Voluntary Health Insurance (Amendment) Bill, 1995: Second Stage.

,Limerick East): I move: “That the Bill be now read a Second Time”. The thrust of the Bill is to prepare the VHI for the Single Market and to update the legislation by which it is governed.

Our private medical insurance market is undergoing considerable change at present arising from implementation of the EU's Third Non-Life Insurance Directive, which is intended to create a single market in insurance. The Directive permits an undertaking, once authorised in a member state, to sell insurance in another member state on an establishment basis or by way of freedom of services throughout the Community.

The implementation of the Directive at national level here took the form of the enactment of the Health Insurance Act, 1994, which sets down the regulatory framework within which the private health insurance business would operate and develop. It enshrined in law certain principles which had distinguished our system and had served our people well over the years.

Under the Act a health insurance undertaking has to comply,inter alia, with the principles of community rating, open enrolment and lifetime cover. Accordingly, the Act ensured that the public will continue to benefit from those attributes inherent in the system and applied over almost 40 years with very positive effect. These guiding principles have kept private medical insurance within the reach of the ordinary person and particularly those who are vulnerable to being priced out of a risk-rated system, such as the elderly and chronically ill. I am fully committed to preserving this highly equitable and successful system in the interests of all our people.

I welcome the possible advent of competition into the private medical insurance market. It will reshape and enliven the business of health insurance, particularly in terms of the marketing, design and choice of products. It will provide an inherent impetus for development and improvement in the provision of services to the public. However, there is nothing to suggest that the opening of the market will necessarily produce lower premiums; the fundamental problem here is the ever increasing rise in medical costs which is faced universally by Governments and insurance companies. It may be that undertakings will tend to compete more on services and products than on price.

Companies which have considered entering the market here are awaiting completion of the health insurance regulatory framework in the form of regulations under the 1994 Act, before finally deciding on the matter. I hope to be in a position to sign the health insurance regulations shortly. With the implementation of the provisions in this Bill, the VHI, with its extensive knowledge and experience of the Irish market, should be better placed to meet the challenge of competition.

The Voluntary Health Insurance Board was established, and currently operates, under the Voluntary Health Insurance Act, 1957. While the scale and extent of the VHI's operations has massively progressed over almost 40 years since its establishment there has not been any parallel or complementary progress in the legislation by which it is governed. The operation of the 1957 Act has seen the VHI develop in a way that reflected a highly protected market. It has nevertheless provided a solid service and has been responsive to public need through the provision of an extensive protection to its members against the cost of hospitalisation for serious injury or illness. It has been particularly successful in achieving and retaining such a high proportion of our population in private medical insurance.

Even when one allows for the special market conditions prevailing in the past, it remains a worthy and laudable achievement that the VHI's membership has increased up to the point where it covers over one-third of our population. A debt of gratitude is owed to the VHI for the service it has done in pioneering the concept of private medical insurance and expanding its boundaries with such great effect among our people. However, with the advent of an open market, the VHI will have to develop and vigorously maintain those characteristics which define a successful commercial undertaking, such as a strong marketing focus, dynamic product development and adaptability to change. It must therefore shift radically from the somewhat mechanistic organisation it grew to become in what was a highly stable environment.

The Bill now before the House for consideration represents a significant step in the process of modernising the basis on which the VHI performs the very important function of making available private health insurance to a significant proportion of our population. It will strengthen the position of the VHI in a number of key respects which I will elaborate on in the course of this statement.

In the context of understanding the principles underlying the Bill, it is useful and relevant to consider, briefly, the origins of the VHI. Its establishment was recommended by an advisory body on the Voluntary Health Insurance scheme which reported to the Minister for Health in 1956. The key objective set for it was to provide insurance against the cost of major and unforeseeable medical costs in circumstances where a large percentage of the population was not eligible for public health services. The VHI was established under the umbrella of the State — as a not-for-profit body — because at the time the private sector appeared unwilling or unable to operate a scheme of voluntary health insurance.

The 1957 Act provided that anyone wishing to engage in the business of making available private health insurance in the State had to obtain a licence from the Minister for Health and the operation of this provision over the years saw the VHI develop as the main provider of private health insurance to the public, apart from some occupational-vocational based schemes. The growth of the VHI has been such that its membership now comprises 1.3 million people or 35 per cent of the population.

Measured in terms of retained premium income, the VHI is now the second largest commercial insurance operation in the Irish market. The change in scale of the VHI's operations can be readily seen when one compares some of its current key financial indicators to those of 15 years ago. In 1980 it had a subscription income of £25.2 million and claims of £19.6 million. The corresponding figures for 1995 are £232.6 million and £233.1 million.

During the 1980s the VHI experienced considerable cost pressures due to a number of inter-related factors such as high out-patient claims; rapidly rising in-patient hospital charges; increased claims payments due to steeply rising volumes; major new facilities coming on stream and declining investment income. In 1988-89 the VHI incurred operating deficits of between £11 million and £12 million which necessitated the implementation of a programme of financial recovery. This was successful in arresting the adverse trend in the organisation's finances but necessitated the reduction of benefits available to members and increases in premiums.

While the VHI's financial position is not so precarious as it was at the end of the 1980s, it must strive towards significant improvement particularly as regards enhancing its reserves. While the board recorded a small operational surplus in its accounts for the year ended February last, the continuing underlying trading position gives cause for some concern. In common with health insurers generally, cost containment is a perennial problem for the VHI. Excluding high out-patient claims, which were controlled by reducing benefits in that area, the factors previously mentioned which drive cost increases are still very much in evidence. There is also a heightened expectation on the part of the members for ready access to health care services which are ever-increasing in sophistication. In addition to this the VHI has an ageing membership profile which generates greater demands for health services, particularly those services which are covered by the VHI.

VHI has played a very significant role in the development of health services in Ireland. Its contribution towards maintaining the public-private mix has been fundamental to the growth of health services. Ireland has benefited from an overall system which has provided a vigorous private sector and has created an environment whereby consultants provide service on the public hospital site not only for their own private patients but also for public patients. Both the public and the private sector benefits from the mix allowing for greater co-operation and collaboration in the provision of the best possible service to patients.

The considerable degree of interdependence between those involved in the delivery of health services represents fertile ground on which to improve relationships and develop consensus. The health strategy document recognised the potential to foster understanding between the various healthcare sectors through the exchange of information, the co-ordination of approaches and the maintenance of uniform standards. A Healthcare Consultative Forum was identified as the vehicle to tackle these objectives. I will make arrangements in the new year to establish the forum as it holds the potential to positively influence the understandings and approaches on which the future delivery of our health services will be based. The VHI has a significant contribution to make to this process.

The VHI is going through a period of significant change. In 1994 the VHI review group established by the then Minister for Health, Deputy Brendan Howlin, reported on the strategic and operational capacity of the VHI in the context of the changing market environment. The group identified and recommended the clear need for radical change in the VHI's business culture and approach.

It identified the appointment of a chief executive who could provide leadership and who would be allowed the freedom to transform the organisation and its business culture to one of innovation, imagination and customer responsiveness as the key element in initiating and sustaining a process of change within the organisation. It laid emphasis on the fact that it regarded the appointment of a chief executive with the requisite experience and qualities as central to the entire thrust of what it considered should be done to effect improvements in the VHI. Mr. Brian Duncan, formerly of Irish Life plc., was appointed chief executive of the VHI last February.

The chief executive's appointment has in turn promoted further change in terms of a revamping of the structure of the VHI's top level management and candidates to fill four new director posts — sales and marketing, operations, finance and business development — have been sought by means of public advertisement. These initiatives are clear evidence of the drive towards heightening the business orientation of the VHI which is fundamental to it operating effectively and successfully in a competitive environment.

The review group also recommended that the board of the VHI be enlarged in order that it would comprise skills and experience commensurate with those of a modern major commercial insurance undertaking. Provision to enable enhancement of the board is being made in the Bill. I am not, however, at this stage addressing in the Bill the review group's recommendation about changing the corporate status of the VHI to that of a limited company with a 100 per cent State shareholding. I will set out later my position regarding this recommendation and my reasons for not embarking on a conversion of corporate status at this time.

As I mentioned earlier our health services constitute a mix of private and public care. Obviously, the VHI, both in terms of its size of membership and annual financial outlay, is a major stakeholder in our healthcare system. The role played by the VHI over the years, as the private health insurer, has served to support the essential balance between public and private medicine which is at the very core of access to, and quality of, healthcare in our closely integrated system. Consequently, the Minister has maintained a broad practical interest in the strategies and policies devised by the VHI. In addition to this the Minister is the 100 per cent shareholder by virtue of which he or she has a duty to be satisfied as to the financial well-being of the VHI and that it is publicly accountable in the performance of its statutory functions. Clearly, this latter dimension involves the Minister in such matters as determining membership of the board and ensuring that the business of the VHI is being well handled, including premium or product changes. However, it does not involve the Minister in operational matters or the board's day-to-day management and commercial decisions. Both in terms of the shareholding position and the impact of private health insurance on the health services generally, the Minister's relationship with the VHI is very much concerned with the broad thrust of its proposals. It is not my intention that there should be any greater degree of involvement by my Department in the affairs of the VHI than there has been up to now.

Given what I have said, it is vital that the VHI becomes a more market driven organisation which welcomes change and adapts to new challenges including competition. It must also be equipped legislatively to control its costs and claims experience and have a board which can, with a greater range of expertise, fully act on behalf of subscribers.

The Bill will support the VHI's efforts in the exercise of cost containment. It is imperative to the retention of the system of mixed public and private healthcare that private medical insurance features strongly in how services are funded. Rapidly rising claims costs, reflecting increased medical costs and greater volumes, mean higher premiums which in turn exert a squeeze on the number who are able to afford cover. This is what happened in Australia where the upward pressure on premiums forced many, particularly the young whose participation is vital to a community-rated system, out of medical insurance cover.

I now turn to the main provisions of the Bill. Section 2 deals with arrangements with providers. The first of these concerns schemes of voluntary health insurance contained in that section. This replaces section 4 of the 1957 Act but retains the provision that defines the VHI as a "not-for-profit" body which has served the Irish people so well. Under the new section a significant omission from the provisions of the 1957 Act is being addressed. This involves the board being given specific powers in relation to making arrangements with health service providers who make available treatment and care to its members. The 1957 Act did not deal with this important aspect of the board's operations. Accordingly, a gap has existed in its capacity to arrange for the delivery of quality healthcare at sustainable cost to its subscribers. The VHI is therefore being given explicit powers relating to the making of arrangements with health service providers for the care and treatment of its members.

What is intended is that the VHI should be put on a footing corresponding to that of commercial enterprises generally in the conduct of its business arrangements with providers. It is critical that the VHI have these powers as otherwise it will have no basis in law on which to make prudent cost containment measures.

It is in the interests of the members of the VHI that it should have powers to contain costs as failure to do so could quickly lead to premium levels escalating beyond the reach of most. Health insurers worldwide are constantly struggling to contain costs and it is unacceptable that the VHI would be expected to operate in a vacuum where the issue is one that could jeopardise its very survival. Clearly, there is a common interest between provider and health insurer as regards the optimum provision of services to the member patient. In that context there is no reason providers and insurance companies would not be prepared to be transparent and accountable about the services they provide. Providers' interests are closely intertwined with the continued existence of a strong private health insurance market. In the financial year ending February 1995 the VHI paid out £107 million to private hospitals and £60.3 million in respect of consultants' fees. The amount paid out to public hospitals in the year was £57.2 million — giving a total payout of £224.5 million to hospitals and in respect of consultants' fees. Developments in other countries show an acceptance on the part of providers and insurers to work together in taking new approaches to how care and treatment are delivered.

