Health Insurance (Amendment) Bill 2012: Second Stage

I move: "That the Bill be now read a Second Time."

I am pleased to address the House on Second Stage of the Health Insurance (Amendment) Bill 2012. As Minister for Health, I am committed to major reform of the health system. My objective is to deliver a single-tier health service, supported by universal health insurance, in which access to health care is based on need and not on ability to pay. The risk equalisation scheme in the Bill before the House today is an important element of this reform process. It will be vital to helping to ensure a sustainable and competitive private health insurance market as we move to universal health insurance.

There are several important stepping stones to achieving the programme for Government goal of universal health insurance. This system will guarantee that every citizen has equal access to a comprehensive range of curative services. The stepping stones to achieving this goal include the strengthening of primary care services to deliver universal primary care with the removal of cost as a barrier to access for patients; the work of the special delivery unit in tackling waiting times and establishing hospital groups; the introduction of a more transparent and efficient money-follows-the-patient funding mechanism for hospitals; and, from 1 January next, the introduction of a robust risk equalisation scheme for the private health insurance market.

The Bill’s main object is to provide for a robust system of risk equalisation. Its purpose is to ensure the burden of the costs of health services are shared by all insured persons by providing for a cost subsidy between the healthier and the less healthy, as well as between the young and the old. The Health Insurance Acts 1994 to 2011 provide the statutory basis for the regulation of the private health insurance market in the interests of the common good. Unlike other types of insurance, in which insurers are free to price policies according to the individual risk a customer presents, the Oireachtas and successive Governments have supported the maintenance of a fundamental principle of community rating in the private health insurance market. Under this principle, insurers must charge the same level of premium for a given level of service regardless of age, gender or health status. This means the premium for a health insurance policy reflects the risk of the insured population in the community instead of solely the risks and costs of individual policyholders.

The principle of community rating, together with lifetime cover, open enrolment and minimum benefit, provide an equitable non-discriminatory regulatory framework for voluntary private health insurance. Under lifetime cover, an insurance contract cannot be terminated by the insurer even as the insured person ages and, perhaps, becomes less healthy. Under open enrolment, private health insurers must accept anyone under the age of 65 years who wishes to obtain private health insurance for the first time, regardless of age. These principles can be considered as the pillars of private health insurance legislation underpinning the operation of the insurance market in the interests of the common good. This long-supported policy is comparable with the way we fund overall health care costs, where the young support the old, the healthy support the less healthy and the better off support the less well-off. This intergenerational solidarity is a fundamental cornerstone of our system. It means that younger people pay more for health insurance premiums than the level of cost they are likely to incur, so that older people pay less as a direct consequence.

The pricing of risk across the community of insured persons clearly requires robust mechanisms to share costs when there are several insurance companies in the market. It is not in the interest of customers, or of our health insurance market, to facilitate insurers in cherry-picking more profitable customers who are less likely to make claims. Internationally, other health insurance systems also work to discourage this practice. Our four open market health insurers, Aviva Health, GloHealth, Laya Healthcare and VHI Healthcare, recently appeared before the Joint Committee on Health and Children. Without exception, they expressed full support for community rating but, unsurprisingly, they have different views as to how it should be supported across the market.

This Bill seeks to strengthen and maintain stability in the private health insurance market. Insurers with the worst risk profiles either charge higher premiums or incur heavy losses. The problem can then be exacerbated as younger customers switch to other insurers where they may find more attractive plans. An outcome of this imbalance could be the creation of a death spiral whereby the business of an insurer with a significantly riskier portfolio becomes unsustainable. This is likely to result in destabilisation of the market, challenging the long-term sustainability of all insurers, with serious potential consequences for consumers as the next insurer with a disadvantageous risk profile then becomes vulnerable.

