I move: "That the Bill be now read a Second Time."
When I moved the Second Reading of the Health Contributions (Amendment) Bill, 1978, in the House last March, I mentioned that it was the Government's intention to replace the present flat-rate social insurance and health contributions by a pay-related scheme of contributions and indicated that it was proposed to commence the new scheme in April 1979. The Social Welfare (Amendment) Act, 1978, provided for the conversion of the existing flat-rate and pay-related social insurance contributions and flat-rate occupational injuries contributions into fully pay-related contributions and the arrangements for this conversion are now proceeding. In speaking on the Second Stage of this Bill on 7 November 1978, I outlined the advantages of the pay-related system of contributions over the present arrangements for social welfare benefits. The main advantage in the change lies in departing from a regressive system, as the scheme of flat-rate contributions is, to a system where contributions are related to income. This, of course, benefits the lowly paid. I also mentioned the greater convenience and security in collection of contributions under the new scheme.
The Bill now before the House proposes similar changes in the scheme of health contributions which has been a feature of the financing of our health services since 1971. The case for changing to income-related health contributions is much the same as on the social welfare side and I need not repeat all the arguments for this case in detail.
Under the present Act, health contributions are paid by persons who have limited eligibility for health services, with some specified exemptions. These are, broadly speaking, persons who have not medical cards and who come within the income and valuation limits specified under the Health Act, 1970. Under the Bill now before the House, liability for the payment of health contributions will extend to all individuals over 16 years of age who have an income. Again, there will be some exceptions from this to which I will refer later. This decision that health contributions should be paid by all income-earners is a necessary corollary of the Government decision to extend entitlement to certain health services—in particular hospital services—to the entire population. Clearly, if there is a major extension of services to cover all, then such entitlement must carry a liability to pay health contributions. I will shortly be bringing before the House a draft of regulations to allow for this extension of eligibility for services.
Broadly, the new arrangements will offer free hospital services at public ward level to the entire population, with the reservation that, those with incomes above the "ceiling" for paying health contributions, which I will refer to later, will pay consultants' fees. Similar arrangements will be made for out-patient services and the drug refund scheme will also be extended to cover all who have not got medical cards. In designing this change, I am aiming to bring much greater simplicity and equity into our definitions of eligibility to the services. Coupled with improvements in the schemes offered by the Voluntary Health Insurance Board, the new arrangements will ensure that no one will be denied hospital care through inadequacy of means and that each will be able to make a reasonable choice between public and private care.
The exemptions from liability to pay health contributions to which I have referred are set out in section 11 of the Bill. The specific exemptions for pensioners and others provided for in section 11 (2) are identical with those listed in section 5 (6) of the Social Welfare (Amendment) Act, 1978. Persons with full eligibility for health services will also be exempted from liability to pay health contributions, but the existing liability of the employers of such persons for the payment of health contributions in respect of them will be continued. This employers' liability will also extend to persons with agricultural employees and female domestics in private employment. In effect, this means that in accordance with the present practice the employer will pay the appropriate health contribution in the first instance but he will not deduct the amount paid when the employee provides evidence that he is entitled to a current medical card. An exemption to the general rule is provided for in section 11 (1) (a) under which a health contribution will not be payable by the employer of a medical card holder who is also in receipt of a widow's pension or other like payment as listed in section 11 (2) of the Bill.
In common with other developed and developing countries we have been experiencing very considerable increases in the cost of providing health services. I have stressed on many occassions that, taking the longer view, a considerable impact can be made on the level of demand for services if people can be persuaded to adopt a healthier life style.
Continuing attention will be devoted to the fields of health education and prevention, but it will take time before we will experience concrete results in the containment of the growth of health expenditure.
The question of health care costs was discussed at length at a meeting of Ministers of the EEC countries last November. It was clear that none of the countries represented at the meeting has found a simple formula for cost containment and that further cost increases cannot easily be avoided. Common factors emerged to which a major proportion of the overall cost increases can be attributed, such as the pay and price inflation which has taken place in recent years and improved conditions of service for health staffs. Health services are labour intensive and are extremely sensitive to developments in pay levels. Advances in medical technology involving increased sophistication of services and staffing have also had a significant influence on overall cost. Public demands are being constantly made for extensions in the cover, scale and standards of services and the take-up rate for services is increasing all the time. The inevitable result of all the pressures which I have mentioned is additional cost. There has also been a considerable increase in the welfare dimension of the health services such as in the payment of allowances to certain disadvantaged groups of the population and in the extension of child care and community care services.
In the context of the growing expenditure on health services which has resulted from Government policies there has been a growth in the rates of the present health contributions. When introduced in 1971 the flat-rate was £7 a year, or 15 pence per week, and it is now £24 per year or 50 pence per week. The amount which these contributions subscribe by way of appropriations-in-aid to the Health Vote is by no means insignificant as far as the Exchequer is concerned but it meets less than 5 per cent of the total cost of the services.
