The most remarkable feature of this debate has been the attempt to suggest that the present Government are in some way responsible for the VHI's difficulties. If one looks at the causes of these difficulties, it is plain to see that they arose before we came to office. Indeed, some of the difficulties are due to decisions of the previous Government.
The impression has been given that VHI have gone from being a pillar of financial strength to their present position in the last two years. The basis of this claim is the fact that VHI's reserves were at their highest level at the end of the financial year in February 1987. However, Deputies must understand that the reserves figures do not necessarily give an accurate picture of the underlying strength or weakness of an insurance company at that point in time.
The refusal of the previous Government in 1986 to allow VHI a premium increase had very little impact on the board in the 1986-87 financial year. I would like to remind Deputies that that was the year prior to a general election and, for political reasons, the previous Government were not prepared to grasp the nettle and grant the increase which was sought by the board of the VHI. Premium increases only apply to individual members when their policies come up for renewal. If an increase had been given, it would have worked its way through the membership during 1987, and it would thus have had most of its impact on the 1987-88 financial year.
As we now know, of course, the Coalition Government decided that they would not allow any increase, on the basis that VHI's reserves could absorb any cost increases. Of course, that chicken soon came home to roost, and we were left to deal with the consequences of the inactivity of the Coalition Government.
During 1986 also, the new, high technology hospitals came on stream. The VHI's plans to provide cover for them were approved by the then Government — indeed, the Government were heavily involved in drawing them up. Deputy Barry Desmond would be able to confirm the pressures he may have been under from Cabinet colleagues. We now know that the plans were not adequate to meet the costs involved. Membership of these plans grew slowly during the 1986-87 financial year, and it was the following year before the problems began to emerge. Again, it was left to the incoming Government to deal with them.
It has also been claimed that VHI's expenditure on public hospital charges since we came to office is responsible for the present problem. Again, the facts do not bear this out. In 1987-88, 19 per cent of VHI's total claims expenditure went to public hospitals. This is a lower share than at any time in the past five years.
Public hospital charges for private and semi-private accommodation did indeed rise sharply when the previous Government were in office — they were 150 per cent higher when they left office than when they came in. In our two years in office, they have only risen by 3.5 per cent.
There are many factors to blame for VHI's problems. It would be fair to say that every area of their claims expenditure has risen rapidly in the past few years, including payments to private hospitals; payments to public hospitals; payments to consultants; and refunds to members for drugs and other expenses.
A proper analysis of the figures, as has been done by the experts which we sent into the VHI, shows that all of these factors were emerging in 1986, even though they had not begun to be fully reflected in the VHI's financial results for that year. The suggestion that this Government were inactive in dealing with these problems is particularly galling, for two reasons: first, it comes from the party who helped to cause the problems; and second, the record shows it to be untrue.
As soon as the Government took office, the Minister for Health investigated the financial position at VHI and had discussions with the VHI board on the best approach to remedy it. As a result, a premium increase of 8 per cent was authorised, which took effect towards the end of 1987.
The Minister kept in close touch with the VHI board, and continued to monitor their financial situation. It became clear that costs were still out of control and that the premium increase alone was not going to be sufficient to put things right. The Minister discussed the problem again with the Board and, with their agreement, appointed expert consultants to look in detail at every aspect of the operation. When the consultants reported on the immediate recovery measures which would be necessary, the Minister lost no time in approving them and they are now being implemented.
The Government have therefore been prompt and decisive in dealing with the VHI problems which they inherited on coming into office. However, they have also been careful to take the time necessary to get detailed and expert analysis of the board's position to make sure that the right decisions were taken. It is a pity that the previous Government did not do likewise before rushing into some of the decisions which they took in 1986; the VHI's position might now be a very different one.
Before moving away from VHI's financial position, it is important that I should refute one statement made by Deputy O'Malley. VHI is not, and has never been insolvent. There is absolutely no comparison between their position and that of the other insurance companies whose problems have been before this House in recent years. The reserves have fallen because costs were allowed to get out of line with premium income. Costs have now been capped, and premiums adjusted in an equitable manner. VHI's reserve will now rise again and will return to an acceptable level within two years.