The standard transfer mechanism to support community rating is called risk equalisation. Community-rated health insurance systems across the world use this as a means of protecting the market. Only through the use of risk equalisation can solidarity and cost-sharing be effectively implemented between the generations who hold insurance and across the insurance market as a whole. The aim of risk equalisation is to look at the market as a whole and distribute fairly the differences that arise in insurers' costs due to the differing health conditions of all their customers. The House will note that the Bill limits participation in this risk equalisation scheme to those insurers operating in the open market. Several other undertakings exist which mainly provide health insurance for certain vocational groups and their families and restrict membership to those groups. As they do not operate in the open market and do not compete for the business of all customers, it would not be appropriate for them to participate in this scheme.

A proper and robust risk equalisation scheme has been long promised and is critically needed at this time. As a forerunner, the interim scheme of age-related tax credits and community rating levy was introduced in 2009 and further extended for 2012 by legislation enacted in 2011. The scheme has made a significant contribution to community rating since 2009 and is, to date, the only scheme that has succeeded in transferring funds from low-risk to high-risk groups. The current scheme expires on 31 December 2012. Accordingly, I am proposing this permanent risk equalisation scheme for the private health insurance market from 1 January 2013.

The approval of the European Commission is required for the risk equalisation scheme provided for in the Bill. The Commission is now examining the scheme's compatibility with the Single Market and, in particular, the conditions laid down in the EU framework for state aid in the form of public service compensation. These conditions are focused on ensuring that a public service - in this case the provision of private health insurance cover - is clearly defined and the basis for the calculation of compensation provided under the scheme is established in advance in an objective and transparent manner. The conditions also focus on ensuring arrangements are in place for avoiding overcompensation, including provision for repayment in the event of any such overcompensation. My Department has been engaged with the Commission in an informal approval process since early this year. Formal notification commenced some time ago and Commission approval is expected shortly.

As I have outlined, the introduction of a permanent risk equalisation scheme will also assist in maintaining a stable and sustainable health insurance market. As the original provider of health insurance in the State following its establishment more than 50 years ago, VHI has a much higher proportion of older customers than the other insurers and, therefore, has the poorest risk profile. There is no doubt that the absence of a robust risk equalisation scheme would result in a more immediate challenge to that company's sustainability than would be the case for the other insurers in the market. However, I emphasise that this Bill is intended to ensure the sustainability of the whole market, not just VHI.

In September 2011, the European Court of Justice ruled against the State on a long-standing derogation from the EU non-life directives. The effect of the derogation had been to exempt VHI from the requirement to be authorised by the Central Bank of Ireland. For any insurer to become authorised by the Central Bank, it is critical for the business to demonstrate that it has a sustainable business plan over the medium term. Accordingly, a corollary of the introduction of a robust risk equalisation scheme is that it would help facilitate the authorisation of VHI by providing greater stability and sustainability.

It should be noted, of course, that risk equalisation alone will not suffice to bring VHI to a position in which it can make an application for authorisation by the Central Bank. I have particular concerns, which I have articulated previously, about the level of costs being incurred by all health insurers. To improve its solvency position, reducing its costs will be more beneficial to VHI than increasing premiums due to the way in which EU solvency rules operate. I have been adamant that VHI must continue to focus on addressing its costs, including the underlying costs of procedures and treatments for which it pays, as well as volume.

The total premium income for the three insurers in the market in 2011 was €1.92 billion, an increase of €360 million, or 23% more than the 2008 figure of €1.56 billion. As of the end of September 2012, some 2.1 million people, 46% of the population, held inpatient plans. In terms of market share, VHI has 57%, Laya Healthcare has 21.5%, Aviva Health has 17.3%, restricted membership undertakings have 4% and GloHealth, the most recent arrival, has 0.4%.

In the year to the end of September there was a reduction of 64,418 in the number of individuals holding private health insurance. Laya Healthcare or Quinn and Aviva Health combined have a 48% market share in the 30 to 39 year age group but only 11% of those aged over 80 years. At the same time, VHI Healthcare continues to have a much greater proportion of members in the older age groups. In the first six months of 2012, it had six times the proportion of members in the over 80 year age group compared to Quinn or Laya Healthcare and five times the proportion compared to Aviva Health.