Section 2 also makes provision for the VHI to undertake schemes of health-related insurance which will give it wide flexibility for innovation in the product design area. Traditionally, the VHI provided schemes which specifically indemnify the member, in whole or in part, against actual medical costs incurred in the treatment of injury, disease or illness. The success of the VHI in terms of its market penetration of 35 per cent of the population, as against 12 per cent approximately of those with private medical insurance in the United Kingdom, can be partly attributed to the medical indemnity product it provides. This is indicative of the sense of security and reassurance it offers the insured person against the uncertainties of serious illness and injury. While this will remain the VHI's core business, it needs to have the capacity to compete against companies which are offering forms of cash based insurance such as hospital cash.

The Bill will enable the VHI to develop diverse packages of insurance, in the form of a combination of indemnity and cash cover, thereby putting it in a position to be more responsive to the needs of its members and the market generally. A key target constituency for new products should be young people and the VHI will be able to tailor packages to attract them into private health insurance. Their participation is vital to the maintenance of a strong community rated system. The Bill provides that schemes of health insurance shall be subject to the consent of the Minister. I am certainly favourably disposed towards supporting the VHI in developing attractive and imaginative products aimed at enhancing its membership and revenue position; however, indemnity insurance will continue to be the main business of VHI.

The Bill is about empowering the VHI to adopt and pursue a more commercial approach to how it does its business. That having been said there is another dimension which cannot be overlooked. This concerns my position as Minister with a 100 per cent shareholding in the VHI. In that context I am accountable to the Oireachtas and, therefore, must have an input into the policy and strategic considerations of the VHI, and all other bodies under my aegis, in order to satisfy myself as to the appropriateness and soundness of any particular direction being taken.

Section 3 puts on a formal footing the practice which has operated until now whereby the VHI consulted the Minister in regard to proposed premium increases. The section now places a duty of notification on the board; it provides that the board can apply increases automatically after a specified short period has elapsed unless the Minister expressly issues a reasoned direction against implementation of the increases. It is entirely appropriate that the Minister should have the capacity to have some real input in relation to premium increases which can impact on 1.3 million of our population. The fact that the VHI has a near monopoly in the market means that it is in order for the Minister to reserve the power to intervene should circumstances warrant.

The VHI review group considered it appropriate for premium levels to be subject to regulatory approval for so long as the VHI continues to enjoy a virtual monopoly of the health insurance market. The response by the Minister to notification of proposed premium increases under the section will be prompt. In effect, this section brings clarity and structure to an informal arrangement that has been based more on custom and practice in the past.

Section 4 recognises the widely accepted view that the size of the board needs to be expanded. The limit of not more than five members imposed under the 1957 Act has outlined its relevance in terms of the contemporary needs of a national commercial undertaking. Formerly, the board had the luxury of presiding over a State monopoly in a stable market. As the trading environment has become more demanding, complex and volatile over time, especially with the opening of the market to competition, the board must change with the times and circumstances. Section 4 provides for the size of the board to be extended to not more than 12 members. It will therefore be possible for me, as Minister, to ensure that there is available at board level the depth and range of knowledge and experience appropriate to the modern VHI. It is my intention that the board's composition should reflect the level of skills and expertise appropriate to that of a major commercial insurance undertaking. It is also, in my view, desirable that it should have an effective consumer input. There have been recent developments in regard to the consumers role and I will refer to these later.

Section 4 also provides that the number of board members who are health service providers is to be limited to two persons. Subject to the provisions of the law, it is the prerogative of the Minister to select board members. While the VHI is about the business of healthcare, it is first and foremost an insurance undertaking. The skills and expertise it needs to thrive are those relevant to the insurance sector generally — actuarial, financial and marketing — as well as expertise in the healthcare industry. Against this background, I am satisfied that the law should place an acceptable upper limit on the number of board members who come from a provider background. I want to make it clear that those from a provider background, employer or medical, who have served on the board have done so always with the best interests of VHI members and subscribers central to their contributions and actions. It is not in question that a person's health service expertise and specific knowledge of the area enables him or her to make a valid and positive contribution to the work of the board. The issue is rather one of the appropriate balance to be struck in providing the VHI with the composition of skills and expertise at board level which will best serve the organisation's needs. I consider that not more than two persons who are health service providers out of not more than 12 members overall represents an appropriate balance.

It is appropriate at this point to place on record the debt of gratitude which is owed to board members, past and present, who have worked so selflessly for the betterment of the organisation and in the interests of its members. Their contribution is one of distinction and honour in giving generously of their time and energy for the public good. One must also recognise the very great and effective input which the members of staff of the VHI make to the organisation on an on-going basis. Their industriousness, commitment and dedication is certainly one of the strong cards the VHI holds in whatever competitive battles may lie ahead. It is a great credit to the organisation that, at 6 per cent of premium income, the VHI's administrative costs stand very favourably in comparison to those of other like companies.

Section 5 gives a statutory basis to the position of the chief executive of the VHI and in so doing underlines the crucial leadership role attaching to the position which the VHI review group regarded as vital to effecting change in the organisation. As I said, the group identified the chief executive as a key agent of change and set out principles under which the chief executive should have total responsibility for the efficient direction of all operations. The Bill provides that the chief executive, under the authority of the board, will be the person responsible for carrying on and managing and controlling generally the administration and business of the VHI. The Bill puts the chief executive on a par with counterparts in other commercial bodies in terms of carrying through the task of effecting and managing change for the good of the organisation.

Section 6 relates to the conditions which will apply where a board member or a member of VHI staff is nominated or elected to membership of either House of the Oireachtas or of the European Parliament. It supersedes section 9 of the 1957 Act which dealt with Oireachtas membership only.

Section 7 relates to the terms and conditions of service of members of staff of the VHI. It obliges the board to have regard to prevailing Government policy or nationally agreed guidelines in determining the remuneration or allowances to be paid to staff. This is now a standard provision in the legislation of such bodies.

Section 8 provides for a prohibition on the unauthorised disclosure of information. This recognises the sensitive nature of the information which the VHI holds, both in terms of the business of health service providers and the health of individuals. It prohibits the disclosure of confidential information unless duly authorised by the board. This also reflects the need to protect commercially important information in a new and competitive market environment. The prohibition applies not only to board members and the staff of VHI, but also to those who act as consultants and advisers to the organisation.

Section 9, which replaces section 21 of the 1957 Act, enhances the accountability of the board to the Minister by reference to the information which it is obliged to furnish at his or her request. It does not however require the board to make available information about an individual member of the VHI or a particular health service provider.

This represents the first Bill prepared in relation to the VHI since it foundation. It has been welcomed as effecting essential amendments to the 1957 Act and as a valuable start in the process of legislative change governing the VHI. It has been said, however, that the Bill should deal with such matters as exempting health insurance from the scope of competition law, changing the corporate status of the VHI and providing specifically for a consumer input into the operations of the VHI. I wish to address these aspects of the matter and inform the House of my position in relation to each of them.

The application of competition law, which reflects the position in European law, is a key economic policy of Government which cannot be set aside in respect of any one sector of business activity. The exemption of health insurance from the scope of the Competition Act, 1991 would have a detrimental effect on the integrity of the Act. Such a step would be wholly inconsistent with the thrust of Government policy to foster an open, competitive and efficient business environment both for the benefit of the consumer and the better operation of the economy generally. The Government's current initiative is to strengthen competition law by increasing the powers and resources of the competition authority and there is legislation currently before the House in that connection. It is open to the VHI to consider seeking to avail of those protections which the Competition Act, 1991, provides for in terms of the rules of competition. It is a matter for the VHI to formulate and implement procedures for dealing with providers which would be demonstrably fair and reasonable to counter possible claims of an abuse of dominant position.

On the matter of a change in the corporate status of the VHI, I have an open mind and am prepared in due course to recommend to the Government what is best for the organisation. I have clearly set out the considerable change which the VHI is undergoing at present. This I feel is consistent with the approach recommended by the VHI review group who, first and foremost, advocated a change in the business nature, culture and approach of the VHI and identified the chief executive as the catalyst for this. The group was of the view that the appropriate corporate structure for the VHI in the future would be that of a limited liability company with 100 per cent of the shares held by the Minister. It considered the conversion to a limited company to be part of a process of radical change to encourage the development of a more innovative and commercial approach.

I consider that the retention, for the time being, of the VHI's present status does not represent an obstacle to the establishment of a working relationship with the Minister which gives the VHI operational autonomy while making it more transparently accountable. I am satisfied, however, that a change in the corporate status of the VHI, while it would remain 100 per cent State owned, should be further explored. I am of the opinion that this would be most appropriately and effectively undertaken when the proposed new arrangements to enhance the expertise of the VHI at board and top level management have been effected. I will be requesting the enlarged board to give detailed consideration to the matter of a change in corporate status and to submit to me such developed proposals as it may deem appropriate in that regard. Accordingly, this may be a matter in respect of which the House will be asked to consider legislation at a future date.

I said in the House last March that a greater participatory role should be created for the consumer in the area of private medical insurance. I, therefore, welcome the recent decision of the VHI to establish a members' advisory council under the chairmanship of Mr. Finbarr Flood. I am confident that this will provide a valuable and effective forum through which members of the VHI can contribute to the work of the organisation. An advisory council, properly structured and resourced, would not need to be legally based to make a genuine and valuable input into the operation and development of the VHI. The fact that such a council is being established on the VHI's initiative demonstrates the commitment of its board to take account of the views, criticisms and suggestions of the organisation's consumers in a direct and meaningful way.

The Voluntary Health Insurance (Amendment) Bill, 1995, represents a balanced and measured answer to those questions most immediately being asked of the VHI. I recommend it to the House as a significant step in the process of modernising this major State commercial enterprise which plays such a direct part in the lives of our people, particularly at crucial times of serious sickness and injury. I am confident that, together with the momentum for change already started within the organisation, it will enable the VHI to adjust to, and take best advantage of, a changed market environment. I am working towards a VHI that is financially strong; adaptable and market driven; dynamic and innovative in the area of product development; having good working relationships with providers and a good customer relations base.

The objective of this Bill is to make the VHI a more vibrant commercial undertaking which is appropriately resourced, in terms of its governing legislation, for the era of competition ahead. This Bill puts the VHI on the right course to maintain its position as the main force in private health insurance here for the years to come.

Fáiltíonn Fianna Fáil roimh an Bille seo. Creidimíd go bhfuil sé thar am go mbeadh Bille den tsort seo againn chun deileáil le eagraíocht a cuireadh ar bun 39 bliana ó shin. Ba mhaith le Fianna Fáil leasaithe a mholadh ar an mBille nuair a bheidh deis againn iad sin a phlé leis an Aire ag an hoghaoiste um ghnóthaí Sóisialta.

I welcome the Bill on behalf of my party. In certain areas it does not go far enough. I hope we will have an opportunity in the Select Committee on Social Affairs when we debate Committee Stage next week to put forward a number of amendments and to consider possible areas where the Minister could be helpful in accepting our amendments or, alternatively, by introducing similar amendments which would achieve the same purpose.

