I move that the Bill be now read a Second Time. This is a Bill to amend the National Health Insurance Acts 1911 to 1936. While it is a short Bill, containing no more than 16 clauses, the amendments which it proposes to the existing code of National Health Insurance are of far-reaching importance. Its object is to modify the financial system on which the scheme as at present operated is based in such a manner as to permit the release for expenditure on additional benefits of part of the income of the National Health Insurance Society which at present is carried to reserve. In order to explain to the Dáil the changes which are proposed it will be necessary for me to describe as clearly and as simply as is possible the rather complex and technical method of finance which was adopted in the first National Health Insurance Act and which, with some minor modifications, is still in operation.
The Act of 1911, which is the principal Act, provided that the scheme of national health insurance, so far as the payment of sickness, disablement and maternity benefits are concerned, was to be operated through the medium of bodies known as approved societies. The Act applied to what was then the United Kingdom of Great Britain and Ireland, and the particular form of administration which was adopted was largely determined by the conditions existing in Great Britain in relation to the development of the friendly society system. There was already in existence in Great Britain a long tradition of voluntary effort to secure by means of mutual insurance protection against loss of earnings through ill-health or unemployment and to provide for old age and death. A large number of friendly societies had come into existence, often associated with particular vocations or trades or with particular geographical areas such as villages and towns or sometimes with particular forms of religious, political or temperance affiliations. These were self-governing bodies, many of them carrying on their functions under a limited type of supervision exercised by the Registrar of Friendly Societies. Their existence naturally suggested to the persons responsible for the introduction of the National Health Insurance Act a method of administration which was not only convenient but well understood and eminently suited, so far at least as Great Britain was concerned, to the classes of persons to be covered by the scheme.
The Act, accordingly, provided for administration by approved societies and permitted those friendly societies already in being to be approved for the purposes of national health insurance. So far as Ireland was concerned, the friendly society system had not achieved a state of development at all approaching that in Great Britain. The system of approved societies, based largely on the friendly society model, was, however, also applied to Ireland, and many new bodies had to be brought into existence to operate the scheme. This is now only a matter of history because, as will be remembered, the National Health Insurance Act of 1933 abolished the system of separate societies and unified all societies then existing into one national society. It is necessary, however, to make this short historical survey, because the particular type of finance adopted in the National Health Insurance Act was largely determined by the method of operation through approved societies.
Each approved society was a separate entity and had its own separate benefit fund, represented by its own invested assets. While all persons coming within the scope of the Act were required compulsorily to be insured, there was no compulsion to join a particular approved society. There was complete freedom of choice in this respect, and accordingly a considerable degree of competition existed between many of the societies to secure new members. Societies with a policy of expansion could secure such expansion by intensive canvassing for new members. Societies confined to a particular trade might remain in a comparatively stable condition, while other societies, either through lack of efficiency or other causes, might suffer steady diminution in membership. No society had any guarantee whatever of continuity, and the method of finance had, therefore, to have regard to that fact. Their finances had to be arranged in such a way that the principles of actuarial valuation would apply to them as they apply in the case of private insurance bodies relying altogether on the voluntary payment of contributions by their members.
An actuarial valuation of this kind is a method of applying at regular intervals, usually not exceeding five years, a test of the sufficiency of the existing assets of the society to provide in the future for the society's liabilities towards all persons in the society on the valuation date. To describe the operation in its broadest outline, the procedure is to assess, as at the valuation date, on the one hand, the present value of the contributions which the society may expect to receive in future from these members, and on the other the present value of all the benefits (including the cost of administration) which the society may expect in the future to pay to these members. The excess of the present value of the future benefits (including administration) over the present value of the future contributions is the measure in present money of the society's liabilities to its members in the future. If this exceeds the amount of the society's assets, the society is in deficiency. If, on the other hand, it is less than the amount of the society's assets, the society has a surplus. It is important to note that account is taken only of persons in the society on the valuation date.
The valuation is thus, in effect, a measure of the funds which the society should have so that, if it never recruited another member, these funds, together with future contributions, would be sufficient to provide all the benefits to which members of the society would be entitled until, in the course of time, through death, transfer or lapse of members, the society had ceased to exist. This is a very simplified account of the meaning of an actuarial valuation, and leaves out of consideration methods of assessing appropriate rates of contributions and of determining the factors which have to be taken into account, not only in calculating rates of contribution, but in making the valuation; as, for instance, the probable future course of rates of sickness, mortality, marriage, widowhood, unemployment and lapse and of the probable future rate of interest governing the investment of funds.