I am mindful that health insurance is becoming harder to afford, especially for older people, as insurers increasingly tailor their insurance plans towards younger, healthier customers. However, the Government is committed to keeping down the cost of health insurance in order that it is affordable for as many people as possible. As Minister for Health, I have consistently raised the issue of costs with health insurers and I am keen to explore all available measures to limit the costs related to health insurance. The challenge for all of us is to ensure the market remains viable and relevant, especially given its role in supporting the provision of services in the public sector but also as we prepare for the transition to universal health insurance.

There is a new chairman and chief executive at VHI. I have made it clear to both that the focus must now be on cutting the cost of care. This is something on which we are focused in the public sector and it must be the focus in the insured private sector also. There is no clinical audit of VHI or other insurers. This is a practice whereby a like-qualified medic or surgeon may challenge the providing surgeon on why various procedures which may not be deemed necessary were carried out. There is insufficient audit in the ordinary sense in ensuring procedures claimed for were carried out. Everyone in the House knows of anecdotal reports of people examining and paying their bill but not recalling certain named procedures being performed. We continue to pay for procedures at the same rate, some of which used to take two hours and now only take 20 minutes. This issue must be addressed also. The practices we have started to introduce in public hospitals whereby we focus on same-day admission and reduced readmission rates must be introduced in private hospitals. I have encountered cases where people were kept overnight or for several nights for procedures which did not require such a duration of stay. However, because the public and private systems charge on a per day basis, it is in their interests to keep patients in hospital for as long as possible and to perform as many procedures as might be deemed appropriate but which on closer inspection might be deemed unnecessary. We will enter into an arrangement with the insurers whereby the public system will pay per procedure. The hospitals that are efficient and bring in patients on the day of the procedure and ensure early discharge and reduced readmissions will profit and flourish. Those which do not will find themselves in severe difficulties. Given the level of tax benefits given to private insurers, we demand that we receive value for money not only in the public sector but also in the private sector. I am pleased that many private hospitals and VHI are engaging with the public sector clinical programmes to establish what they are doing to see if they can learn certain things and transfer these lessons to the private sector. I welcome this.

I wish to outline the position on charging for public bed occupancy. Under the current legal framework, private inpatients who occupy public beds in public hospitals are not levied the daily maintenance charge which ranges from €586 to €1,046 in most public hospitals. The Comptroller and Auditor General reported in 2010 that 45% of inpatients treated privately by consultants were not charged maintenance costs because they were not occupying designated private beds in public hospitals.

As part of the 2012 budget, I announced my intention to bring forward legislation to provide for the charging of all private patients in public hospitals, irrespective of whether they occupied a public or private bed. VHI claimed that this would lead to premium increases of up to 45%. I was mindful of the significant potential cost implications for private health insurers and, as a consequence, customers. In discussions with the insurers I indicated that I would be prepared to postpone implementation of the legislation until 2013 provided that the funds targeted in the 2012 budget could be raised through a system of improved cashflow. Such a system has been agreed and the legal agreements are being finalised with health insurers. I am considering several policy issues with a view to progressing the legislation in 2013 and their implications in advance of bringing the matter to the Government. The issue will be dealt with as part of the budgetary process for 2013.

When I announced my intention to establish a robust system of risk equalisation last year, I made it clear that I would consult the commercial insurers on the details to ensure the scheme would be as efficient as possible and that it would avoid unnecessary administrative complexity. My Department was pleased to be able to use the health insurance consultative forum which I established late last year for this purpose. The forum comprises representatives of the four private health insurers, the Health Insurance Authority and my Department. Originally, I set it up with a view to generating ideas to help address health insurance costs, while respecting the requirements of competition law. My Department chaired three recent meetings of the consultative forum on health insurance, at which the central focus was on discussing the Bill before the House. These meetings provided insurers with an opportunity to participate in, and directly contribute to, discussions on the planned working of the scheme. I thank the insurers for their constructive input at these meetings and I am pleased to advise that following consideration of suggestions made, I have agreed to propose modifications on Committee Stage. I will address these modifications later.

