,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.