The need for this Bill arises in the first instance from the requirement to comply with the Third Directive on Non Life Insurance which comes into effect on 1 July 1994 throughout the European Union. This directive is part of the process, known generally as the Single Market, of opening up the markets of the member states of the EU to competition.
Up to now, regulation of the health insurance market here has been governed by the Voluntary Health Insurance Act, 1957. A company wishing to operate here had to apply for a licence from the Minister for Health. The 1957 Act did not, however, require policies to be sold on a community rated basis nor did it demand of insurers that open entry to insurance and life time cover should also apply. In practice, these principles were applied by VHI. The only regulatory mechanism was the decision of the Minister for Health on whether he or she would agree to provide a licence to a company other than the VHI to operate here. Very few licences were granted over the years and the VHI maintained a near monopoly of health insurance in this State.
The requirement on licensing can no longer apply from 1 July next so that, unless it were otherwise explicit in legislation, a health insurance company coming into this country could sell policies on a risk related basis with no regard to concepts such as social solidarity. Such a development would alter radically what has been the situation in Ireland for almost 40 years.
The Single Market has its own imperative which this Government and previous Governments have accepted. Within the competitive environment which the market promotes, we have to ensure that what is done is for the general good. In the area of health services, conventional market concepts do not work very well, given the disparity of information between the provider and the client. Even in a suitably modified market, there is an overriding requirement to protect the general good, to maintain social solidarity and, where health insurance is concerned, to strive to ensure that it will remain available and affordable to those who most need it — the elderly, the chronic sick and those struck down by serious illness.
This is the first of two insurance Bills which I hope to bring before the House this year. In the next term, I intend to introduce legislation which will amend the 1957 Act and provide the framework for the Voluntary Health Insurance Board to compete effectively. I have just received the report of the review group on the VHI, chaired by Professor David Kennedy. It will be of considerable assistance in finalising the content of the second Bill which will have as its main aim the strengthening and modernisation of the VHI's role and functioning, so that it can continue to be a major player in the new environment.
There is another imperative besides the Single Market. We must maintain the best practices of a health insurance system that has served this country well for almost 40 years. A simple application of free market principles may not always produce the most consumer friendly or efficient result. Experience from other countries would suggest that an unregulated market in health insurance can often create systems which do not contribute to the delivery of an effective and efficient health service.
In this country, health insurance has played a major role since 1957 in the development of the health services. Its success can be seen in the numbers covered, which now approximate to 1.3 million persons or over 35 per cent of the total population. Such a high level of coverage demonstrates that health insurance is accepted as offering value for money to consumers and its continuing strength, despite periods of adverse conditions for the economy generally, is a testament of the value that the insured population place on their membership of the various schemes. Despite consistent and sustained improvements in public health services and the broadening of eligibility criteria, health insurance continues to be an attractive product.
When the Third Directive was being drafted by the European Commission, it was agreed, on this country's initiative, in the interests of social and inter generational solidarity, that the Directive should allow member states, if they so wished, to require health insurance companies to sell policies which were community rated and to require them to practise both open entry and life time cover. The Bill which is now before the House has those three principles at its core. Those elements will, for the first time, have a statutory basis and any health insurance policy sold in the future in this State must comply with these requirements.
The basic objectives of the legislation, aside from meeting the Single Market requirements, are to copperfasten the good practice in health insurance of almost four decades and to put in place mechanisms for ensuring that community rating, open entry and life time cover will not be undermined by a deliberate commercial policy of selecting only low risk customers. Another important aim of the Bill is to protect consumers by ensuring that they have a minimum level of cover for certain costly procedures. Those incurring the expense of purchasing insurance must be guaranteed that their level of cover will give a reasonable level of indemnity against those costs which are likely to be most expensive — inpatient treatment, consultants fees and certain aspects of outpatient treatment.
I will outline some of the fundamental thinking which informs the provisions incorporated in the Bill.
