 3 December 2015
Health Insurance (Amendment) Bill 2015: Second Stage
I am pleased to speak to the House today on Second Stage of the Health Insurance (Amendment) Bill 2015. As Senators will be aware, the Bill concluded its passage through the Dáil yesterday unopposed.
Health insurance in Ireland is based on a core principle of community rating and for many decades it has operated alongside our public health service. During this time it has grown and developed. Under community rating all policyholders are charged the same premium for a particular plan which is adjusted to reflect any loadings applicable under lifetime community rating, irrespective of gender, age or health status.
This system of health insurance necessitates inter-generational solidarity, whereby younger and healthier people effectively subsidise older and less healthy people. The understanding is that these younger people will themselves be subsidised by future generations when they reach old age or suffer ill-health. Risk equalisation is essential to the operation of a community-rated health insurance system. The purpose of the scheme and the purpose of this annual update is to ensure that health insurance is affordable for older people and those with a chronic disease, and not only for the young and healthy.
The last 12 months have seen a number of changes in health insurance. Significantly, in July this year VHI Healthcare was regulated as an authorised company by the Central Bank of Ireland in line with the regulatory position of the three other health insurance companies. This is a major achievement by VHI. It is a vote of confidence in the health insurance sector and the improved Irish economy in which it operates.
Encouraging more people to take out health insurance at a younger age helps to spread costs across all policyholders and ensures affordable premiums for all insured people. Health insurers require a steady influx of younger healthy people so they can continue to offer affordable health insurance to older and sicker people.
Clearly, the economic downturn had a significant negative impact on the number and age profile of the insured population. The number of policyholders fell from a little under 2.3 million at the end of 2008 to a little over 2 million in 2014. In response to the decline, the Government introduced two important initiatives from May of this year, lifetime community rating and young adult discounts. These measures work to secure the future feasibility of community rating and protect access to affordable health insurance. Without these necessary measures, there would be a continued deterioration in the age profile of the insured population. This would, in turn, contribute to claims inflation and higher insurance premiums.
Under lifetime community rating, late-entry loadings apply for those aged 35 years and over who buy health insurance for the first time. This is applied at a rate of 2% per year. Since January, 74,000 people avoided loadings by taking out health insurance before the deadline of 1 May 2015. Young adult discounts are based on a sliding scale of maximum chargeable rates up to 26 years of age. This new approach helps to ensure the smooth phasing-in of full adult rates and eases the effect of dramatic price increases experienced when student rates no longer apply, effectively removing the big-step effect that had been in place.
The vast majority of policies now held by people aged between 21 and 26 years offer young adult rates. These rates range from 51% of the full adult rate at 21 years of age to a 100% rate at age 26. These two measures aim to increase the number of younger people with health insurance as well as retaining those already with policies.
I welcome the significant growth in the number of people with health insurance over the past 12 months. We have seen an increase in membership of 100,000. My objective is to keep health insurance affordable for as many people as possible. As a necessary support to community rating, I am committed to making the risk equalisation scheme as effective as possible in a way that promotes fair and open competition.
The risk equalisation scheme has operated in Ireland since 1 January 2013. The scheme is funded by stamp duties payable by open market insurers based on the number of policies written. The money generated is used to pay risk equalisation credits to take account of the higher costs of insuring older and sicker people. Currently, the scheme provides credit based on age and gender as well as a utilisation credit based on an overnight stay in hospital of €90.
From 1 March, the credits payable in respect of age and gender for those aged over 65 years on policies written from that date will be increased. I propose to set credits for the 60 to 64 age group at zero as of 1 March 2016. It is not only old people who have high claims, so I remain committed to developing a refined health status measure in the risk equalisation scheme using data based on diagnosis related groups, DRGs. This will also be necessary for the move to activity based funding. This will require the collection and coding of all hospital activity data for public and private hospitals under the system overseen by the healthcare pricing office, HPO. Legal and structural changes will be required over time. The immediate priority for the pricing office is to provide the main technical support for implementation of the activity based funding in public hospitals.Next year, 2016, is the conversion year for this new funding system which will see hospital budgets translated into activity-based funding allocations for the first time. In the meantime, I want to improve the health status measure we have. In addition to allowing for the overnight credit of €90, I propose to expand the setting in which utilisation credits will be payable to include day case admissions. These will be paid at a lower rate of €30. This enhancement to the scheme will increase the support provided for less healthy people of all ages. Providing a utilisation credit reflects that 30% of hospital inpatient activity for insured members is now carried out on a day case basis. It will also incentivise clinically appropriate treatment on a day case basis, freeing up overnight accommodation for those who need it more or need it at all.