When the scheme of health insurance was set up and the payment of weekly contributions was made compulsory in respect of all employed persons coming within its scope, the rate of contribution fixed was a flat rate. Although the contribution payable in respect of men differed from that payable in respect of women, principally on account of the different rates of benefit, the rate of contribution did not vary with the age at which insurance began. Since the incidence of sickness increases with age, it will be readily understood that the fixed weekly contribution required in respect of a boy of 16 should be less than that required from a man of, say, 30, and still less than from a man of 40 or 50. Though this is so, the scheme provided that the rate of contribution payable by all persons entering into insurance should be the same, distinguishing only between men and women, and this rate was fixed at the lowest rate, that is, the rate appropriate in the case of males to a boy of 16 and in the case of females to a girl of 16, which is the youngest age to which compulsory insurance applies. The original approved societies accordingly accepted all members at a rate of contribution which was sufficient to provide for the benefits of members who were aged 16 years at entry but was insufficient in the case of all older members and these were, of course, greatly in the majority. If an actuarial valuation were made of each society immediately after it was set up, a large deficiency would be shown. The societies had no invested assets and the commitments for the payment of benefit were considerably greater than the value of the contributions to be received in the future, because in the case of all members over the age of 16 the rate of contribution was too low. These deficiencies, therefore, would represent the capitalised value of the future liabilities assumed by societies in admitting members of all ages. It is not possible to state accurately the amount of these deficiencies which applied to the area now served by the National Health Insurance Society, because the system then applied to the whole area known as the United Kingdom.
It can, however, be said that, so far as Ireland was concerned, the amount was approximately £4,000,000 and that the increases of benefits and contributions made in the Act of 1920 had the effect of raising it to over £6,000,000. In order to deal with these initial deficiencies it was arranged that approved societies should be given book credits called reserve values, representing the capital value of the liabilities assumed by the societies in accepting as members persons over the age of 16. At the same time the Act provided that a proportion of the contributions paid to societies should be put aside to form a sinking fund, to provide firstly for interest at the rate of 3 per cent. on the reserve values and secondly for their redemption. This sinking fund was thus designed to convert the reserve values, which were in effect notional investments, into actual cash investments, over a period of years. The retention of a proportion of the weekly contributions to form this sinking fund was made possible by the assumption by the State of liability to pay a corresponding proportion, which is at present two-ninths, of the actual disbursements of societies in benefits and administration, until such time as the reserve values were redeemed and the income of the sinking fund became available for benefits.
The National Health Insurance Act of 1918 effected some modifications in the financial arrangements to which it is now necessary to refer, as certain funds set up by that Act are dealt with in the Bill. Experience of the working of the scheme had shown that the finances of societies required strengthening and this was achieved partly by the provision of additional State aid and partly by reducing the sums retained out of contributions for the service of the sinking fund to redeem reserve values and thus postponing the date of final redemption. The sums diverted from the sinking fund moneys were used to establish a contingencies fund for each society and a central fund for all societies. The object of the contingencies fund of a society was to provide a first line of defence against a deficiency on a valuation made on the principles to which I have already referred. During the five-yearly intervals between valuations, the contributions to the contingencies fund were carried to that fund and accumulated there. When the benefit fund of the society came to be valued, the amount of the contingencies fund was left out of account in the valuation, as it was in the nature of a contingencies reserve. If the society was in deficiency, the contingencies fund was used as far as available to make good the deficiency. In the case of a society which had a surplus on valuation, or whose contingencies fund was more than sufficient to make good a deficiency, the amount of the contingencies fund or any balance remaining after making good a deficiency was credited to the benefit fund and was thus available in that fund at the next valuation. For the ensuing five years a new contingencies fund was built up. In effect, the result of this operation was that a proportion of current income was temporarily reserved over succeeding periods of five years.
The object of the central fund was to come to the aid of societies which on valuation showed a deficiency greater than could be covered by their own contingencies funds. It was a single fund for all societies in the United Kingdom and assistance was only given where it was clear that the deficiency was due to an abnormal rate of sickness arising from risks of occupation or unhealthy environment or resulting from small membership or other circumstances over which the society had no control. Its income was derived from a proportion of the moneys diverted from the service of reserve values, a fixed State grant of £150,000 and also certain moneys made available from the proceeds of sales of unclaimed stamps.