Any regulatory system for health insurance in this country must be placed in the wider context of the general community. The long title of this Bill speaks of the legislation being necessary "in the interests of the common good" and it is this aspect of the new system which lies at the heart of the proposals I am putting. There are those who would argue for unfettered competition, placing expedient and short term gain above principle. Those who would take such a stance could scarcely have paused to contemplate the implications for the elderly and other vulnerable groups. Companies would market products which would not be affordable by the majority of the old and chronically ill. The inevitable result would be that many people would drop out of health insurance and thereby forego the choice of service which they had regarded as sufficiently valuable and important to them to incur optional expenditure on health insurance, often over many years.
A second principle which underlies this Bill is the general acceptance that health insurance has an important role to play in the maintenance of a high quality health service in this country. The regulatory system proposed by the legislation must not adversely affect services for public patients. The provision of care for private patients in public hospitals helps to maintain high standards of care and treatment throughout the hospitals. Those standards will apply to all patients in public hospitals and will ensure that everybody gains from having health insurers supporting service providers, both consultants and hospitals. In the current year, public hospitals will earn over £60 million in providing treatment and care for private patients. This income is an important factor in maintaining the overall quantity and quality of public hospital services.
It is very important that a mix of public and private practice be maintained in public hospitals. The alternative is the emergence of a divided and divisive hospital system where there is a hospital sector dealing exclusively with private patients and another sector dealing only with public patients. Such a development exists elsewhere and would not help either sector or be welcomed here.
Another objective of this legislation is to create and foster the conditions for increased consumer choice through the development of a wider menu of products than is now available. The Bill will encourage product innovation and responsiveness by insurers to the consumers' requirements. In particular, I expect that there will be a significant development of ancillary products and that very flexible packages will be made available, particularly as a means of attracting new, young members.
I have circulated to Deputies an information document on the main features of the Bill. I thought it important to do so as the Bill is complex and technical. The proposals outlined in that document in regard to the details of the future regulation of health insurance will be the subject of consultations with interested parties later in the year. I will now address in somewhat more detail its three principal features — community rating, open enrolment and life time cover.
Community rating is the system of pricing whereby members of an insurance plan are charged the same premium by a company for a particular range of benefits. No discrimination is made by the insurer in regard to the age, health status or sex of the individual member. The rationale which underlies this concept is that high risk groups, mainly the elderly, should not have to pay more in premia at a stage in their life when they are most in need of the benefits of their insurance policy. Furthermore, low risk groups, such as the young and healthy insured population, will benefit from community rating when they age and come to need services.
I have described what is meant by community rating. Perhaps I should also explain what it is not. It is most assuredly not a system which is anti-competitive. It does not prevent companies from competing. There is ample scope for commercial rivalry to gain greater market share by concentrating on price, product and quality of service. It is a matter for each insurance undertaking to determine how it competes on price with its market rivals, provided it does not discriminate within its own plans against vulnerable groups. Similarly, companies can strive for more customers by promoting insurance policies which meet real needs and fill gaps which clearly exist in the market. There is nothing in community rating or, indeed, in any of the proposed regulatory arrangements which will prevent the development of innovative products for the consumer. I am anxious to see new thinking on product lines in health insurance and I anticipate that, should competition occur, there will be a notable increase in marketing and related activities. The basic concept behind community rating is one of fundamental social solidarity.
Open enrolment is another key principle which the Voluntary Health Insurance Board has implemented for many years. Like community rating, it is a concept of particular value to vulnerable people who can be assured that they will have access to insurance when they choose to purchase it.
Of course, it is very important that people take out health insurance at an early age if inter-generational solidarity is to continue and community rating prosper. This can be achieved by insurers promoting products which suit the needs and reflect the values of young people. A decline in the number of young people with insurance would have serious consequences for the system generally as there would be insufficient low risk members to balance out the high risk groups.
However, open entry cannot be absolute as no insurance company could be expected to give full cover immediately to any individual who wished to join. Such an arrangement could have significant adverse effects on the insurer in a very short period. Some waiting period for cover must be applied if the insurance system is not to be undermined. I will describe in more detail later the broad parameters that I am considering for statutory waiting periods for cover.
Life time cover is linked to open enrolment and community rating in protecting the highly vulnerable. It would be traumatic for a chronically ill person, who may incur a high level of cost for an acute condition, to be denied continuing cover. I am, therefore, providing for the concept of life time cover to be an integral part of the new regulatory arrangements but with some qualifications.