Under the scheme, health insurers receive risk equalisation credits from the risk equalisation fund to compensate for the additional cost of insuring older and less healthy members. The credits are funded by stamp duty levies payable by open market insurers for each policy written. The stamp duty levies are collected by the Revenue Commissioners and transferred to the fund which is administered by the Health Insurance Authority, HIA.
In previous years, it has been necessary to increase significantly the stamp duty on all policies to fund the rising costs of an older and less healthy population of insured people. Last year, to make health insurance more affordable, I took the decision to reduce the stamp duty rates for non-advanced products by €50 per adult and €20 per child to 60% of the rate for advanced products. At the same time, there was no increase to the rates for advanced products. I am pleased to confirm that the levy on the lower level products will be reduced again in 2016 to 50% of the rate for advanced products, down by €38 per adult to €202 and down by €13 per child to €67. There will be a slight increase of €4 per adult to €403 for advanced products and a reduction of €1 to €136 in the case of children.
The decision to set credits at zero for those aged under 65 was taken primarily on the basis that retention of credits for this age group would have led to an increase in stamp duty by approximately €34 for everyone holding health insurance. I believe the credits and levy rates proposed for 2016 strike a fair balance between the need to sustain community rating and the need to ensure younger people continue to avail of health insurance. The credits proposed by the Health Insurance Authority do not fully compensate for the cost of insuring older and less healthy people. The risk equalisation scheme benefits all consumers by encouraging insurers to compete on the basis of value for money, customer service and product design rather than competing on the basis of risk segmentation. This approach supports a fair and open competition, giving those who wish to avail of health insurance access to a range of affordable policies from which to choose regardless of their age or health status.
I will now turn to the Bill before the House. Its main purpose is to specify the amount of premium to be paid from the risk equalisation fund in respect of age, gender and the level of cover from 1 March 2016 and to revise the stamp duty levy required to fund the risk equalisation credits for 2016. The Bill provides for consequential amendments to the Stamp Duties Consolidation Act 1999. A technical amendment to the Health Insurance Acts is also included.
I will now outline the specific sections of the Bill. Section 1defines the principal Act as the Health Insurance Act 1994. Section 2 amends section 6A(1) of the principal Act by the proposed amendment of three definitions. Regarding section 2(1)(a), the proposed amendment replaces the current definition of "hospital bed utilisation credit", HBUC, with a definition of "hospital utilisation credit". The scheme provides for a HBUC as a proxy for health status. Currently, health insurers receive a retrospective payment of €90 per night for an overnight stay in hospital by one of its members. The proposed amendment will expand this credit to include day case inpatient admissions. The HBUC payment will be replaced with a hospital utilisation credit. Under this credit insurers will receive a payment from the fund for day case inpatient admissions and for inpatient admissions on an overnight basis on all policies written on or after 1 March 2016.
Section 2(1)(b) proposes a technical amendment to the definition of private hospital accommodation. The amendment reflects the enactment of section 55 of the Health Act 1970, as amended by the Health (Amendment) Act 2013, where private patients incur a hospital charge in respect of inpatient services provided in a public hospital. Section 2(1)(c) amends the definition of "relevant amount" to include day case inpatient admissions in the calculation of the hospital utilisation credit.
Section 3 amends section 11C of the principal Act. It provides for 1 March 2016 as the effective date for revised risk equalisation credits to be payable from the risk equalisation fund.
Section 4 amends Schedule 3 to the principal Act. It provides for the amounts payable from the risk equalisation fund for the hospital utilisation credit in respect of health insurance contracts renewed or effected from 1 March 2016. Schedule 3 will now contain two amounts, one for the provision of inpatient services on an overnight basis and one for the provision of inpatient services on a day case basis.
Section 5 replaces Table 2 in Schedule 4 to the principal Act with effect from 1 March 2016. The applicable risk equalisation credits payable from the risk equalisation fund for certain classes of insured persons are revised.
Section 6 amends section 125A of the Stamp Duties Consolidation Act 1999. It specifies the applicable stamp duty rates from 1 January to 29 February 2016 and from 1 March 2016 onwards. Section 7provides for the Short Title, collective citation and construction of the Bill.
The intention of the Bill is to ensure health insurance remains affordable for more people by ensuring that, irrespective of whether one is young or old, well or sick, or male or female, one pays the same for the same policy. On this basis, I commend the Bill to the House.