The Act of 1918, which set up the contingencies funds and the central fund, provided that of the money taken from the sinking fund for the redemption of reserve values at least seven-eighths should go to the contingencies fund and one-eighth to the central fund. It also enacted that regulations might provide that the proportion to be carried to the contingencies fund could be increased and the proportion to be carried to the central fund correspondingly decreased. The Act of 1921 provided that if such regulations reduced the proportion to be carried to the central fund, the State grant of £150,000 should be correspondingly reduced. Such regulations were in fact made in 1921 and provided that the whole moneys diverted from the sinking fund should go to the contingencies funds and accordingly the State grant of £150,000 ceased to be payable from that year. The position then was, and is now, that the central fund was supported solely by moneys credited to it out of the annual proceeds of unclaimed stamps.
In addition to the contingencies fund and central fund, the Act of 1918 also established a fund known as the reserve suspense fund, the purpose of which was to serve as a kind of clearing house for dealing with the reserve values of persons whose insurance was transferred from one society to another, or of persons lapsing from insurance, or of women who married and either ceased to be insured or continued after marriage to be insured, and required to be provided with a special reserve value. During the period following the 1911 Act, reserve values were gradually being redeemed, that is, if the reserve value of a particular person is considered, part of it had been converted into cash, and part of it still remained as an unredeemed book credit. When a person transferred from one society to another, the old society which held a reserve value for that person as part of its assets, ceased to have any liability for benefits in respect of him, and this liability was assumed by the new society. Similarly, when a person ceased to be insured, otherwise than by death or the attainment of age 70, part of his reserve value became available for the general purposes of the scheme.
The Act provided, accordingly, that where a society lost a member by transfer or lapse, the value of the society's liability thus cancelled—and called in the Act a transfer value—should be debited to the society and credited to the reserve suspense fund. On the other hand, when a society gained a member by transfer, or where a member who was over age 16 when he became insured, joined a society, the appropriate transfer value or reserve value, as the case may be, was provided out of the reserve suspense fund. Any cash balances remaining in the reserve suspense fund at the end of a year, so far as not required to provide reserve or transfer values from the membership changes occurring in that year, were made available to the sinking fund for the redemption of outstanding reserve values. That was the position at the time when societies were unified, and is still the position, with the difference that transfers of insurance are now practically confined to transfers between this country and Great Britain under reciprocal arrangements made with that country.
I have now given some account of these rather technical and complicated financial arrangements which are embodied in the existing National Health Insurance Acts, and which were necessitated mainly by a method of administration through a large number of approved societies. Some ten or 12 years ago, the financial position of many of these societies was giving cause for anxiety in my Department, and an examination of the question in relation to the system of separate societies was made. The conclusions arrived at were that a continuation of that system would result in further growth of the inequalities, anomalies and inequities as between different groups of insured persons which had already become apparent, and that no reconstruction or improvement of the scheme of health insurance on national lines would be possible until that system was changed.
These considerations resulted in the Act of 1933, under which all approved societies then in existence were unified into one national health insurance society. At the present moment, therefore, the position is that national health insurance in this country is administered by one society catering for all insured persons—with a few exceptions who are members of a special fund known as the military forces fund —but the financial arrangements under which the system is worked are still substantially in the form set up to provide for administration through a number of separate societies.
While the unification Bill was being considered, and after it had been passed, Departmental consideration and discussion with the Department's actuarial adviser was directed towards the question of what changes in the financial system were possible and desirable. It was recognised that the reserve value system was no longer appropriate, and that the principles of actuarial valuation hitherto applied should be capable of considerable modification. One of the first obstacles to progress in this direction was the absence of a reliable standard applicable to this country for the measurement of the fundamental factors affecting the actuarial basis of any scheme of health insurance. All successive valuations made since 1918 had been based (with some minor changes) on the rates of sickness, mortality, marriage and widowhood which had formed the actuarial groundwork of the scheme as originally adopted for the whole United Kingdom. These rates had been determined from British experience. No material was available from which rates applicable to this country could be determined although it had long been known that as a measure of the contingencies on which the finances of the scheme in Ireland should be determined, they were obsolete.