In preparing for the debate on this legislation it was interesting to go back 39 years to 8 November 1956, when the Minister, Mr. T.F. O'Higgins, the Minister's predecessor at that time, said, as reported at columns 829-30, Volume 160 of the Official Report:

Some Deputies expressed concern as to the necessity for providing this new body with what, in effect, may be almost a monopoly. Frankly, I could sympathise with the Deputies who expressed such a doubt. My original concern, as will appear from the Bill as drafted now, was to provide that this body should be able to meet any competition from any other groups or syndicates that might wish to engage in this business. I found, however, on closer study of the matter, there was a danger that certain groups outside the country who were still entitled under our Insurance Act of 1936 to operate here, might, in fact, decide to engage in such health insurance business.

They could do so for a time, but during that time they could so operate a policy that this new board would find itself unable to compete.

It is interesting that 39 years later we are doing what that Minister said might happen. I am delighted we are availing of the opportunity to ensure a level playing pitch in terms of competition being faced by the VHI, in so far as that is possible, for anybody who might be inclined to come into the market, or somebody who is in the insurance market here.

Although feminism in my political party and in others is under enormous strain, it is interesting to note that, 39 years ago, two of my former colleagues — I was not in the House with either of them — seemed to be tremendous feminists: one was the grandfather of Deputy Eoin Ryan, Dr. James Ryan, and the other was the father of Deputy Ray Burke, Deputy P.J. Burke. At that time they were very concerned and cross at the idea that the Minister was allowing the VHI to decide whether maternity benefit should be available and paid by the VHI. I am pleased that 39 years later we are living up to that policy of feminism within the party.

As the Minister often said in the past, everybody thinks at some stage in their lives of joining the Voluntary Health Insurance, not necessarily for themselves but for ageing parents or young children. Membership of the VHI is usually one of the matters which is discussed when a couple are planning to have a child.

Health insurance is highly regarded by the people as is evident from the fact that over one million of our people, or 35 per cent of our population, have membership of the VHI. Membership is an important security when something serious goes wrong or when someone has to visit hospital. Membership in itself can be a great comfort in times of illness as the VHI helps to relieve some of the financial pressure and ensures speedy access to treatment. However, the VHI, as its own staff and board members would concede, is not perfect. Since I took on the health portfolio no other issue has generated more comment or letters — apart from the hepatitis C controversy — where members of the public have expressed such anger. Any time I give an interview about the VHI, speak in the Dáil about it or comment in the media, people approach me and relay their own difficult experience with the organisation.

Their problems can be broken down into three categories: the VHI's failure to properly communicate cover and cost details; concern about ever increasing premiums at a time when inflation was at its lowest in many years and frustration with the VHI in that members have had no independent forum to which to bring their complaints. The Bill does not address these issues in the detail that is necessary. It also appears to be a limited and, in part, faulty upgrading of the law and the issues concerning health insurance.

Given that there has been no other legislative change in the VHI's operations since its establishment 39 years ago and that the health insurance market is going through unprecedented change, this Bill takes little account of those developments. The VHI's role has changed considerably in the intervening years. Originally it was to provide health insurance to those not entitled to free services under the Public Health Acts. Its other aim was to encourage people who did have such entitlements but who could afford to provide for themselves to do so, and to thus alleviate the burden of health care on the Exchequer.

Nowadays there is full cover in hospital so that the VHI's role is largely encouraging people to provide for themselves. This is done by supporting speedy preferential access and treatment at a hefty premium. The preferential treatment extends from private rooms. Premiums also appear, according to many members of the public, to be supporting what could be referred to as excessive creature comforts. Despite luxuries being provided, the VHI does not cover important basics, such as dental treatment, unless hospitalisation is required, the cost of spectacles or homeopathic treatment. Maternity benefit, to which I referred earlier, is limited and psychiatric cover, including treatment for normal psychiatric cover, addiction, eating disorders and so on, is to be restricted. Optional treatments, such as necessary cosmetic plastic surgery and infertility treatment are not covered.

The VHI pays only a portion of out-patient services and then only after annual excesses, currently £250 for an individual and £450 for a family. The provision of excessive luxuries and the absence of some basic cover raises serious questions about the VHI's priorities. The trend towards excessive preferential treatment, combined with the rise in medical costs, has resulted in the VHI getting into serious financial difficulties. Last year it had to draw down its entire age reserve fund to make up the shortfall. In 14 months the company has had to raise premiums by 18 per cent with another 3 per cent rise expected early next year. With the 18 per cent increase, the company expects to break even this year. What about next year? Will there have to be another raft of increases? Will the remaining £60 million of VHI reserves be eaten up in trying to match expenditure with income? Given that approximately 10 per cent of VHI subscribers end up in hospital and 90 per cent appear to be paying the price for their preferential treatment, it will only be a matter of time before some members opt out of the scheme and avail of other cover such as permanent health insurance, critical illness schemes and hospital cash plans. While these schemes are limited, fuller health insurance competition is on the way. The arrival of the British group, Hospital Savings Association, appears to be hurting the VHI in the corporate sector. It is time for a fundamental reexamination of VHI business and the health insurance market.

It would be better if the Bill had been preceded by a White Paper on health insurance and I suggest to the Minister that it still may not be too late for the publication of such a document. This White Paper could look at many important issues and measure the rate of increase in doctors and consultants' fees in recent years and how these negotiations are conducted. It could also look at the latest round of staff and management changes in the VHI and examine if cost controls have been loosened recently with a resulting increase in premiums. International comparisons could be made on health insurance. While it is impossible to make an absolute comparison it is worth researching how Denmark, which admittedly has a national health service, manages to offer cover for £160 after public service expenditure cuts.

A White Paper could throw up suggestions as to how all hospital consultants could be included in the VHI's full cover scheme without any further increase in premiums. At present 84 per cent of consultants are members and while the level of participation is increasing it is doing so at too slow a rate. Too often people have to pay bills because some consultants remain outside the scheme. People can choose the consultant to perform the surgical procedure but when they are on a trolley in a theatre they have no control over the consultant anaesthetist on duty. People who have full cover under the VHI for the consultant surgeon get very annoyed when they get their bill and realise that the consultant anaesthetist, pathologist or radiologist is not in the scheme and they have to pay the charges. These people are already paying enough and they should not have to pay unexpected bills merely because of commercial difficulties between the VHI and consultants.

A similar examination is required in relation to the cost of new facilities provided by the VHI for its members. In some instances there appears to be too much of one type of technology and not enough of another. I think the VHI shares this concern. Most consultants recommend that patients have an MRI scan. There is an enormous difference in the charge for this scan between hospitals in Dublin and Cork. The technology is the same so why should there be a difference in the cost? This issue could be addressed in a White Paper on the health insurance market generally.

A White Paper could facilitate the important debate about public and private health insurance. A review could examine if the current ratios are sufficient, if the system is coping and whether better hospital administration would make a significant difference to VHI premiums. Most importantly, a broad review could look at how the VHI would survive in a deregulated market. It has been structured as a virtual monopoly offering insurance cover on a community rating basis. It is fair to ask if this community rating will survive in the new marketplace.

The chief executive officer of the VHI recently stated that the VHI would have to look seriously at charging higher premiums for older people who join the scheme. When I raised this matter on the Adjournment some weeks ago the Minister said that this was against the law, he did not support this proposal and he had no plans to change the law. The members of the board of the VHI feel equally strongly about those remarks. However, it is always dangerous for someone in that position to think out loud as it can create concerns in the marketplace. One has to wonder if the chief executive officer was making an opening shot in negotiations about community rating. That form of operation must have a limited life span given the EU regulations. The Joint Committee on State-sponsored Bodies reported on the VHI in 1994 and concluded that community rating would be driven out by competition. If that is the eventual outcome then there must be a debate on these matters. No one in this House would like to see such an outcome.

Another important matter relates to what will be contained in the final health insurance regulations. Earlier this year there was a storm, so to speak, about the eventual outcome of the Minister's renegotiations with the EU. There has still been no outcome and the Minister kindly said yesterday he was still in negotiations with the EU and that these would be difficult. A White Paper could have dealt with this issue and supported the Minister. I hope the points made by Deputies on this side of the House about the changes in the health regulations have been helpful to the Minister in his negotiations with EU officials.

A White Paper could also examine the reasons for the slow increase in the level of out-patient cover and the rate of refund for general practitioners. At present the system seems to operate a perverse incentive for people to go to hospital rather than to avail of out-patient care and stay in the community. The Minister has often agreed with us that people should be encouraged to have various treatments as out-patients rather than to present at the casualty department or admissions office of a hospital. The VHI has been moving in this direction but at a slower rate than some of us would like. The cost of premiums sometimes encourages people to have procedures carried out in hospital rather than as out-patients. Very often members of the VHI say that they will not be covered for dental treatment as out-patients but they will be covered if they stay in hospital overnight. This encourages people to take up beds in hospitals for procedures which could be carried out by the out-patient department.

High premiums in any insurance business encourage people to make claims, if only to recoup costs. A White Paper could examine the potential for expansion of the VHI, given that so many healthy young people subscribe to the company. It could also examine the impact of tax changes on the VHI and whether there is a need to look at these changes. My party was in Government when some of those tax changes were introduced and I know it is difficult to juggle tax relief in the budget so that it will have the most impact and help the already hard-pressed PAYE worker. There is still a matter of whether young people entering the employment market will decide to join the VHI.

This legislation follows from the enactment of the Health Insurance Act, 1994, and the implications of a Supreme Court judgment in an action taken by a private hospital against the VHI. While I accept the necessity that these matters be reflected in law I have difficulty with some elements of the Bill. Section 2 is designed to enable the VHI to influence and control costs. However, legal advice appears to differ on these provisions which could, in fact, be challenged under the Competition Act especially as the Minister for Enterprise and Employment, Deputy Richard Bruton, proposes major changes in competition law.

It is important, if possible, that the Minister states the Attorney General's advice on this section either when responding to the Second Stage debate or on Committee Stage. We need to know the Attorney General's view on the section as it stands as to whether health insurance providers could be challenged under competition law and if not, on what basis the advice was given. The VHI is concerned about section 2 and it makes the point it is important that it and other health insurance providers are excluded from the scope of the Competition Act, 1991.

The VHI says it would find it very difficult to exercise the reasonable powers it needs to achieve the aim of keeping premium increases at affordable levels if it were exposed to the constant threat of legal proceedings under the Competition Act. Perhaps the Minister may be able to allay the fears of VHI and others on this matter. From the legal advice we have received and what the VHI has represented to us, the VHI or any health insurer entering the market could be open to challenge if it limits the number of providers of services in certain areas. Without a limit, proprietors of hospitals and the medical profession would have a significant financial incentive to encourage an increased demand for services with health costs shooting up and those disappointed will, as the Bill currently stands, bring the VHI to court. I do not believe anyone would like to see a constant procession of court proceedings against a State company and would not like to see it in this instance against the VHI. All health insurance companies will find it difficult to keep premium costs down if constantly threatened with proceedings under the Competition Act. The Minister said that he would not consent to an exemption for the VHI or any other health insurance company but I ask him to reconsider that point and we can discuss it in greater detail on Committee Stage.