It is unlikely that I will use up the time I have been allowed. The Minister has given a reasonable explanation of what is intended by this Bill. The health insurance market could do with a major overhaul but perhaps that is not the business of today. We are supporting the Bill. This type of legislation seems to arrive at this point every legislative year. The measures seem designed to support risk equalisation, sustain community rating, possibly sustain the VHI and sustain the health insurance market in order that older citizens and those with illnesses can afford health insurance and will not be discriminated against in favour of younger people, as would happen in an open market. The Minister is making these changes. This is the first Bill in this area after the introduction of lifetime community rating. We sought this in the past. It was the first tangible sign that the Government was abandoning the model of universal health insurance. We spoke about this at the time.
We welcome the moderate increase in the number of people with health insurance following the introduction of the age discounts and lifetime community rating in last year's legislation, but it is time that we examined this issue because there is significant consumer confusion in the health insurance market. People do not know what they are buying. The HIA's website does its best but, naïvely I believe, very much fails in providing the type of information consumers need because it is very complicated in itself to shop around and gain a knowledge of the add-ons, exclusions and requirements of particular policies. Considerable work must be done on this. I have suggested that we examine what US President Barack Obama has done. The United States has bronze, silver, gold and platinum policies in very generalised categories. We used to have that kind of system under the VHI, with plan A and plan B, but there is now a ridiculous number of plans. We need to bring back some simplicity to the market and some regulations on what can be excluded in respect of policies at particular levels and what co-payments can be insisted upon. It comes as a shock to some people when they seek insurance to be told they owe a certain amount of money to get what they want in addition to what is provided. Some of these practices are quite outrageous and will come back to bite consumers in the coming years. That is a debate for a different day. It is one we should have in terms of making overall changes to and developing health policy.
The members of Sinn Féin are not present. If they were, they would be giving out about half the country having private health insurance. However, the reality is that approximately half the population has health insurance. Many have paid for it for a considerable number of years and expect to benefit from it. They are entitled to a benefit from it, although not to the exclusion of people in need who cannot afford health insurance. They are entitled to the extra benefits they have paid for, particularly in terms of accommodation in hospitals. Consumers need to be protected and those who have contributed to the private health insurance market over the years must be recognised. They have made a huge contribution to the health service and it should not be forgotten. Their contribution should be protected, as should their consumer rights. We support the Bill.
I welcome the Minister to the House and welcome this legislation. It is legislation that must be introduced annually. The Bill makes proposals for 2016. It is welcome that we have risk equalisation in order that people will not be penalised as they get older.We have a huge and increasingly older population and it is important that they have access to health care and health care insurance which is affordable. Risk equalisation has done this. It is welcome that we have special provisions in respect of younger people who are new to the market and that they are not being penalised at an early stage. The 2% additional cost once a person goes over a certain age is also welcome. The structure in place is a good one and it is the reason there has been an increase of more than 100,000 new people in the private health insurance market. This is a welcome change from the downward trend over the past six to seven years and long may it continue. I thank the Minister for bringing forward the legislation. I do not think there will be any amendments tabled and it should be through the House in a short period of time.
I welcome the Minister and also state my support for the Bill. The Bill is clear. I also support what Senator Byrne said on the explosion of different plans available and the opt-ins, opt-outs, add-ons and exclusions. People should know what they are purchasing. There may be an issue on the consumer side in respect of plain English and what exactly the consumer is getting.
I have an experience from 15 years ago when I lived in Belgium where there was a much clearer sense of what plan a person could take and the options available. It was much more streamlined. Parents are getting health insurance because they are concerned for their children but when they claim on it, they realise they are not covered for some of the everyday things for their children which they thought would be covered. That is a more general issue but I absolutely support the Bill.
I welcome the Bill. It is good to see that it travelled unopposed through the other House and is likely to do so through this House as well. I am not a great fan of health insurance at all but, in the absence of anything else, it is the best system we have at the moment. Senator Byrne is quite right in drawing our attention to the need to overhaul, to use his language, the entire health insurance system. The number of people who have discontinued health insurance over the recent recessionary years is approximately 300,000 but the number is gradually increasing again. The way we use language in the House is funny. Senator Byrne said it was an insignificant number but 100,000 people in a year, which represents approximately 5%, is a very significant number. That is an example of the emphasis that can be placed on language.
Is the young adult discount achieving the effect the Minister hoped it would and has it been as successful as he hoped? I do not have very much else to say about the Bill except to welcome and support it. I look forward to hearing the Minister's comments.
I welcome the Minister. I speak as a total unbeliever in risk equalisation payments. I believe in open enrolment community rating and lifetime cover. No one was ever refused cover on any basis by the new competing insurance companies that came into the market after the turn of the millennium. The success of BUPA, in particular, was that it could insure both young and old people for a lower price than VHI. I have always believed the legislation was designed to benefit VHI as it was the operator longest in the market.