I should mention that the EC minimum solvency margin to which Deputy O'Malley referred does not in fact apply to VHI, although the VHI board have adopted a policy of seeking to maintain reserves at or above that level.
I now turn to the specific decision to withdraw the VHI drugs refund. As Deputy O'Malley has acknowledged in his contribution, it would be quite wrong to restore that particular benefit. We all accept that those who need expensive drugs on a long-term basis must be helped, and the Minister has made it clear that he is looking at the existing schemes in order to target the available funding towards the areas of greatest need.
Medical card holders comprise 1.3 million of the population or 37 per cent; VHI members comprise 1.1 million or 31 per cent and about 30 per cent of the population are neither VHI members nor medical card holders. Very many of these would be in the income groups just above the medical card guidelines for whom VHI membership may not be a realistic option. These groups would gain nothing from a restoration of the VHI drugs benefit.
It has also been pointed out that it makes no sense to have claims for refunds for parts of the very same item of expenditure processed by two different agencies — the health boards, under their drug refund scheme, and the VHI. I am rather surprised that Deputy Yates would go along with the expensive and bureaucratic approach.
The most telling evidence against the VHI drugs benefit, however, comes from the experts who have considered it in detail. They found that costs under this benefit were running out of control. For many members, it had turned their VHI cover into a "maintenance contract" rather than insurance, since they were buying cover against a certainty, not a risk.
Although Deputy Yates seemed to take exception to the point being made by the Minister last night, it is nonetheless a fact that an individual could join VHI, knowing that he would be claiming more each year under this benefit than the cost of his premium. The reason for this is very simple.
Deputies will know that one cannot be covered by VHI for hospital treatment, in the first few years of membership, if the treatment is related to a condition which existed before joining. It is obviously necessary to have such an exclusion to deter people from putting off joining until they know that they will have to make a claim. However, it is impossible to operate any exclusion of this nature in the drugs refund scheme. The scheme refunds expenditure on the basis of pharmacists' receipts. It would be administratively impossible to operate it on the basis of identifying the reasons that any specific drugs were needed.
Consequently, anyone who had not been contributing to VHI, but who discovered that he would in future need expensive drugs on a regular basis, could join and immediately be guaranteed an annual refund of considerably more than his premium.
I want to stress again the point made by the Minister last night that the VHI drugs benefit was withdrawn because of its own inherent problems, and not because of any of the other cost factors affecting VHI. To illustrate this point, I would like to remind the House of the other measures which have been taken to deal with the various causes of VHI's problems.
Hospital costs, particularly in the private sector, had risen rapidly due to increased facilities, more intensive usage and higher costs. Cash limits have now been applied to each hospital to prevent any further rise in costs for the next 18 months. Consumers will not be affected by this measure as hospitals will have to provide the same volume and cash mix as last year.
There had also been substantial increases in consultant costs. In certain specialties, this was because the automation of diagnostic tests had led to a greatly increased volume, with a much lower time input per test on the part of the consultant. Payments to consultants had not been reduced to reflect this. The VHI are now in the process of reaching agreement with the specialties concerned on a revised fees structure.
As a result of these measures, it has been possible to put VHI back on a sound financial footing while requiring a premium increase of only 3 per cent from the majority of members. Where premiums were out of line with the level of cover provided, the appropriate increases have been applied — 10 per cent on Plan C, 16 per cent on Plan D and 25 per cent on Plan E.
Deputies should also understand that the measures which have been implemented were the immediate steps necessary to preserve the viability of VHI. The consultants have made a number of recommendations in relation to VHI's plans and methods of operation. All of these are included in the corporate plan which has been submitted to the Minister.