There are precedents in other jurisdictions for special consideration for health services. In Britain, NHS contracts do not give rise to contractual rights and liabilities and in the United States certain activities of health service providers may be exempt from antitrust laws where those activities are regulated by other legislation. The EU Court of Justice has recognised explicitly the need for insurance providers that are obliged to offer cover to all applicants, regardless of age or health, to be able to limit their outgoings even if this has a negative effect on trade in goods and services.

Section 3 addresses the increases in VHI subscriptions. Up to now the Minister for Health had some control over the VHI premiums and reserves but as he said, this was not stated in law, it operated more as custom and practice. I wonder if this practice continued in recent times, if so perhaps the Minister might tell us if he was consulted in the past year about the 18 per cent increase. Under the provisions of this Bill the VHI will have to seek the formal approval of the Minister for increases and if he or she refuses an explanation must be given. I welcome this. Given the spate of rises, the Minister should consider seriously using his veto to stop the planned 3 per cent increase in VHI subscriptions next year. The Minister should ask the VHI if it can achieve cost savings as opposed to raising premiums. I know the VHI is not happy that it will under Statute have to notify the Minister but I do not support the VHI on this. While welcoming this section I have a number of questions. If other full health insurers enter the Irish market, will they be required to go through the same procedures? If this is not the case would it not be discriminatory since VHI would be the only insurer offering in this country whose premiums would be subject to ministerial control. Will the Minister extend this provision for increases to be subject to ministerial sanction to all the other insurance companies offering health cover of various sorts, including critical illness schemes and hospital cash plans? Would he consider introducing a set of regulations to deal with this matter?

Section 4 deals with the constitution of the VHI board. The expansion of the board is very welcome but the conditions put on the board are questionable. A limit has been put on a number of health service providers who can be on the board. I know the Minister makes a very strong point on the reasons for this limit but why has no limit been placed on the number of actuaries, accountants, lawyers or other service providers? Why is it necessary to write into the legislation the limit on the number of health service providers? Originally I thought the Minister might have had a problem with having health service providers on the board but from his speech today it would appear that he has no problem and that he appreciates the fact that a company involved in health care must have experience available to it from the people involved in such a service. I question whether it is preferable to have a lawyer — with respect to Deputy O'Malley — on a company board rather than a health service provider. Will the Minister respond to this point?

Section 5 sets out the powers of the chief executive. Does the Minister intend to continue the practice which has been in evidence in the past number of years of appointing the chief executive as a member of the board? Perhaps he could tell us the logic behind section 5(5). Subsection (3) requires the approval of the Minister for Health and the consent of the Minister for Finance for the chief executive's contract of service. Such a contract would normally provide for the payment of allowances for expenses, especially if the salary was being topped up to overcome the Gleeson guidelines. Therefore, subsection (5) sounds as if permission must be sought for the cost of the air fare if the chief executive has to travel to the European Union. I am sure that is not the Minister's intention but it would be very bureaucratic and cumbersome if the Minister for Health, with the consent of the Minister for Finance, were to sign every expense docket for the chief executive of the VHI. I appreciate and expect in legislation that there should be accountability and openness but if this were the way we were to go perhaps we might be going over the top. I hope that it is not the Minister's intention that he would sign every single expense docket but different officials interpret the legislation in a particular way that makes it cumbersome and bureaucratic.

Section 7 sets out the terms and conditions of service of the staff of the VHI. As the VHI is facing competition its staff will probably be poached so the company has to be in a position to sufficiently remunerate so that it can recruit and, very importantly, retain employees. Section 7 puts serious restrictions on the VHI which, it must be noted, is a commercial company not funded by the State. Restrictions on the VHI are in contrast to the freedom of other agencies such as the National Treasury Management Agency which was established specifically to get around the pay guidelines of the Department of Finance.

When the Bill was published I was very disappointed to discover that no provision was made for the VHI's users' council even though the Minister for Health had promised that one would be established. As he knows, I have been calling for the establishment of such a users' council for the past year as I believe that the 35 per cent of our population who are VHI subscribers must be given a say. At present they have no say and are not consulted about premia or the operations of the company.

When the Bill was published I said I would be proposing an amendment to provide for a statutory users' council. No sooner had I done so than the VHI decided on a pre-emptive strike and announced it was establishing its own voluntary council to be called the Members' Advisory Council. This I perceive to be an attempt to stop the statutory council from being established. This is something I should like the Minister to examine and in respect of which we shall table an amendment on Committee Stage. I remain of the view that it should be a statutory council.

I must agree strongly with the Minister in paying tribute to all the staff of the VHI who over the past 38 or 39 years have worked with great dedication and commitment to deliver a service in the private health care market for people who could afford to provide such service for themselves. I should also like to pay tribute to the many board members who have given selflessly of their time and energy to put forward improvements and changes for the betterment of health care insurance. When the Minister talks about expanding the board I hope he has no intention of relieving present board members of their services, which he has applauded so much in this House, and that expansion of the board will mean exactly that.

We support the Bill and shall be tabling amendments which we hope will be favourably received by the Minister.

I have no objection to this Bill and will be perfectly happy to see it passed. However, I am amazed at how short it is, how little it contains. To my knowledge a Voluntary Health Insurance (Amendment) Bill was discussed with the Department of Health four or five years ago. When it finally saw the light of day, I had thought it would be major legislation. It is not. The only sections proposing anything new, to some extent, are sections 2, 3 and 4, which are included by way of clarification. The remainder cover provisions of a type inserted from time to time in relation to any State company, stipulating that Members of the Dáil or European Parliament are not eligible for membership of the board of the VHI. There is nothing very new.

Section 2 simply attempts to clarify the powers of the boardvis-à-vis health service providers and make it easier for them to come to arrangements. While I am sure that is helpful to the board it is not particularly new. I am aware that two or three years ago, when I had a lot of negotiations with the Voluntary Health Insurance Board about what might or might not happen in the Limerick region, its great concern was that it would itself be allowed by statute to provide health care which it had not been allowed do under the provisions of the 1957 Act. It was very hopeful that when this Bill was introduced it would allow this.

Section 3 covers notification to the Minister of increases in subscriptions or premiums charged by the board. Here the Minister's ability to prevent or deter an increase is nothing new either. While he may not have had the statutory power in the past, he was the 100 per cent shareholder. Clearly the board could not impose any increases without his consent. That section merely formalises the actual position.

Section 4 increases the membership of the board from five to 12. What can 12 people do that five cannot? My experience of boards has been that the smaller they are, the better. The worst aspect about a large board is that everybody serving on it will be seen as being there in a representative capacity, there only to argue the point of view or self interest of their own group, profession or particular commercial or health interest. I question the advantage of increasing the membership of a board from five to 12 because five well-chosen, good people will be perfectly effective and will render all the service and advice one may require.

Under section 5 I note that the position of the chief executive is put on a more formal basis. Hitherto he was described as the general manager which apparently nowadays is not a sufficiently high-sounding title. It is amazing that the personal requirements of individuals must be reflected in legislation. As far as I am concerned, it is immaterial what he is called, whether that be general manager, chief executive or whatever.

I want to make some more general remarks relating to health insurance. There have been tremendous developments in recent years in the financial services industry, in the insurance sector in particular, the two main clearing banks each having established their life assurance subsidiaries. Both those companies are well established and highly successful operators in that field. Some of the leading building societies have also moved into the life assurance business through acquisition. Other companies in the financial services sector have entered into various joint venture arrangements in order to be able to offer a range of insurance products to their clients. Nowadays cross-selling is the name of the game.

The Voluntary Health Insurance Board seems to have been something of a bystander in the midst of all this activity, having a valuable client base of 1.3 million customers and a strong financial relationship with all of them, some would say too strong. Many of them pay the premia through direct debits.

I submit that the Voluntary Health Insurance Board has not exploited its market potential to the full. The organisation should recognise that it is part of the financial services industry and that the firms with which it will soon be competing are dynamic and aggressive players in that industry. The VHI should be aiming to improve its efficiency. One way of doing so would be to pursue joint ventures or formal linkages with other companies in the financial services area, whether they be banks, building societies or finance houses, to ascertain whether it can generate additional income from its existing cost base. There are any number of initiatives the board could have taken without incurring any major financial risk but it appears to have displayed very little enterprise or marketing flair in the manner in which it has gone about its business. It is essential that the newly constituted board be given the autonomy to pursue whatever commercial initiatives it sees fit.

This Bill does not really address the question of ownership of the VHI; it appears to be accepted that the board will remain a State-owned entity. However, in the context of a deregulated market, open to European competition, at the very least we should be discussing if this is necessarily the best course of action. Continued State ownership of the VHI will put the State in the position of being an operator in the health insurance market while at the same time being the regulator and effective manager of the health care sector. This situation will cause problems once foreign health insurance companies establish a significant presence in the Irish market. If the VHI is to be a social service, there is a clear argument in favour of continued State involvement. However, if the board is to be given a commercial mandate and the freedom to compete with much larger rivals from abroad, consideration will have to be given to releasing it ultimately from the burden of State ownership.

The next few years will see the VHI competing against foreign insurance companies in its own market. Will the board be content to confine itself to the very small Republic of Ireland market, or will it seek to pursue a more ambitious corporate development plan and expand outside this State, perhaps into the Northern Ireland market or the British market or both? Any expansion of that kind will almost certainly require additional capital, but will the taxpayer be required to provide that capital as it was required in the case of a legion of troubled State enterprises?

If the VHI is to expand in this way it will have to do so as a private company outside of State ownership. The British authorities are likely to take a very jaundiced view of a State-owned company entering their market. A couple of years ago they held up for more than 12 months a proposed British acquisition by an Irish company simply because a French State owned company had a majority shareholding in the Irish firm. We know the attitude of the British to an Irish wholly State-owned steel company.

At the very least the Bill should for a start put the VHI on an independent commercial footing as a semi-State body. The proposed legislation provides for a kind of halfway house which is unsatisfactory. Effectively, the Department of Health will control the destiny of the VHI which will be little more than an executive agency of the Department. The mere fact that the VHI is reporting to the Minister for Health poses a conflict of interest. The Minister is, in effect, the largest health service provider through the public hospital system. He and his Department supply private rooms in those hospitals to clients of the VHI. This means the Minister negotiates terms with the VHI as a supplier of services while controlling its activities as the effective sole shareholder in the organisation. This often involves the public hospitals undercutting private suppliers by charging uneconomic rates for their services.

The job of the Minister for Health and his Department is to provide for the health care of the nation. In a competitive deregulated market he should not be directly involved in the operation of a health insurance business any more than he should be involved in the manufacture of pharmaceutical products. The rest of the insurance industry is regulated by the Department of Enterprise and Employment. It seems only sensible that the VHI, which will now be a commercial insurance business like any other, should report to that Department and be regulated by it and not by the Department of Health which is its sole shareholder. This conflict arises in other areas of activity too where the regulatory body is also the shareholder. While this may have been the norm in this country up to now, it is a very different situation in the Single Market of which we are now part in the post-Maastricht period, and competitors will not put up with it. They will challenge it and, even if they do not succeed in the Irish courts, they have every prospect of succeeding in the European Court.