I wish to outline how the new scheme will support community rating. There are several relevant measures in the Bill. The first relates to the provision of risk equalisation credits, payable from a new risk equalisation fund and administered by the Health Insurance Authority. These are in respect of private health insurance premiums of insured persons aged 50 years and over, based on age, gender and type of insurance cover; and a hospital bed utilisation credit covering each hospital stay involving an overnight stay in a hospital bed in private hospital accommodation. The second relates to payments from the risk equalisation fund to be funded by a stamp duty payable by open market insurers in respect of each insured life covered. The stamp duty will be collected by the Revenue Commissioners and transferred to the risk equalisation fund. There will be four rates of stamp duty, depending on whether the policy provides for advanced cover or non-advanced cover and whether the insured life is that of a child or an adult. The risk equalisation credits in favour of insured persons aged 50 years and over in respect of age, gender and type of cover will be provided at source, that is to say, the gross cost of the policy will be reduced by the amount of the credit. In turn, the insurer will submit a claim to the Health Insurance Authority for reimbursement of the credit from the risk equalisation fund on behalf of qualifying policyholders. This provides that health insurers receive higher premiums in respect of insuring older and less healthy people, and all insured persons continue to pay the same net amount for a given health insurance product. In this way, community rating is maintained, but insurers receive higher premiums in respect of riskier groups to partly compensate for the higher level of claims. The health insurers will also submit claims to the Health Insurance Authority for payment from the risk equalisation fund of amounts due in respect of hospital bed utilisation credits.

Community rating is decidedly important. Many people now in the older age category who perhaps present a higher cost to VHI subsidised the generation ahead of them when they joined VHI. In some cases, this was 30, 40 or 50 years ago. They have a right of expectation and there is no disagreement in the House on the issue of community rating.

I wish to outline the specific provisions contained in the Bill. Section 1 defines the principal Act as the Health Insurance Act 1994.

Section 2 amends section 1A of the principal Act. That section sets out the principal objective which is a clear statement of the public policy objective that the provisions in the principal Act are seeking to achieve. The amendment, first, broadens the scope for sharing the burden of the costs of health services between insured persons by extending the cost subsidy - currently, between the young and the old - to include the more healthy and the less healthy. The more healthy are less frequent users of health services, while the less healthy are more frequent users. Second, the amendment adds a further criterion to be taken into account for the purposes of achieving the principal objective of the Health Insurance Acts, that is, the importance of discouraging insurers from engaging in practices such as market segmentation which might have the effect of favouring the coverage of the more healthy, including the young, over that of the less healthy, including the old. Sections 3, 8, 10, 11, 16 and 19 are technical amendments.

Section 4 amends section 3 of the principal Act. This amendment provides powers for the Health Insurance Authority to make regulations to categorise products. It also removes the requirement for regulations to be approved in advance by the Houses of the Oireachtas. This provision is no longer required as risk equalisation credit rates will in the future be set by an Act of the Oireachtas.

Section 5 substitutes a new section for section 4 of the principal Act to provide for offences. It provides for the conviction of persons and organisations that contravene the provisions of the Act.

Section 6 substitutes a new section for section 6A of the principal Act. It provides definitions and key terms relating to the interpretation of Part II of the Bill and Schedules 3 and 4. Key definitions include "hospital bed utilisation credit", ''relevant contract (advanced cover)", "relevant contract (non-advanced cover)", "risk equalisation credits" and ''type of cover".

Section 7 amends section 7 of the principal Act. In subsection (1)(a) the amendment extends the period of time for which an insurer must maintain the price of a health insurance contract to 90 days from 31.

Section 9 provides for the submission of new and changed existing health insurance contracts to the authority. Clearly, my priority is the implementation of a robust risk equalisation scheme, while minimising the impact on insurers' ability to carry on their businesses.