The first task following unification was to collect information on which a reliable standard of measurement of sickness liabilities of the scheme could be based. This was an undertaking of some magnitude which was readily undertaken by the new society, with the result that very full data covering the three years 1935-1937 were supplied from the society's records to the Departmental actuarial adviser and a report thereon was furnished by him in June, 1939. That report disclosed some unusual and disturbing results, which I will deal with later on. While this investigation was proceeding, consideration continued to be given to the financial position generally. A valuation of the society on the same principles as previous valuations, had been made as at 31st December, 1933. This valuation showed the result which would follow from combining into one valuation all the surpluses and deficiencies which would have been brought out from separate valuations of all the separate societies as at 31st December, 1933. It disclosed a deficiency of £46,700. There was, however, available in the contingencies fund a sum of £183,000, which was accordingly applied to cancel this deficiency and the balance, which was small in relation to the society's liabilities, was carried forward. It should be stated that this valuation not only followed in principle the methods of previous valuations, but also used in its measurement of future benefits and contributions the rates of sickness and mortality which had been used in previous valuations. The result of the investigation into the sickness experience of the Unified Society confirmed that the rates which had previously been used could not, in fact, provide a proper measure of the society's liabilities. The experience rates were considerably higher than the valuation standard, and it was clear that a valuation made on the basis of the society's own experience would produce a very large deficiency indeed which under the provision of the Acts would call for a substantial increase in contributions or reduction in benefits or both. This, however, was on the assumption that the principles underlying the valuations made of separate societies were also appropriate in the case of one national society, and this assumption was open to question. Instead of having some 85 different societies and branches of societies, ranging in membership from 100 to 90,000 competing amongst themselves in the recruitment of new members and with no one of them having any guarantee of permanency, there was one national society. Every person engaged in or taking up insurable employment in the country was compulsorily insurable, and the only body through which the benefits of the Acts could be obtained was the National Health Insurance Society. The society was, in effect, in the position that so long as insurance was compulsory it had a guarantee of the regular addition to its membership each year of persons entering into insurable employment.
The invested assets of the society as at 31st December, 1938, amounted to some £4,000,000. Each year its income from contributions, State grant and interest exceeded its expenditure on benefits and administration by amounts varying in recent years from £150,000 to over £200,000 and these sums were being applied to add to the reserves. Nevertheless, a valuation of the society made on the principles hitherto applicable showed that, even though this apparent surplus income existed and was being used to increase reserves, not only were these reserves insufficient but the rate at which they were being increased was also insufficient. On the surface, such a position invited adverse criticism, but in matters of this sort there is considerable danger that much of this criticism would be facile and ill-informed. The size of the invested assets of an insurance body is of itself no indication of its solvency, nor is the fact that income may exceed expenditure over a number of years any proof whatever that its finances are in a flourishing condition. It appeared, however, that in a national scheme operated through one society as distinct from a commercial scheme or a national scheme operated through a multiplicity of societies new considerations might probably be taken into account subject, of course, to the best expert opinion on the question that was available.
The Department's actuarial advisers were referred to on the matter and the result of that reference is contained in the very full and very informative report dated 28th March, 1941, which has been presented to the Oireachtas. That report is worthy of the most careful study and I will refer to it again later. For the moment, it is only necessary to say that broadly it confirmed the Departmental opinion that fundamental alterations were possible in the financial structure of the scheme and that an appreciable proportion of current income, instead of being placed to reserve, might be regarded as available for the provision of additional benefits.
The Bill now before the Dáil provides for the repeal of all those sections of the National Health Insurance Acts which deal with the crediting and debiting of reserve values and transfer values and with the provision of a sinking fund for the redemption of reserve values by means of a deduction from contributions. It also repeals the provisions relating to the contingencies fund, which, as already explained, is formed by placing to temporary reserve a proportion of the contribution income.
The result of these repeals will be that the whole contribution income of the society, which hitherto has been apportioned between the benefit fund (including the administration account) of the society, the contingencies fund and the sinking fund for redemption of reserve values, will be credited to the benefit fund and administration account of the society. The Bill also provides for the repeal of those sections of the existing Acts governing valuation and the manner of dealing with a surplus or deficiency arising on valuation. Instead of these provisions, the Bill proposes that, as at the dates on which a valuation under the existing Acts would normally be made, there shall be made a comprehensive actuarial review by an actuary appointed by the Minister with the consent of the Minister for Finance. In his review, the actuary is to have regard to the amount by which the income of the society, other than that available for administration expenses, exceeded the expenditure on benefits, medical certification and the provision of transfer values during the preceding five years, and he is required by the Bill to report as to the amount of such excess that may be made available for additional benefits in the next succeeding additional benefit period. The type of report contemplated would correspond to the report to which I have already referred, and which governs the amounts which will be made available for additional benefits in the five years beginning 1st April, 1942. The Minister, after considering any such report, is to determine the amount which may be made available for additional benefits, and the society may submit for his sanction a scheme for the provision of such additional benefits.