The Bill provides for a 12-person board at the restructured VHI company compared with a five person board at present. I have already expressed my view on the need for that, about which I am not convinced. I hope that whatever additional places are created are not used simply for the purpose of political patronage and that a very important board like this is peopled only by those who have a definite contribution to make in terms of their knowledge of some aspect of the business.

The question of whether the chief executive should be a member of the board will also have to be looked at. There are arguments for and against it. I am against it from my fairly long experience of these on promotional boards or non-commercial boards, but it is a different situation in a commercial board. If this is to be a commercial board; the chief executive might properly become the managing director.

The Bill makes no provision for the regulation of the health care market or the health insurance market which, presumably, will be carried out by the Department or the Minister for Enterprise and Employment. For several years the VHI has been in the unfortunate position of being a price taker in the market in which it operates. To a large extent it was forced to accept the prices charged by hospitals and by consultants. Major disputes arose in this area, giving rise to the balanced billing procedure whereby the VHI refuse to reimburse their clients fully for charges levied by certain consultants. Balanced billing is perhaps the single biggest grievance among VHI subscribers.

As we move into a deregulated market with several different firms offering health insurance services in competition with the VHI, disputes over pricing are likely to increase. There will have to be some form of regulation to ensure the smooth working of the market and arbitration in disputes between insurers and providers. A small unit staffed by people with the necessary expertise in the field of health care finances should be sufficient to carry out this role.

There is also a need for much greater transparency in the whole area of health care pricing. At present, we have no published information on how the cost of a particular medical procedure varies from one hospital to another or from one consultant to another. If there are wide discrepancies between costs in different hospitals, for instance, they should be investigated through the regulatory mechanism I suggested. The objective should be to ensure that the consumer, in this case the ordinary individual who pays health insurance premiums, gets the best deal possible. The more information that is publicly available the better it is for the working of a competitive market.

At present, there are three main conditions set out in the Health Insurance Act, 1994 for any company seeking to enter the health insurance market in Ireland. These are not specifically referred to in the Bill, but they are germane to the subject under discussion. The conditions specified are community rating, open enrolment and lifetime cover. Effectively, they mean that any insurer cannot cherry-pick clients from the healthiest sections of the population offering the lowest risk. These conditions mean that policies must be available to all who want to take them up and that there can be no discrimination against elderly people or against very young people either by charging them higher premiums or by cutting them off from cover once they reach a certain age. These conditions have ensured that the VHI has traditionally offered a fair and equitable service to its subscribers.

I note now that several of the major British insurance companies contemplating entering the Irish market are unhappy with these conditions and are protesting to Brussels seeking to have them overturned. To do this would be a retrograde step. If the conditions were relaxed the long-term effects would be very serious indeed. In an unregulated competitive market many elderly people would be effectively disbarred from private health insurance as they could not afford the weighted premiums they would be charged, or they might be cut off from cover altogether. With an ageing population, which we have, many more people would be forced into reliance on the public health sector, greatly increasing the strain on an already hard-pressed system. It is imperative that the Government states its case firmly in Brussels on this issue. If any significant relaxation of the present conditions is forced upon us the consequences would be very damaging.

I was glad to hear the Minister's remarks on the application of the Competition Act. This is a matter of great concern to the VHI which sends circulars to Deputies stating that its omission is a disastrous aspect of this Bill. The Competition Act applies to every State company operating commercially. Enormous efforts were made in 1991 to get me to exempt all or a number of State companies on the grounds that they had never been subject to rules and would be unable to cope with normal competition as does every other company and person. I refused all applications, including one from the VHI.

The VHI was sued under the Competition Act shortly after it came into operation by an order of nuns in Mullingar. The nuns won their case, a victory which established an important principle. The VHI regards it as perhaps the greatest setback it ever received but I was extremely gratified that the order of nuns and their hospital won the case. The VHI will have to learn to live in the real world, particularly now that it will for the first time be subject to competition from other insurance companies. The Mullingar case was of great importance because it demonstrated that the VHI would not be allowed, under the 1991 Act, to continue to abuse its dominant position.

I hope the Minister will take my comments on board because we have a common interest in the following point. Notwithstanding that judgment, the VHI are still abusing their dominant position in the Limerick region by refusing to allow the establishment of a private hospital in Limerick. The mid-western region is the only region in Ireland without a private in-patient hospital, to the great detriment of a large number of people living in the region. Many people have tried to establish one but could not get cover from the VHI. There is no point in establishing a hospital for private patients unless it is covered by the VHI. Refusal is an abuse of a dominant position.

If the decision in the Mullingar case had been set aside in this Bill, it would have been disastrous. The Minister's view of the application of the Competition Act is correct. The consequences of the Mullingar decision should be brought home to the VHI. It cannot continue to deprive people, who happen to live in one region of facilities available in every other region. At present, people who do not hold medical cards are forced to go to a variety of places, including Galway, Cork, Waterford, Kilkenny and Dublin, for operations or certain treatments. It is not fair to 350,000 people living in a particular region that they are disadvantaged as a direct result of the policy pursued by the VHI acting in a discriminatory way.

I am not suggesting that it set out to act in a discriminatory way. It assures me it will not support or recognise any private hospital in the mid-western region because costs are so great in certain private hospitals which it named. It says it must draw the line somewhere and cannot see a further proliferation of these hospitals. I pointed out that it is, in practice, discriminating against people who live in a particular region, that it cannot be supported and should not be allowed to continue.

I spent much of my time dealing with the 1992 directive. It was to be transposed into national law at the end of December 1993 and came into force on 1 July 1994. This is December 1995, two years after the time it was to be transposed. The necessary regulations, as far as health insurance is concerned, have not yet been made. The Minister said they will be made shortly. I hope so, and that by shortly, he means a week or two and not another six or 12 months. The sooner they are made and companies throughout the Union can assess the precise terms on which they can write business the better.

Even though the VHI is the subject of a great deal of criticism from many people, as Deputy Geoghegan-Quinn said, we should also recognise that it has provided a very good service for a large number of people. Many medical services the State is unable to provide were availed of by people who would not have been able to afford them.

In this country health insurance is seen as being totally different from public social security health provision. This is not the case in other countries, particularly in continental Europe, where there is a large overlap. We seem to think what happens in Britain, where there is a distinction between BUPA and the national health service, is what happens in the rest of the world. However, there is a heavy insurance element in public health provision on the Continent. There is an interesting insurance element in public health provision in Canada which is quite different from the United States. Many people would argue that it is much more satisfactory than the United States.

If we had time we should develop some thoughts on this issue because the solution to the difficulties encountered in the provision of public health because of escalating costs lies somewhere in the insurance field. I do not have time to develop that point now but if we do not do something we may, in the future, see on the streets of Dublin, Cork and Limerick something akin to what we witnessed on the streets of Paris, Lyon and Toulouse yesterday and today. French costs have gone out of control. The French Government, however belatedly, is trying to get a grip on things and is running into the most horrendous problems. I can see a future Irish Government being in the same situation. When the embargo on recruitment in the public service was at its height between 1987 and 1990 there was an increase of 3,000 in the number of people employed in the health services. Since then there has been an even greater increase. The cost of public health is mind-boggling and seems to be out of control. If we do not control it and look at some form of insurance in respect of it we might face a spectacle similar to that in France.

I welcome the opportunity to speak on this important Bill which is a first step in reforming and changing the health insurance market and the role of the VHI. It is surprising that it has taken so long to introduce such a Bill. The change in the Single Market and in competition policy prompted us to make these changes which I welcome.

I was struck by Deputy O'Malley's scenario. No one expected any Deputy to draw conclusions from what is happening on the streets of France but it is an interesting point and I agree that the future in terms of providing high quality health care will not lie in a simple private or public model but in a mix of both. It is the variety of packages that can be created by mixing the two that will give the public a better service with a greater choice. That will be the reality as Governments grapple with rising health care costs.

The fact that so many people chose to be members of the VHI says a great deal about their concern for health care and their willingness to support a private insurance model if they can do so. This could be positive in providing the kind of health care service everyone needs. If those who can afford to do so support private insurance at the end of the day we will be able to provide a better public health service.

The VHI operate in a changed environment. The Joint Committee on Commercial State-sponsored Bodies stated in its report last year that the advent of competition will dramatically change the environment in which the VHI will operate. From a monopolistic enterprise it will have to become a fully competitive, market oriented organisation. Very often we do not think about health in this way. We tend to have a purist view of it. It brings us down to earth to think of the challenges that must be met in providing health care. What we are demanding from the VHI is similar to what is being demanded in other semi-State companies. We are talking about an efficient, market driven organisation developing attractive packages for people at competitive rates.

Irish people have an ambivalent relationship with the VHI. On the one hand they appreciate it when they go into hospital and need money. On the other hand, there is underlying anger at increased premiums, the unpredictability of what will be covered and top up fees. We must try to ensure that consumers are clear on what they are buying into and that costs are predictable. With new technological advances, research and higher expectations, it is difficult to predict costs.

The VHI adopted a radical programme of recovery and must be congratulated on doing so. The battle is not over yet and more work needs to be done on the finance side which will be demanding. The VHI operate in a radically changed environment. Consumers have increasing expectations and hospitals compete to provide services. Everyone wants to provide the best in their own neck of the woods. There is limited finance available and we are trying to give value to taxpayers.

The VHI play an important role in holding the mix between public and private health care. It is interesting that young people are well represented proportionately. The Minister should reach out to young people and the VHI should have advertising campaigns targeting them. It needs to adopt a consumer oriented approach. It deals with its consumers and health care providers all the time. One of the key reasons for greater demands being made on the VHI is our ageing population. This is not unique to Ireland.

The Bill amends the 1957 Act. The VHI now has the possibility of developing new health insurance products and activities beyond its present business of strictly indemnity based insurance to areas such as cash schemes in respect of serious illness. This could include optional products such as GP primary care, dental, hospital cash schemes, etc. This will allow for the generation of additional revenue and consolidation of the customer base. This is important but the VHI cannot take its eye off its core business of health insurance. That must remain the primary vision and focus.

In developing policy there must be creative positioning between the emerging understanding of health care needs — the need to provide at primary level and move away from in-patient care to out-patient care as much as possible. It is important that the VHI keeps pace with such developments. Deputy Geoghegan-Quinn made the point that if people are hospitalised overnight the VHI pays their expenses but if they attend hospital as a day patient or out-patient their bills are not met in certain circumstances. We must ensure the changes we introduce are supportive of our general health policy and of the approach to make less use of hi-tech hospitals. They must also support general practitioners and promote health care.

If the VHI is to contain costs it must make economic arrangements with its providers and the Bill makes this possible. However, this will not be straightforward. Many political decisions will have to be made in respect of various hospitals. Ministers and politicians will have to examine the matter carefully and support the VHI in tackling these issues. We must ensure that a properly planned health care service is provided throughout the country.

Health care costs are increasing for two main reasons, the technological costs of providing services and the age profile of our population. Until now the VHI did not have the power to tell a hospital it would not pay for unnecessary technology. It could not claim that enough technology was in place or that the efficacy of new technology had been demonstrated. I welcome the power this Bill will give to the VHI in this regard.