Despite the reactions of some of those with particular interests in health insurance, what I am proposing will protect the general good, facilitate competition among efficient undertakings, encourage product development, and help to ensure that affordable health insurance will continue to be available to all those who wish to have a choice between public and private treatment.
A number of important points arise from the interpretations set out in the Bill at section 2 to which I draw the attention of the House.
The term "ancillary health services" is defined in the Bill. The definition of those services is necessary to distinguish them from the requirement for minimum benefits which I will describe later and to ensure that the principles of community rating, open enrolment and life time cover are applied to the specific services identified in the Bill.
The definition of "health insurance contract", which is a fundamental part of the Bill, defines health insurance as applying to payments made for the specific reimbursement of fees or charges. In other words, there must be an element of indemnity before a policy can be described as "health insurance". Policies which are cash payments only and can be paid irrespective of the actual costs incurred in treatment are not, under this definition, health insurance. I did not seek powers to bring such schemes, some of which are described generally as critical illness policies, within the ambit of this Bill — they do not constitute an indemnity policy and present no real threat to health insurance at present. However, my Department will keep the matter under review to ensure that where critical illness policies overlap with health insurance or are seen to create a serious threat to it, the question of their coming within the definition of health insurance will be reconsidered.
Section 7 prohibits insurers from offering non-community rated policies. It also defines community rating. However, there are a number of aspects of community rating on which I would like to make some further comments. It will be noted that section 7 (2) (a) uses the phrase "suffering or prospective suffering of a person from a chronic disease etc.". My intention in using the word "prospective" is to prevent the application of current and anticipated diagnostic techniques, such as genetic testing, as a means of providing information on which a decision could be made to increase an individual's premium or deny an insurance contract.
I am concerned that, with the considerable scientific development worldwide, particularly in our understanding of genetics, there may be a desire by some companies to use the knowledge being created to load the premia of persons seeking insurance. This would be wholly undesirable in an area such as health insurance and contrary to the principle of community rating. I understand that a number of other European countries are also considering this matter. I am pleased that this country will be taking explicit powers, if this House and the Seanad so decide, to ban such a potentially serious development in the area of health insurance.
The House will also note from section 7 (3) that I am not requiring health insurance policies covering long term care to be marketed on a community rated basis. The advice I received suggests that the marketing of a long term care policy which is community rated would be very difficult, as young persons would not be attracted by such a product. However, I hope that insurers will develop products which can cover long term costs. The demographics of this country and of other developed nations suggest that such products can be directed at a sizeable market which would justify their development.
I am making a number of exceptions in section 7 (4) (a) and (b) to the principle of community rating. These exceptions reflect current practice by insurers here, whether by VHI or friendly societies and do not, therefore, dilute to any significant extent the community rating principle. The concessions on group discounts are important and necessary if insurers are to continue to attract the type of risk that can be offset against their high risks.
Section 8 sets out, with certain qualifications, the requirement on insurers not to refuse a contract to a person under 65 years. An insurer is not obliged to accept for membership a person who is 65 years or more except where that person's insurance company has ceased to trade; in this situation the insured person will be allowed to enrol with another undertaking and may not be prevented from doing so. Section 8 (4) (a) provides for all those, irrespective of age, who have had a health insurance contract with an undertaking to transfer to another company. This provision is reasonable given that a person over 65 years would probably have been paying into a scheme for many years and is, therefore, entitled to continue to receive and expect benefit.
The Voluntary Health Insurance Board has operated waiting periods for entry into its schemes for many years. The approach taken by the board is reasonable and it is likely, therefore, that I will be prescribing in regulations waiting periods which are generally similar to those operated by the board. However, a number of areas require further examination, which I have referred to in the information document I circulated. My aim is to ensure that the regulations will provide a balance between necessary control by insurers on entry while at the same time adhering to the principle of open entry. I should add that restricted membership undertakings will be allowed to limit their membership to the relevant occupational group but may not refuse to accept a qualified person under 65 years.
Section 9 explicitly prohibits a company from refusing to renew cover or terminating it without the insured person's consent, except in circumstances to be prescribed in regulations. It is likely that these circumstances will allow for cover not to be renewed or to be terminated if it can be established that there was fraud on the part of the insured person or non-disclosure by him or her of significant relevant information to the company.