The Exchequer contribution in 1979 towards the cost of non-capital services, as provided for in the Book of Estimates, is about £419 millions which is about £79 millions more than was provided for in the Estimates for 1978. This represents about 93 per cent of the total estimated net cost of services in 1979. The estimated income from health contributions in 1979, including the additional yield from income-related contributions commencing in April, is £26.6 millions or about £10 millions in all more than in 1978. The estimated total yield from health contributions in 1979 represents about 6 per cent of the estimated total net cost of the services in 1979. This year, despite the competing claims of other public services, about one-fifth of current expenditure goes to the health services. This compares with about one-tenth in 1971. It is not unreasonable in all the circumstances that the amount to be found by way of health contributions should be increased, especially since most people will agree that not only should the level of services be maintained but that, in addition, there should be provision for development.
The Bill provides that the rate of contributions will be 1 per cent of income and that the "ceiling" for the calculation of contributions will be £5,000, which is of course the same as for the new scheme of pay-related social welfare contributions. As for social welfare this ceiling is to be confirmed or varied before the scheme commences. These matters are dealt with in sections 5 to 9 of the Bill.
The present flat-rate contribution, as I have said, is £24 a year. It would probably have been necessary, as has been customary, to increase the flat-rate of contribution in April 1979 to offset cost increases in the health services due to the impact of inflation and the extra costs arising from the commissioning of new units of accommodation and other developments in hospital services. If the increase in the flat-rate contribution were to be of the same order as last year then the new annual level from April 1979 would be £32. Thus, under the income-related scheme as proposed, persons whose income would be less than £3,200 per annum will pay less in contributions in 1979 under the Bill now before the House than they would have if the existing flat-rate had been increased to £32. Persons over that level will of course pay more.
Section 9 also provides for the variation of the contribution rate and the ceiling from time to time after the scheme comes into operation. It is intended that the ceiling will be varied from time to time in line with the income ceiling for social insurance contributions purposes, taking into account the latest information available regarding the average earnings of workers in the transportable goods industries. Any change would have effect from the beginning of an income tax year subsequent to the year in which a variation is made by way of regulations approved by the House. It is very desirable that the ceiling should be the same for both health contributions and social insurance and redundancy contributions. It could involve serious collection problems and might result in some disruption of the administration of the social insurance system if it were to be otherwise.
The collection system for health contributions is being designed to mesh in fully with the system for the collection of social insurance contributions and the PAYE system. This will facilitate the proper functioning of the collection machinery. This involves the classifying of the population into three specific groupings for collection purposes, namely:
—individuals who are liable for income tax under the PAYE system and who are insured under the Social Welfare Acts;
—individuals liable for income tax under the PAYE system who are not insured under the Social Welfare Acts;
—individuals with income which does not fall within the categories mentioned such as farmers, the self-employed, persons with investment income and so on.
When I was dealing with the Social Welfare (Amendment) Bill, 1978, I explained that in the case of employees the new pay-related social insurance contributions would be collected through the PAYE system for tax collection. This meant that the arrangements for the collection of these contributions would need to conform as closely as possible with the PAYE system and not conflict with the tax collection function. It is necessary that the collection arrangements in the case of health contributions payable by employees, which are at present collected through the social insurance stamp, should follow the lines of the arrangements made in relation to the social insurance contributions. Some of the advantages that flow from the close linking-up of the collection arrangements for the different contributions are that the collection of health contributions in association with social insurance contributions does not impose any additional work of consequence on employers and it simplifies administrative procedures that would otherwise flow from having to implement two different collection arrangements. There certainly would be no justification for establishing two separate systems for the collection of social insurance and health contributions based on a similar income-related base.
Similar considerations apply in relation to the application of the new health contribution arrangements to persons who are not insured under the Social Welfare Acts but who have income which is liable for income tax under the PAYE system. These are mainly occupational pensioners and proprietory directors who are in receipt of fees. These persons pay their income tax through the PAYE system and will have their health contributions collected in this way. The Revenue Commissioners will also collect health contributions from the self-employed and certain farmers who derive part of their income from professions or trades. The collection of income-related health contributions renders it necessary to have as comprehensive information as is possible in relation to such income. The income tax machinery offers the only practical method by which the proposed income-related health contributions could be collected and the Bill provides accordingly.
The regulations to be made under the Bill will provide that the obligation to collect health contributions from farmers will remain with health boards, except in the case of farmers with other trades or professions. In the latter cases the Revenue Commissioners will collect the health contributions in conjunction with the collection of income tax.
The Act of 1971 provides that in the case of farmers generally, the contributions would be related to the rateable valuation of the farms, from which their income is derived. The most readily available, practical solution for the purposes of assessing the liability of the farmers for health contributions is to have a notional assessment of income using a suitable multiplier for each £1 of rateable valuation. I should mention, however, that farmers will also be required to declare other sources of income, such as from investments, or from conacre, or from other employment and so on. It is on the basis of total income from all sources that their liability for the payment of health contributions will be assessed, subject of course to the upper contribution limit of £50 in relation to any particular contribution year.
I have explained to the House the general scope and intent of the Bill and the general arrangements which will be made for the collection of health contributions, but, of course, if Deputies wish for further information on points which I may not have mentioned or which are not covered in the explanatory memorandum, I will be glad to deal with these in my reply.
I commend the Bill for Second Reading.