I disagree with Deputy O'Malley that five members is sufficient on the board. The VHI is a complex organisation with wide ranging responsibilities and a 12 member board is necessary. The Minister referred to financial, insurance and market experience being important for membership of the board, but people who work in the services must also be represented on it. The Minister has limited the number of health service providers to two. Consumers should also be represented on the board. I welcome the establishment of the Members' Advisory Council. If that council were established earlier it could have dealt with the ambivalence surrounding the attitude to the VHI. Increasing board membership to 12 will provide an opportunity to include wide ranging expertise and this is essential in a complex organisation such as the VHI. Millions of pounds are paid in subscriptions and hundreds of millions of pounds are paid out to the providers.

Since the year ending February 1993 the VHI has reported deteriorating underwriting losses. In February 1993 it reported losses of £7 million, but £6 million after investment income. In February 1994 it reported losses of £13 million, but £6 million after investment income and in 1995, £15 million which should have resulted in an overall £5 million deficit, but when an ageing reserve is taken into account it allows for a break-even situation. Those are challenging figures and I am sure next year's figures will also show a loss.

Escalating costs present a major problem. Consultants' fees increased from £36 million in February 1992 to £41 million in February 1993, £51 million in February 1994 — a 23 per cent increase — and £61 million in February 1995 — a 22 per cent increase. The projected increases for next year are also very high. I am not placing blame for those increases on those who provide the services, but if we want the VHI to be viable then agreements, involving complex negotiations with all concerned, must be put in place.

The VHI is a valued organisation. Its net membership continues to increase by approximately 2 per cent per annum. It is vital to the State's twin track approach to health care provision. In view of the difficult financial position facing the VHI and the demands placed on a modern health insurance market, attention must focus on acute care whether in in-patient, day care or out-patient services. We must maintain community rating, as outlined in the Bill, and strong contractual partnerships with VHI doctors and hospitals on services, pricing, technology and overall cost must exist. We must maintain the affordability of the VHI for the people and this is becoming more difficult. Many people on the margins who would like to buy into the service cannot afford the premiums. I hope under this legisaltion the VHI will be able to devise creative packages, using groups of private and public hospitals and their consultants.

The traditional categorisation of public, private or hi-tech luxury is now redundant. Our public hospitals are to the forefront in care and medicine. We must maximise what is already in the system, provide incentives for a mix of hospitals and doctors to work together and offer choice and keener prices for non-traditional plans. It will be difficult for the VHI to get this across to the public and to ensure that people purchase what is best for them and their families. If it fails to do this, other competitors will do it but I am confident the VHI will face up to these challenges.

A board comprising membership with wide expertise will be required to focus on the finances and future of the VHI. Consumers want health care to be affordable and predictable when they face unpredictable injury or illness. They want to know what they are covered for and to be provided with a sufficient range of coverage. Some of the expectations about what core health insurance covers, for example routine visits, must be examined. It may not be possible for certain forms of private health insurance to cover such matters. It should be confined to the higher cost, unanticipated acute medical conditions, injury, illness and associated treatment, whether in-patient, day care or out-patient. If people can afford it, they can buy into packages which cover other services.

I welcome the legislation. I have no doubt that as the market evolves in the years ahead more complex legislation will have to be introduced to evaluate what the changes in competition policy have meant for our private and public health care sector and on that basis further changes may be necessary. This legislation is a good start. It places the VHI in a better position to tackle the difficult and challenging tasks facing them as the market opens up and other competitors offer services to our consumers.

I wish to share my time with Deputy Hughes.

I am sure that is satisfactory. Agreed.

I welcome the opportunity of discussing some aspects of health insurance when we are facing the prospect of competition from abroad in an area which up to now has been the sole preserve of the VHI board. Many people fear that competing companies may be allowed to concentrate on limiting cover to the areas which are most profitable. This cannot be described as fair competition. If these companies demand fair competition, it should be made clear to them that they must provide the level of cover provided by the VHI for more than 40 years. It must not be akin to the bank manager who offers his umbrella to a customer and demands its return at the first sign of rain. In health terms, this would run contrary to all the VHI has stood for since its inception — no penalty should apply because people are getting old.

Recently the VHI chief implied that people who join at older ages may have to pay higher premiums. While I can understand the economic reasoning behind this I would like to know how he defines "older ages". We must ensure that someone who has been a member of the VHI since an early age is not penalised once he or she reaches some arbitrary birthday when it is reckoned the health risk is greater.

As in the case of all other types of insurance policy, the costs of benefits have to be continuously monitored. In the case of the VHI, the profit motive has not entered the equation in the same way as in any commercial company. Until recently it has managed its affairs well as a general rule and done its utmost to negotiate the best possible terms for its members. Its current financial problems arise from the rapidly escalating costs of newly developing medical techniques.

A phenomenon in recent years is the insurance costs incurred by all members of the medical profession, consultants and general practitioners alike. There is a chain reaction which begins in the GP's surgery in many cases. If there is the slightest doubt in the doctor's mind regarding his diagnosis or treatment, the spectre of being sued for negligence comes immediately to mind and the patient is referred to a consultant who, in turn, is also terrified at the prospect of legal action and so ensures that every conceivable test under the sun is carried out. This pushes costs up, even though it could be argued in many cases that many of the procedures are unnecessary.

In the course of my medical practice I am frequently asked about the published costs by the VHI board of certain medical procedures. I am not questioning their accuracy, but it would be of help if a breakdown was provided. For example, £10,031 is required for a coronary bypass, £4,024 for a hip replacement, £1,473 for a cataract extraction and £2,040 for a prostatectomy. In the interests of the public, will the VHI provide a breakdown of these costs?

The "young and healthy" are often referred to as subsidising the "old and sick". That is the basis of all insurance cover. I doubt whether any young person would view his parents in this manner in the certain knowledge that he, too, will grow old and hope his children will subsidise him in turn.

The Minister and the VHI board should seriously consider promoting co-operation with the authorities in Northern Ireland in the health sphere. I refer especially to the 1992 Ballyconnell agreement between four health boards, two in the North and two on this side of the Border. The areas concerned have a population of one million. The main objectives were identified as follows: to improve the health and well being of the population; to exploit opportunities for co-operation in the planning and provision of services; to assist Border areas in overcoming the special development problems arising from their relative isolation in the national economies and within the European Union as a whole through the promotion of Government and European Union awareness and support for this process; to exploit all opportunities for joint working or sharing of resources where this would be of mutual advantage and to take up funding which may be available from the European Union or other third parties.

Under those headings the co-operation sought can be promoted in various parts of the country, not just the Border areas. For instance, a few hundred hip replacement operations were carried out in Belfast by arrangement with the health authorities here.

On the unique problems affecting County Donegal, as the House well knows, following partition, County Donegal was surrounded almost entirely by the Atlantic on one side and by the Border on the other. For many years the establishment in Dublin tended to regard it as a far flung outpost and treated it accordingly. I would like to think this attitude has changed and that in the sphere of health care there is an obvious example of how special attention could be given to this area.

The Inishowen Peninsula is part of the natural hinterland of County Derry and the closest hospital is Altnagelvin in Derry. The cost of full cover from the VHI is prohibitive and along the lines of that required for the Blackrock Clinic and the Mater Private Hospital in Dublin, one has to be in either plan D or E. Patients from north Inishowen have to travel to Letterkenny General Hospital bypassing Altnagelvin, a round trip of about 100 miles. Most accept this without question, but for certain specialist services they have to travel well over 100 miles to Sligo or 170 miles to Dublin although most of these services are available in Derry. For example, where a colposcopy is required when a positive result is shown in a smear test the woman concerned has to wait two to three weeks before being referred to Dublin. This is considered a routine procedure at Altnagelvin.

There has been co-operation between the North Western Health Board on this side of the Border and the Western Health Board in Northern Ireland and between the hospice services in counties Derry and Donegal. I would like to see a more formalised system developed whereby various services could be shared in both directions where this is desirable and the VHI board proceed as a matter of urgency with negotiations with Northern health boards with a view to including hospitals such as Altnagelvin on its list of providers at a reasonable cost. I am well aware that this may not be as easy as it seems because of the differing entitlements of patients to hospital care in the respective areas, but I hope a line can be drawn from the cross-Border tax arrangements that already exist. The people living in north Donegal especially should be entitled to cross-Border hospital care without having to pay the top rates in VHI premiums.

There is great discussion of cross-Border co-operation and reconciliation. What I have been talking about affects the lives and well-being of people on both sides of the Border. I refer the Minister to the submission made to the Forum for Peace and Reconciliation last December by my colleague, Dr. Daniel McGinley of Moville in north Inishowen. That submission contains excellent proposals for co-operation along the lines suggested.

I thank my colleague for sharing his time with me. This has been described as modernising legislation. Given that it is the first legislation to be introduced in 38 years, that it runs to 12 sections most of which, as Deputy O'Malley said, form part and parcel of every Bill produced and only two of which could be described as radical, have the Minister and the Department not missed an opportunity?

I strongly support the suggestion, made by my party's spokesperson on health, that the Bill should have been preceded by a White Paper on the health insurance market. The Minister might still take on board that worthy suggestion. Such a White Paper would allow for debate, inside and outside this House, involving the various interests with an input to this matter. I appeal to the Minister to take on board the most worthy suggestion made in relation to the Bill during this debate.

While the VHI is to be commended for the establishment of its Members' Advisory Council — which was prompted by my party's suggestion that a users' council be set up — my party will table an amendment which will have the effect of establishing a users' council. The 35 per cent of the Irish public who are members of the VHI subscribe in excess of £200 million per year and have no representation within that organisation. While the enlargement of the board from five to 12 members is welcome, it is necessary to make statutory provision to establish a users' council to reflect the widening range of consumer interests.

The VHI is solely in the business of selling insurance and the insurance companies already have a voluntary insurance ombudsman who is working very successfully in this area. The sale of savings and pensions policies in particular has attracted considerable criticism of the industry by consumers. The people responsible for the sale of policies have examined the value for money aspect from the consumers' viewpoint. The insurance ombudsman is playing a valuable role in ensuring the entire savings market is not eroded by a lack of confidence.

During this debate concerns have been expressed with regard to people's continued confidence in the health and welfare of the VHI. I am sure the VHI itself would welcome strong consumer representation and attention being paid to customer needs. If a person buys a product — be it an electrical product, a financial product or a service — the Director of Consumer Affairs is available, under statute, to give effect to the consumer's rights as enshrined in law. I ask the Minister to take on board the amendment which my party will be tabling on Committee Stage. I believe it will be a worthwhile amendment and we cannot wait a further 40 years for legislation to give effect to this matter.

The accounts for the VHI's last financial year make for stark reading. They show that claims paid increased by a figure in excess of 10 per cent while subscription income increased by a similar amount. Accumulated reserves have decreased to £57.5 million from £66.4 million and are now less than 25 per cent of what is paid by subscribers each year. It makes for stark reading when one considers that the accumulated reserves of the VHI — which has been in existence for 40 years — represent only 25 per cent of what is paid out in any one year. With investment income anticipated to grow at a lesser pace than the norm in times of high interest rates, the pressure on premiums to increase — at a rate considerably higher than inflation — will continue.

The vast majority of subscribers, on receiving their annual renewal form, ask themselves if it is worth their while to pay for private insurance cover for benefits which appear to constantly change on a biannual basis. Will these people have to rely on the public health service instead? It is critical that the VHI retains its 35 per cent share of the population who subscribe to its schemes at present. A wholesale desertion of the VHI by these people will place huge pressure on public health finances. The tolerance point is fast approaching for many people as a result of an increase of 18 per cent in the cost of premiums in the past 14 months. A further 3 per cent increase is anticipated next year. With the whittling away of tax relief — which was carried out by my own party while in Government — and the improved delivery of services in the public health sector, many people may feel that critical or permanent health cover is sufficient for the most serious of situations which might be forced on their families.