Section 10 provides that an insurance contract which covers hospital services must provide for a minimum level of benefit to be offered to a potential subscriber. An insurance company which is offering benefits which do not include any element of hospital costs but relate only to ancillary services, such as a dental care plan, will not be subject to this requirement.
A minimum benefit requirement is vital to the general regulatory framework proposed by the Bill. It is important for the following reasons: it ensures that there is a continuing availability of the type of cover currently enjoyed by the insured population; it ensures that individuals do not under-insure, due to lack of proper understanding of the restrictions which might apply to some types of policy; and it supports community rating by requiring younger subscribers to purchase a sufficiently high level of insurance to help balance the costs of older, more high risk members.
The level of statutory minimum benefits will be clearly defined in regulations which will be published in the autumn after detailed consultations with interested parties. However, these benefits will only be paid in respect of what are regarded as medically necessary procedures. The main elements which would be included in minimum benefit are: hospital in-patient treatment, including day care; hospital out-patient treatment; consultants fees; maternity benefits on a "grant in aid" basis; convalescence; psychiatric treatment; and substance abuse. The minimum level of accommodation which will require to be covered is semi-private in a public hospital.
The precise level of cover for each of the above headings will be described more fully in regulations. The regulations should not demand that insurers should provide for a higher level of minimum cover than they now provide, as such an approach would be highly inflationary and ultimately lead to higher premia. My general approach is to make sure that the regulatory framework gives a guarantee of minimum benefit to consumers. If individuals want to "top up" and purchase more cover, they will be able to do so. Ultimately, the market should provide the type of product that people want and at a price they are prepared to pay.
It is very important that all those purchasing health insurance should be given full information, in a clear and comprehensive manner. It is also necessary to ensure that any advertising or promotion of health insurance is accurate and truthful and does not mislead the public. I propose to introduce on Committee Stage an amendment which empowers the Minister for Health to make regulations relating to the control of advertising and promotion, if such an intervention is deemed necessary.
One further issue of continuing concern is the problem of balance billing by consultants where patients may be billed at a level which is not reimbursed by the insurer. This is a particularly difficult issue which will require very careful consideration. An excessive amount of balance billing must be avoided if health insurance is to maintain its standing as good value for money. However, any insurance company could be put under great strain if it was to meet the demands for increases in private fees introduced from time to time by medical consultants independent of any statutory control or review process. My Department will be reviewing this matter further while the regulations on minimum benefit are being drafted.
Community rating can be undermined by some insurers deliberately selecting low risk groups or individuals; a number of marketing techniques can be employed by companies to make certain that their risk profiles are lower than the average. Those techniques, which we have seen in operation elsewhere, could include having a direct mailing system to particular groups, or targeting occupational schemes with a relatively low average age, or designing policies in such a way that they appeal only to those who present the least risk. The inevitable result of selection of low risk members is a considerable instability in the market as other insurance companies, with a higher than average risk profile, would find their financial position rapidly deteriorating.
Risk equalisation is a system which seeks to deal with the problem of market distortion and manipulation. Risk equalisation should encourage insurers to control their costs by eliminating inefficiencies, whether they occur internally or in the services which they purchase on behalf of their members. It compensates those insurers who have a risk profile which is worse than the average for all subscribers in the insured population.
There are different methods of risk equalisation. The method I am considering is based primarily on profiling each company's membership by sex and age bands. I am opposed to any system that would pool all risks or costs in the insured population, as this would be a disincentive to competition and would simply reimburse the inefficient insurance companies and service providers. The type of scheme I am considering for risk equalisation would cover costs up to semi-private accommodation in most private hospitals.
This and other aspects of risk equalisation will be examined in more detail by my Department over the coming months while the regulations are being drafted; there will be consultation with all relevant interest groups before the regulations are finally made. The EC Third Directive provides that member states may introduce risk equalisation schemes if considered appropriate. The proposals in the Bill are in accordance with the intent of the directive and are seen by the Commission as a necessary part of the regulatory framework to maintain community rating, open enrolment and lifetime membership.