In the course of this debate, Deputies have put forward a number of suggestions, such as fixed prices for specific treatments, regardless of which hospital is involved; the possibility of some financial incentives to members to take a greater interest in preventive care and so on. I can assure Deputies that the consultants have looked at all of the possibilities, and their report to the Minister is an extensive one. It will be considered carefully over the next few months, and the points made by Deputies will be borne in mind.
In relation to the longer term role of the VHI, I would like to refer at this stage to the question of community rating. One of the most positive things which has emerged from this debate has been the general support in the House for the continuation of this principle. We could not tolerate a situation in which the old, or those with chronic illness, would be penalised by higher premiums, or perhaps could not obtain insurance cover at all.
In recent weeks, some interests have called for open competition in health insurance in Ireland, and I am aware that a group of hospital consultants have launched a campaign to achieve this. I do not understand the motivation behind this campaign. I do not believe that hospital consultants, in general, would be happy with a situation in which those in most need of health insurance might be unable to afford it.
The Minister has made it clear that the principle of community rating must remain, and I am heartened that he will have the support of the House in this. Although Deputy Yates was forthright in his support for community rating, he then went on to make a rather strange proposal. He suggested that VHI should try to increase their membership among lower age groups by offering them lower premiums and a no-claims bonus. He felt that this would bring in extra revenue which could be used to restore the VHI drugs benefit. The Deputy is either in favour of community rating or in favour of lower premiums for the young — he cannot have it both ways. His proposal, if implemented, would be the first step in dismantling community rating, and would make it very difficult to sustain the principle much longer.
In any case, there is an obvious flaw in the proposal. It would not be feasible to offer lower premiums to new members without offering them also to the younger members already enrolled in VHI. As a result, VHI would lose revenue from its existing members. There is no reason to believe that it would be possible for VHI to recruit sufficient additional members to make up this loss, particularly given the fact that over half of those without full eligibility for health services are already enrolled in VHI. Deputy Yates has an enthusiasm for coming up with instant solutions to complex problems. This enthusiasm is sometimes refreshing, but I hope the House will agree that, when the best international expertise has been engaged to look at these problems, it might perhaps be better to take some account of their advice also.
I would now like to turn to the statutory drugs schemes. It is clear that those with exceptional, ongoing drugs costs must be helped and spared any hardship. It has also been made abundantly clear that the VHI drugs refund was not the way to do this. The Minister has stated that he is looking at the existing arrangements, under the long-term illness scheme and the health boards' drugs refund scheme, which together cost £21 million a year, to ensure that they operate equitably and efficiently in dealing with those who most need help.
The approach suggested in the Progressive Democrats' amendment may not be the best way of doing this. Many people, suffering from conditions other than those which the amendment mentions, may have exceptional drug costs because of factors specific to their individual cases. The needs of certain other people may not be as great, although they would come under one of the headings in question. It is important to ensure that the arrangements are equitable towards all those with very high, ongoing costs, regardless of the specific conditions, which give rise to them.
I would also like to refer to Deputy Yates' statement that a number of health boards are charging £5 per month for processing claims under the drugs refund scheme. One board introduced such a charge and I understand that other boards may have been considering doing so. However, the Minister, Deputy O'Hanlon, has given firm instructions within the last few weeks to each health board that such charges are not to be made. I reiterate that instruction to ensure that this does not continue. This issue gives us an opportunity to consider in great detail the overall position in relation to the services of the drug refund scheme. The proposals coming forward from the Minister will certainly satisfy the majority of the public who are affected.
In conclusion, I would ask Deputies to accept the realities spelled out in our amendment to the Fine Gael motion. A potential crisis in the VHI has been averted by the actions of the Minister. The strategy which is now being followed is based on the best advice available and it would be both irresponsible and unjustifiable to interfere with it. I do not wish to go back on the position regarding the inactivity of the previous Government of which the Cathaoirleach was a backbench member. Basically the position arose as a result of the major private hospitals coming on stream, with the approval of Deputy Barry Desmond and the Taoiseach, Deputy FitzGerald.