During the past number of years a plethora of insurance companies have entered the market offering permanent health and sickness insurance. Daily advertisements, in newspapers and on radio, illustrate the attractiveness of purchasing such sophisticated products to cover times of serious medical crisis. This Bill will permit the VHI to expand its range of products. However, the VHI must engage in a close examination of itself, as an organisation, if it is to be successful in facing up to the competition which will eventually enter the Irish market. If such competition does enter the market, it will do so on a playing pitch levelled to a position which will ensure that it must compete with the VHI on the same terms that organisation has offered to the Irish public for 40 years.

The Health Insurance Act, 1994, ensures that any overseas competitor contemplating entering the Irish market must be prepared to contribute to a risk equalisation fund if it is judged to have a preponderance of low risk subscribers. As party spokesperson for the elderly, I strongly support this notion. I will be prepared, at all times, to fight — up to European level — to retain this worthy principle. The aforementioned Act also invites any new competitor to use the community-based ratings system which ensures that younger members joining the VHI cross-subsidise older members. This means that everyone pays the same premium.

With our population demographics showing, as in all other European countries, an upward graph of elderly people, in the next ten years this will place increasing pressure on premiums which will easily exceed the rate of inflation and the market for young subscribers will contract. The market is currently increasing at a miserly rate of 2 per cent per year. We must make it attractive for young, taxpaying subscribers to join the VHI. The return of full tax relief is an absolute prerequisite if we are to continue to attract young subscribers to the VHI market.

On the passing of this Bill, I ask the Minister and the VHI to consider introducing long-term care insurance products. BUPA, Britain's largest private medical insurance group, recently stated that it is considering a number of ways to provide funds for elderly people who can no longer look after themselves and are obliged to pay for their own care. Claims usually depend on a fairly severe level of disability involving the failure to perform a number of specified tasks. This includes the ability to carry out four of the following activities without assistance: washing, dressing, feeding, visiting the lavatory, controlling bladder or bowel functions or moving around a room. In the case of cognitive failure such as Alzheimer's disease, policies are paid regardless of these conditions. Offering tax relief on long-term care insurance, or changing the rules governing pension plans, would be necessary if such a product was to be successfully launched.

The recent budget in England made certain provisions in this regard to respond to the clearly identified need for the provision of long-term care. With a decreasing number of long-term beds available in public hospitals — private nursing homes have taken up the slack in recent years — and having regard to the fact that subventions are paid to 40 per cent of people housed in private nursing homes, a market exists to provide permanent health and sickness cover. The younger members of society, to whom the Minister referred in his speech, are the most likely people to be attracted to this market. I believe this matter is worthy of examination. Consideration should be given to providing a policy whereby people could perhaps, on reaching 60 years of age, pay a lump sum and as these people grow older the VHI might respond by paying out a suitable level of remuneration to those providing care services. This would ensure that the elderly are not forced to sell their principal private assets, namely their homes. We should follow the example of England in that regard and provide such a service as soon as possible.

I welcome this Bill which gives us an opportunity to discuss the VHI and its work to date. It would be remiss of me not to commend the Minister, Deputy Noonan, on introducing the Bill. Even though he has been in office for less than a year, he and his Department have done tremendous work. He is capable of progressing issues, as is evident in this case.

The Voluntary Health Insurance Board was established in 1957 and, from very small beginnings, has grown to a membership of approximately one-third of the population. Members' subscriptions for this year amount to £230 million, a substantial amount of money. People talk about the need to provide certain services and extra cover, but it must be remembered that any expansion of the VHI services must be met by a substantial increase in the membership or subscription base of the VHI. This year the VHI paid £60 million to consultants, £60 million to public hospitals and in excess of £100 million to private hospitals. If any of those sectors increase their spending, subscriptions must be increased. The VHI is a non-profit organisation and we are not trying to impose extra services and commitments on it because that would have the long-term knock-on effect of putting membership beyond the reach of members.

The main purpose of the Bill is to enable the VHI to develop new health insurance products and activities and I welcome that. I would, however, be adamant that the VHI should not expand to own or run its own hospitals. That would be a great mistake because it would be outside the expertise of the VHI and would not be within the terms under which it operates. There are a number of private hospitals which generally do a good job and I would not like to see the VHI go into competition with them. It would not be healthy for the organisation or its membership.

I agree with Deputy Hughes on the need for an ombudsman or arbitrator within the VHI system. That was one of the recommendations of the Joint Committee on State-sponsored Bodies, of which I was a member, in its report in 1994. The committee consulted many of the people involved, including consultants, private hospitals, the board of VHI and the public. In the light of those discussions we felt there was a need for an arbitrator who could adjudicate on the various difficulties within the VHI system.

Today I had reason to ring the VHI on behalf of a constituent who is receiving radium treatment at a private hospital in Dublin. That person travels on a daily basis from home, which is a considerable distance from the hospital, at great expense. The person was concerned that the cost of daily treatment will not be met entirely by the VHI, and on making inquiries I discovered that is the case; the VHI will not cover the cost of daily treatment and obviously it will not pay towards travel costs. If that patient remained in the hospital for a month, the duration of the treatment, the full cost would be met by the VHI. It is remarkable that a person who chooses to travel to the hospital daily, at considerable cost and stress, rather than take the easier option of checking into hospital, is penalised. That matter should be considered. With whom can one raise such a problem and who will adjudicate on it? The VHI rules on these matters and there is no intermediary with whom one can raise the matter. There should be an independent person such as an ombudsman to adjudicate on such issues.

The ombudsman could also intervene in disputes such as that which constantly arises between consultants and the VHI about remuneration for facilities and services. In recent years there has been confrontation between these two groups, leading to much bitterness, but thankfully many of these problems have been resolved. An ombudsman would be in a position to arbitrate between the two groups and help them reach an amicable agreement. Such disputes are not helpful and do not benefit the VHI members.

The Joint Committee on State-sponsored Bodies had long discussions with consultants about rates of remuneration for various procedures and the balanced billing system. We were anxious to publish a list of consultants and doctors within the VHI system who do not operate a balanced billing system but we met with great resistance. Nonetheless we published a list which received some coverage at the time. I am not sure whether a more comprehensive list has been published since. VHI members should be aware of the medical practitioners who operate within VHI cover and those who operate outside it.

A third role for an ombudsman within the VHI system would be to mediate in disputes between hospitals and the VHI. Deputy O'Malley referred to a very unseemly development in the past three or four years at a hospital in my area, St. Francis Medical Centre in Mullingar, which lead to a long, bitter dispute between that hospital and the VHI. The dispute led to a High Court case that continued for several days and to a Supreme Court hearing. It resulted in the imposition of major costs on VHI subscribers. Not only must colossal legal bills be picked up by VHI members — in this instance they may be up to £1 million — but a substantial compensation payment must be made by the VHI to the hospital concerned as it won its case.

The hospital brought a case under the 1991 Competition Act and won it despite the most ardent efforts of the VHI and its legal team, but such legal proceedings need not have arisen. I was involved with that hospital at the time that dispute arose. I spent much time talking with officials of the VHI. representatives of the hospital and the then Minister who gave me short shift and was not interested in trying to solve that dispute which will cost VHI members millions of pounds.

Having had discussions with the various groups and learning that the case might go to court, I put forward the sensible proposal that a mediation forum should be set up to hear both sides of the case and adjudicate on it. I suggested that such a forum should be made up of three people, one with medical experience, one with legal experience and one other who should act as chairperson. That formula was acceptable to the hospital, but the VHI did not accept it. It ruled it out of order and was not prepared to sit around the table with representatives of that hospital or an arbitration group to sort out the problems.

The outcome of that dispute has resulted in the imposition of major costs on VHI members because its board was not prepared to listen to a reasonable proposal. That case demonstrates the need for the appointment of an ombudsman or the introduction of an arbitration system to enable VHI members have disputes arbitrated on and mediated upon. That would allow ordinary members the right to be heard, would provide an arbitration system for hospitals which would ensure they would not have to resort to court action and consultants could have their disputes settled. That scenario should be borne in mind and on Committee Stage the Minister should provide for the appointment of an ombudsman to deal with such cases.

There have been tremendous developments in medical technology in recent years. Advanced medical technology is available in many private hospitals particularly those in the Dublin area. I ask the Minister or the VHI to discuss with hospitals contemplating it, the purchase of new technology, which imposes a major cost on VHI members. There is duplication in the provision of advanced technology in some Dublin private hospitals with one competing against the other. The Minister or the VHI should intervene and advise that if certain equipment is available in a Dublin hospital it will be the only such equipment that will be funded in Dublin and that other such equipment to be located in a private hospital should be located in Cork or Galway to ensure a greater spread of service. It does not seem reasonable that such equipment should be gathered together in one city so that people have to travel long distances to gain access to it. Deputy McDaid referred to the long journeys Donegal people must make to gain access to such equipment and I appreciate the difficulties that poses for them. Perhaps the VHI have a role to play in ensuring that such machinery is more evenly distributed among hospitals.

Competition from foreign insurance companies was mentioned. The VHI have a community-rating system. Whether a new member is 25, 45 or 65, he or she is quoted the same rate and must pay the same premium. We hope that system continues to operate, but we must be cautious of potential competition from foreign insurance companies. A large number of the elderly form a substantial proportion of the membership of the VHI. If a foreign insurance company offers health insurance, it can claim it operates a community-rating system, but if it advertises in, say, only a magazine read by young sporting people for whom it quotes rates, such a company will attract healthy young people and will be able to cherry pick that market and offer cheap health insurance.

We should be cautious about claiming that the VHI's maintenance of a community-rating system will enable it compete on an international basis. We should monitor the position. The Minister should consider the Australian system of health care. It provides that if an insurance company is providing health insurance, it must provide details of its membership to the Government or an arbitration group. On the basis of a company's membership, whether aged, middle aged or young, and the risk factors involved, the company must pay in to a central fund, and such moneys are disbursed to different insurance companies depending on their risk rating. That seems to be a fairer system and it works extremely well in that a company does not run the risk of providing cover for a group weighed down with the elderly and the sick. The Minister must be the watchdog in this area and monitor competition to ensure that the VHI is not undermined.

The VHI has provided a tremendous service to the people for almost 40 years. People who would not have been able to avail of health care were able to do so through their membership of the VHI. Many private hospitals have been able to provide employment because they operate under the VHI system providing a much needed service to VHI members. The public health service has gained immensely from the VHI. A sum of £60 million of VHI money was put into the public sector hospital system last year. That money has been a valuable subsidy to the public health service, allowing hospitals to provide much needed services.

On the discussions which were held in the national media some time ago on the regulations which might limit the VHI cover for patients receiving mental treatment, I am glad the Minister seems to nave shelved the recommendations made to him in that regard and that cover for patients receiving mental health care will not be restricted in any way.

More than 1.3 million people are members of the VHI and, consequently, have more than a passing interest in this Bill. Our health is our wealth and if the VHI does not become more competitive, it will be only the wealthy who will be able to afford cover with that organisation, thereby making more people dependent on the public health service and, consequently, putting more pressure on that already overburdened sector.