A Health Insurance Authority has been provided for in Part IV of the Bill. The Authority will not be established immediately as the regulatory functions in regard to health insurance will, from July 1994 lie with the Minister for Enterprise and Employment, where prudential issues such as minimum solvency margins are concerned, and with myself as Minister for Health in relation to other matters. My regulatory responsibilities will involve the maintenance of a register of health insurers as provided for in Part III of the Bill and the monitoring of policies to ensure that they comply with community rating, open enrolment, life time cover and minimum benefits. I will also make arrangements with an independent body under section 12 to advise me on whether risk equalisation should come into being, in line with a formula which will be set out in regulations.
The body appointed to undertake this task will not provide me with any commercially sensitive information on individual companies. They will receive information from insurers from the first quarter of 1995 which will provide them with the data to assess whether or not a risk equalisation scheme should be introduced. Such information will be entirely confidential to that body; its task will be to alert my Department to the possibility that the equalisation process, involving actual compensatory transfers between companies, will have to commence.
The Health Insurance Authority will be established if the task equalisation process is introduced or if, in the interim period, there are changes in the market which would justify its being established. On its establishment, it will assume all the regulatory powers to be carried out from July 1994 by the Ministers for Enterprise and Employment and Health. I do not believe that the arrangements to be put in place from next month of themselves would justify the creation of another semi-State agency. I am satisfied that those arrangements will work satisfactorily in the interim.
These are the main elements of the Bill and the remaining sections deal with standard provisions in regard to the maintenance of a register and the work of the Authority, including matters relating to staffing.
In addition, there will be an assessor appointed by me under sections 10 and 12 who will advise me from time to time on the appropriate level of minimum benefit and the level of costs that should be subject to risk equalisation.
The system I am proposing for the future regulation of health insurance presents a number of important and complex new features. It also seeks to protect, through legislation, the key principles on which our system has been based for almost 40 years. We have had to prepare legislation to cover situations which may not arise. We may also find that the new situation produces challenges which have not arisen elsewhere and which we have not envisaged.
I am, therefore, persuaded that the regulatory system should be kept under review and should, in any event, be the subject of a comprehensive report not later than five years from its introduction. Nobody can say with certainty how the market will respond in the new environment. It may be that there are areas which will need to be changed so that the principles enshrined in the Bill will not be undermined. The advice to be tendered by the Authority, if established, and the evaluations conducted on an ongoing basis by my Department should together form a good foundation on which to conduct a full scale review.
All of the parties involved in health insurance and private care have a vested interest in appreciating the wider arena in which they are operating. No one interest can stand aside and demand that its needs be met, even if it means that others are affected adversely.
Service providers who would insist that their demands be put at the top of the agenda, no matter what the impact may be on the affordability and attractiveness of health insurance, would be behaving in a very short-sighted way. If the price of health insurance escalates because of excessive demands by service providers the losers will not be confined to any one insurer or provider.
There are many reasons why the percentage of the general population covered by voluntary health insurance is relatively high in this country. One of those reasons has been a general acceptance by interest groups, albeit reluctantly in some cases, that a level of moderation in demands is necessary if the health insurance system here is to retain its appeal for such a large number of people.
In order to create a better understanding between the different interests involved in private health insurance and private care, I proposed in the document Shaping a Healthier Future that a monitoring and consultative mechanism should be established which would be representative of these interests. The forum to be established would include the Department of Health, the public health services and the institutional providers of private care.
As the strategy document made clear, I do not as Minister for Health have any function in relation to the regulation, co-ordination or assessment of the services provided by private hospitals; the exceptions are maternity and psychiatic services. The experience to be gained from the proposed consultative mechanism will enable me to better assess what further mechanisms may need to be developed to maintain an appropriate interface between the public and private sectors, in the interests of providing the best possible level of health services for the entire population which is, of course, our common objective.
In conclusion, I would like to emphasise again that the proposals I have outlined today are designed to protect the best features of the system we have had in operation in this country for many years and to allow for competition in the marketplace. The proposals have been structured in the interests of the common good and with no other objective in mind. My hope is that this Bill and the related one to which I have referred will be perceived as being as prudent as the 1957 Act which has been the statutory basis for a remarkable success story in the provision of affordable health insurance and the development of health services in this country for nearly 40 years.
I strongly commend this Bill to the House.