In a sense, we are going through what is an annual charade, the object of which was to keep VHI solvent. There was a massive increase, which should be documented officially, in premiums and that drove the 300,000 people out of the market. To say the competing insurance companies were not interested in old people and would not insure them was a myth invented in the VHI HQ beside the Abbey Theatre. It turns out the VHI was similarly theatrical and managed to persuade successive Ministers that this was the way to proceed.
I want a system which will insure both old and young people cheaper. I left VHI to join one of the newer companies. I am supposed to be a beneficiary under this Bill but I see it entirely as being for the benefit of VHI. There were plenty of good products offered by the other companies but this constrains their ability to compete. VHI is by far the biggest beneficiary of this particular payout. The bureaucracy to run the Health Insurance Authority costs €1.4 million a year. All that was required under the old system was for old people, who VHI said were locked into its policies, to shop around and avail of the available bargains. That is what competition does.
It was also necessary to have competition among insurance companies to extract a lot of the high costs out of the public health system such as the cost of hospitals and medication. We lost a competitive edge by introducing the measure. It is interesting that a lot of young people got out because they did not feel like subsidising an insurance company, which had mostly old people. Those old people had been with the VHI since the 1950s anyway, so presumably they had paid in advance.
I do not wish to cause any dissent among learned friends but I do not believe in risk equalisation payments and that is what is in the Bill. I will not propose any amendments. I agree with the harmony proposed by Senator Burke but, at the same time, it could have been done differently. It was wrong to have the Department of Health own a health insurance company and regulate the market under which the other health insurance companies compete. This Bill is the result.
As always, I wish the Minister well in his onerous task. An unfortunate aspect of what was happening is that we have moved further away from universal health care. At one stage, 55% of the population had health insurance and 30% had medical cards. We have lost people out of the health insurance sector. The Minister was right to postpone universal health insurance until we had thought it out properly. We were closer to it seven or eight years ago than we are now. I do not know if anyone else in the Oireachtas has welcomed his decision to postpone the introduction of universal health insurance. I have heard a lot of criticism of the decision but in the circumstances the Minister was correct.
I thank Senators for their contributions and welcome their broad support for the Bill. To pick up on some of the points mentioned, currently there are approximately 400 different plans available. There is no doubt it causes confusion for people and the matter is being examined at present. However, we have to take competition law into account. Competition law and principles allow people to have different types of products and we have to bear that in mind. When I have met insurers about it, they argue they use all these different plans to encourage new people to take up health insurance and say that if we were to reduce the number of plans significantly, while it might reduce confusion, it may increase premiums and that would be counter-productive. Just because they say it does not mean it is so, but it is one of the things they say and it needs to be considered.
The minimum benefits to be provided in every policy is provided for in legislation. They could be changed in the future, potentially, and could be amended to include more benefits but that is not in the pipeline at the moment.
The young adult discount does seem to be working. The number of people who drop health insurance when they move, if one likes, from their parents' account to their own account seems to be lower. Some argue we should increase the age limit to 30 years of age. Currently it applies to those under 26 years of age. That could be done but we decided against it last year. It is a matter for future review and a review is provided for in the legislation.
In respect of Senator Barrett's comments, I do not think it is a myth that insurers would like to avoid older customers if they could. I see the way health insurance is marketed and we see the advertisements on television. They are very much about young people, young families and people getting sports injuries. I have yet to see a television advertisement from any insurer about an older person who had a fall. They are all about someone who plays hockey and gets a sports injury or a young mother with her young family. I do not think that is a coincidence.If I see advertisements over the winter from insurers about old people who have had a fall on snow or ice, I might change my mind but I do not expect to see that.
As for where matters stand, it is correct that the number of people with insurance fell but it now is up to a rate of approximately 45% or 46%. However, the number of people with medical cards has risen dramatically. That is a perhaps unnoticed development in recent years, largely because incomes have fallen so much and because so many people lost their jobs. However, the Government found more resources to increase the number of people with medical cards, which at one point was down to approximately 28% of the population but now is quite close to 40% which is often forgotten. While those numbers are falling again on foot of the recovering economy, that point is forgotten. If one adds together those two things, approximately 85% of the population has either health insurance or a medical card but of course it is not as simple as that because there are people who have both a medical card and health insurance and then many who have neither. However, that is the current position and again, I thank Senators for their support in the easy passage of this Bill.
I recall an advertisement featuring Ronnie Delany winning his gold medal in the Melbourne Olympics, in which the advertisement stated that if one could remember that event, one had better take out health insurance. That advertisement was geared to people who were aged 70 and above.