The Bill proposes to make no change in the list of additional benefits contained in the existing Acts. Under Section 3 of the Act of 1911, two-ninths of the cost of the provision of additional benefits, including the cost of their administration, is borne by the Exchequer. It is contemplated that the amount to be made available for additional benefits in each of the next five years will be £175,000, of which, therefore, about £39,000 will be borne by the Exchequer. The central fund is to be reconstituted as the national health insurance reserve fund, and will in future be the only resources of the scheme held in reserve to meet adverse experience. It is of the highest importance that the existing capital assets of the society, which represent the investments of its benefit fund, should be maintained intact, and should not be encroached upon. They are under no circumstances available for distribution. They perform the function of producing by way of interest an income which is a supplement to contributions. If this interest income were to fail, then it would be necessary to replace it by an increase of contributions. If adverse circumstances were experienced in which the income of the society fell to a level lower than that necessary to provide ordinary benefits, or if the claim rate so increased that the income was no longer sufficient to meet it, then the proper procedure would be not to encroach on capital assets, but to increase contributions or reduce benefits in order to restore equilibrium. For this reason the new reserve fund is of importance. Its purpose is to perform the functions of a contingencies reserve fund, and it is proposed that it should be allowed to accumulate by its own interest and by the addition from year to year of certain moneys made available from the proceeds of unclaimed stamps, until, in the opinion of the actuary, it has reached a figure which will constitute a reasonable reserve. He will consider its position at each quinquennial review, and will advise as to the amount, if any, which may be transferred from it to the benefit fund of the society. Any amount so transferred will be taken into account in deciding the amount made available for additional benefits.
The Bill also deals with the disposal of moneys representing unclaimed stamps, and proposes that an amount not exceeding £15,000 of these moneys be paid each year to the Exchequer as an appropriation-in-aid of the cost of central administration, the balance being credited to the new reserve fund. Under the existing Acts, the State bears two-ninths of the expenditure on benefits and administration by the National Health Insurance Society. It contributes a substantial amount by way of State grant on contributions, provides the cost of the district medical referee scheme, and in addition the whole cost of central administration, including the cost of printing contribution cards, and of the printing and sale of insurance stamps. The present Bill will add to that expenditure by the State two-ninths of the cost of the additional benefits to be provided. In these circumstances it is not unreasonable that the State should seek some mitigation of a burden of cost which is already considerable, and the Bill proposes to do this to an extent not exceeding £15,000 per annum.
The remaining provisions of the Bill are rather technical in nature. They deal with the winding-up of the contingencies fund, the sinking fund and the reserve suspense fund; with the cancellation of reserve value; with the provision of transfer values in cases of transfers of insurance to or from Great Britain or to or from the military forces fund; and with the allocation of interest income amongst the various funds and accounts on which interest is earned.
Before I conclude I think it well to say that this Bill is to some extent experimental in character. The changes made in the finances of the scheme are fundamental, but it must not be taken that they permit of any loosening of supervision and control over the existing financial resources. Because the income of the scheme has regularly exceeded the expenditure, it must not be assumed that a satisfactory position exists, allowing of large extensions of the benefits, limited only by the amount of that excess. On the contrary there are indications that the position is far from satisfactory in certain respects, and the actuary in his report of 1939 dealing with the sickness experience and also his report of last year dealing with the general financial position has drawn particular attention to these.
It is clear from his reports that the rates of incapacity for which payment to members is being made by the society are exceedingly heavy, particularly in regard to disablement benefit, which are two or three times the corresponding British rates, and far exceed the amount of incapacity for which provision was made in the financial basis of the scheme in this country. He states that unless drastic administrative measures are taken successfully to eradicate the "claim habit" the incapacity experienced will have to determine the actuarial basis of the scheme. This is a question which is actively engaging the attention of the society and the Department.
The actuary also draws attention to the comparatively low proportion of persons of insurable age who are insurably employed in this country, while pointing out that in recent years a considerable increase in members has occurred particularly at the later ages and concludes that the insured population, both as regards numbers and age distribution, is not in a stable position. He adds that since changes in numbers and age constitution may have a marked effect not only on the capital liabilities of the scheme but also on the average cost of benefits, it must be remembered always that this instability in the insured population is a factor of fundamental importance in considering the effect of far-reaching amendments of the financial arrangements and enlargements of the scope of benefits. The need for extreme caution is evident. It must not, therefore, be assumed that because recent experience allows of a temporary enlargement of benefits there is a certainty of continuing these additional benefits indefinitely. Apart from the very important considerations advanced by the actuary, it may well be that an increase in the incidence of unemployment, due to present economic conditions, might have the effect of so seriously reducing the contribution income of the society, that expenditure on additional benefits might have to be curtailed.