The Bill will help the VHI to compete in the open market on more favourable ground, especially in regard to the control of claim costs. As my party's spokesperson on mental health, I am worried about the VHI psychiatric cover, especially having regard to the mooted regulation of 40 days in total compared with 180 days for psychiatric patients in hospitals. In regard to substance abuse, 40 days for every five years was to be allowable compared with 90 days previously. Statements have been made on this issue but the issue has not been cleared up. I do not want to see psychiatric patients being discriminated against. They should be treated in the same way as people who have physical illnesses. Will the Minister give the up-to-date position on this because people are still worried about the proposed changes in the treatment of psychiatric patients? I know these regulations were not mooted by the VHIper se but the situation has not been cleared up to everyone's satisfaction.

The VHI is a non-profit health insurance provider. It has no share capital and is therefore vulnerable to multinationals and even national insurance companies who have unlimited wealth. Therefore, it is not unreasonable for the VHI to ask the Minister for Health to change its status from statutory corporation to public company so that it would be easier for them to act swiftly in any given situation. I note the response of the Minister; he will review this request later when the full board isin situ but procrastination is not good, especially in the private sector. One must act swiftly, especially if there is competition.

There are exemptions from certain regulations in the Competition Act, 1991. There is no doubt that health care insurance is different from other insurance and the VHI has made a good case in that regard. I note the Minister's response and, especially, that of Deputy O'Malley. Nevertheless, that factor should not be dismissed out of hand as there are precedents in the UK and the US for similar exemptions to health care insurers. Perhaps another look at this would be considered.

Under the legislation, the VHI will be able to get involved in other health care insurance, such as critical illness cover, chronic care cover, holiday health insurance and long-term disability. I hope these will not be hived off into high cost plans. They should be provided at commercial rates if the VHI is to get involved.

I am glad to see community rating is the cornerstone of VHI policy rather than risk rating, which would only suit young people. A White Paper on the VHI was suggested by Deputy Geoghegan-Quinn who argued cogently on this in her contribution. Her suggested approach would provide a mechanism for looking at the whole voluntary health insurance sector in an open manner and I am sure valuable information would be thrown up if it were discussed.

Many problems still arise with VHI cover. Full cover is still only 90 per cent cover and this causes many problems. People are still unsure of what they must pay when undergoing any procedure. They do not know whether their surgeon, physician, anaesthetist, pathologist, haematologist, etc. is participating in the VHI scheme and the sooner we get all those health providers involved in the full care cover the better for the VHI and subscribers.

Serious problems exist between a number of the organisations which represent health providers, the Irish Medicial Organisation, the Irish Hospital Consultants' Association, the Independent Hospitals' Association and GPs. People are of the opinion that doctors are making an enormous amount of money. Those who work with their hands will never make huge amounts of money and, in the long run, most of this money — if they earn even between £100,000 and £200,000 per annum — will, in turn, go back to the Exchequer by way of taxation. People should not be unduly worried about the earnings of consultants or doctors.

The VHI should make a special effort to come to a reasonable agreement with all health care providers. The doctors are not that difficult to agree with. The reason they suggested the change of status of the VHI from statutory corporation to public company is that it would help the organisation in its dealings with providers of health care, institutions and doctors. It would give it other mechanisms which it does not have at present. It is a method that should be examined. The VHI has been reticent to get involved with GPs and the care they provide. The time has come for the VHI to look afresh at this because GPs should be considered as health providers. The VHI would be well advised to have consultations with GPs on the provision of health care.

The VHI should consider providing more money for out-patient procedures because, with modern technology, many procedures which heretofore had to be carried out in hospital no longer require hospitalisation. We should bear in mind that keeping people in hospital costs a great deal of money. Procedures such as CAT scans, MRIs, colonoscopies, endoscopies, etc. can all be carried out on an out-patient basis and the VHI is not moving in the right direction in that regard. There is still a large disclaimer where one has to spend £250 or £450 in the case of a family before one can make a claim in respect of outpatient procedures. If more emphasis was put on that aspect of care the VHI might be in a position to reduce costs.

I note that the composition of the board will be increased to 12 members, only two of whom will be medical personnel. It is peculiar that there is always room for lawyers, actuaries, accountants and other people who have little knowledge of the whole area of health care. Nevertheless, the Minister sees fit to nominate to the board only two people from the medical profession. The medical profession will not be happy about this but, I suppose, they will have to put up with it. Generally, all consultants have a good knowledge of health care and their opinions should be sought and, perhaps, some others should be nominated to the board.

In regard to taxation, the relief should be allowed again at the higher rates of tax in order to induce young people to join the VHI. Tax relief is an inducement when people are joining any health care plan. An idea mooted by our spokesperson, Deputy Máire Geoghegan-Quinn, was that we should have a statutory users' council. She feels very strongly about this, it is worthy of detailed consideration. Naturally, users have a great interest in the VHI and would keep the board on its toes.

The Bill will help the VHI to compete in the open market. While it may not meet all the requirements of the VHI or of health care providers, it is a step in the right direction.

I have listened to the debate on the monitor during the past few hours and I deliberately sat in early to hear the other contributions. The VHI means different things to different people and is complex in many ways. It is the organisation which deals with people when they are most vulnerable and in need of support and care. The VHI does not provide us with health care but as members it provides us with the wherewithal to acquire that health care. We need to be careful about how we define it and where we put it in the scale of things.

We are inclined to lose the run of ourselves when we come to describe people who are members of the VHI. I have no doubt but that some VHI subscribers are extremely wealthy. Equally, I have no doubt but that the majority of the over one million subscribers are people who would have been, like myself, from a one income family.

In the mid-1970s free health care was removed when one's income exceeded a certain limit. In other words, those in the position of having to pay most tax did not qualify for health care funding. I always found this peculiar. I would have thought the State should provide for everyone equally whereas it provided less to those who contributed most. People with young families must have some form of health care. That was the reason I became a VHI subscriber and I assume it is the reason the majority of people do so.

As one who has enjoyed good health and, therefore, not have had to avail of the VHI, the question that comes to mind is why should one continue to pay the contributions, could one do without the cover but there might come a time when one would need cover and then one would be grateful for having continued to subscribe. We all need health insurance whether we are in our teenage years, our twenties, our child-bearing years or when we are old and infirm. We are vulnerable and we need a support mechanism.

If we equate the VHI with a health care provider, which is a more accurate description than health provider, it gives us the wherewithal to choose who will treat us and, to choose the timing in the case of elective surgery. The benefit of an efficient, affordable and accessible medical care system is essential to a civilised society which provides for the needs of all its citizens.

The VHI is not just another product in another market, yet that is precisely what the European Union's third non-life insurance directive makes of it. It provides for a single market in health insurance among all member states. If left unregulated, such an unrestrained health care market would lead to the kind of chaos with which the US is currently grappling. In conjunction with the 1994 Health Insurance Act, this Bill proposes a regulatory framework which ensures that the vulnerable — children, the elderly, those suffering from chronic illnesses or certain other illnesses which may not be chronic or urgent but which we elect to have rectified will not simply be priced out of the private insurance market. These two items of legislation will ensrue that outside companies cannot engage in a form of medical cherry-picking. Both the Opposition and the Government have made that a priority. The legislation also ensures that the management structures are appropriate to a modern insurance provider, plying its wares in an open and extremely competitive market. It ensures that the VHI will remain accountable to the Minister and through him or her to Dáil Éireann and, ultimately, to the consumer.

While welcoming this legislation, I emphasise that Democratic Left remains committed to the principle of a universal health care system free at the point of delivery. In its document "Proposals for a National Health Care Strategy" published at the beginning of 1994 the party proposed that the GMS should be extended to cover 50 per cent of the population in the short-term rather than the current 35 per cent. This is a debate for another day but I am sure people who have an interest in the medical area and, in particular, the GMS would be very interested in the figure of 35 per cent. It also proposed that the scheme should be extended to cover all people over the age of 65 with the ultimate aim of extending it to all people by the year 2000. At our conference earlier this year it was proposed that eligibility for the GMS scheme should be calculated on net rather than gross income.

It is important not to confuse aspirations with the current reality which is that more than one million people are dependent on the VHI for health cover. This must be borne in mind at all times. These people must be guaranteed a service which is both accessible and affordable. We demand regulations in all other areas and it would be a crime not to regulate the method by which one million people provide for their health care. Middle income people who depend on the VHI are the same PAYE workers who are financially squeezed on all sides. In recent years they have been especially hard hit by what seems to be a never ending succession of premium hikes. The most insidious charge of all is the top up bill for medical treatment. People know when there will be an increase in the premium and they can decide whether they want to stay in the scheme, but they never know when they will receive a top up bill. This matter needs to be dealt with as a matter of urgency.

I hope the powers being given to the VHI under the legislation will enable it to provide a more consumer orientated service and to exercise more independence in the conduct of its negotiations. This should be to the ultimate benefit of patients. I also hope that costs will not be cut at the expense of patient care. In this context, the implementation of the legislation should be carefully monitored in future years. I welcome the safeguards built into this Bill and the 1994 Act but I am conscious of the disarray caused by the market led approach to this matter in the UK where the national health service has been run into the ground, with managers much more concerned about the demands of the market than with the needs of the patient. Any move in that direction here would be retrograde and would mitigate against the eventual introduction of a universal health care service to which my party remains committed. It is our ultimate aim to introduce such a service in this country.

It is important to point out that over the past 40 years the VHI has provided health care insurance for people in an exemplary way. It is a non-profit making organisation which is dedicated to the service of the public in the same way as other health care agencies and it deserves the powers being given to it under this legislation.

If people were asked for their opinion of the VHI the unanimous view would be that the premia are very expensive and the basic cover does not indemnify them in full in that very often they are asked to pay top up bills to meet the charges of consultants, anaesthetists etc. Having said that, it is important to point out that some years ago the VHI experienced major difficulties in balancing its accounts and meeting the needs of the board and the demand for insurance and the costs multiplied by a factor much greater than any of us anticipated. Those demands arose from the requirements of the medical sector and the introduction of technology which was absolutely essential for good diagnostics.

The public perception is that VHI prernia are extremely costly and members are not covered for all the costs associated with medical care. As a result they are dissatisfied with the level of cover provided. There is also a perception that the cost of medicine is excessive. These costs arise from consultants' fees and the use of technology which is absolutely vital for the detection of disease etc. The problem in the past was that while the costs escalated the VHI had very little powers and could not say, "enough is enough, you cannot increase your costs further". This gave rise to a dilemma in that the costs kept escalating and the premiums had to be increased.

This is a timely Bill in that it gives the VHI an opportunity to look at the structure of the costs charged by those who provide medical and health care services. While competition is to be welcomed the consumer should be warned that there is no assurance it will lead to a reduction in premia in the future, that it will not be the panacea for all the ills in this area. Many people will be disappointed if it transpires that the competition relates mainly to the services and products provided by the health care service as opposed to the real cost of the services to them.

The VHI provides cover for approximately one-third of the population. On the appointment of the chief executive officer, I was interested to hear the Minister say he wanted to see a successful commercial undertaking, a strong marketing force and strong dynamic development. Those of us who have dealt with the public sector and know the cost to the State of providing services welcome these objectives.

Debate adjourned.