As I noted, my Department had successful and useful discussions with the private health insurers on the Bill through the consultative forum. As a result of these discussions, I propose to deal on Committee Stage with a number of concerns raised by insurers. They relate, first, to the impact of the product notification periods specified in section 7AB of 90 days for new and changed products and, second, to the definition of products "not providing advanced cover". The amendments will provide for an objective delineation of the product categorisation which, in turn, will allow the HIA to categorise products in a more timely manner than previously envisaged. I will bring forward Committee Stage amendments that will reduce the product notification periods specified in section 7AB from 90 days to 30. I will also deal with the period for which a product must be maintained in the market at the same price, that is, in section 7(1)(a), by reducing this period from 90 days to 60.

Section 12 amends section 7D of the principal Act. The amendment expands the breakdown of information returns which insurers are required to submit to the HIA to include the gender profile and type of cover of each age group in respect of the relevant period.

Section 13 amends section 7E of the principal Act. The current legislation provides for the evaluation and analysis of information returns provided by insurers. This amendment provides for additions to the elements to which the authority must have regard in carrying out its evaluation and analysis of information returns. Following this analysis, the HIA will submit its report, including recommendations for rates of risk equalisation credits for the following year, to the Minister. In the future average claims will be further broken down into sub-groups by gender and level of cover, as well as by age which is already provided for in existing legislation. In addition, it will consider hospital utilisation in respect of each of these groups. In coming to its recommendations the authority will be required to take two further criteria into account: first, the aim of maintaining the sustainability of the market and, second, the aim of having fair and open competition in the market. It will have a serious role in ensuring products are fair and not being developed to segment the market.

Having determined its recommended level of credits, the Health Insurance Authority will also recommend rates of stamp duty which it considers will be required for the scheme to be self-financing. In advance of proposing rates for risk equalisation credits to be set in primary legislation every year, I will consult the Minister for Finance. I will have regard to the principal objective and consider any report furnished to me by the HIA, as well as the aims of avoiding overcompensation of insurers, maintaining the sustainability of the market, having fair and open competition in the health insurance market, and avoiding the fund having a surplus or deficit from year to year based on approved accounting standards. As part of my consultation with the Minister for Finance, I will make recommendations to him on the applicable stamp duty rates.

Section 14 amends section 7F of the principal Act. A key issue for the Minister and the European Commission is to ensure there is no overcompensation of any insurer under the scheme. Therefore, the provisions for conducting the test for overcompensation which have worked successfully under the interim scheme since 2009 will remain in force. The amendment provides that the timeframe to be used for the annual overcompensation test will be a rolling three year basis.

Section 15 inserts new sections, 11A to 11F, inclusive, after section 11 of the principal Act. Provisions for a risk equalisation scheme are set out, including to whom it applies, how it will operate and how an insurer can make a claim for risk equalisation credits. The section outlines the powers of the HIA to establish and operate the risk equalisation fund, as well as powers to make regulations specifying which products it determines to be "non-advanced cover". These products will attract a lower rate of age-related risk equalisation credit and a lower rate of stamp duty.

As I indicated, the risk equalisation scheme will increase the factors to be risk adjusted to include a measure of health status. Where available, pharmaceutical cost groups or diagnostic cost groups are used internationally as an indicator of chronic illness and attract risk equalisation payments accordingly. While these data are not currently available in Ireland to the level of detail required, I am committed to developing proposals to risk adjust based on a measure of chronic illness when the necessary data are to hand. This is an area in which I consider the market operators can be of particular assistance. Once the required data are gathered, I intend to progress work on developing a usable risk adjustment measure for health status. In the meantime, the Bill provides for resource usage to be used as a proxy for health status as a risk factor. Resource usage data are readily available and easy to verify and used in other countries to risk adjust.

I will bring forward a Committee Stage amendment which will provide that in respect of policies effected from 31 March 2013, a hospital bed utilisation credit will be payable from the risk equalisation fund in respect of each overnight stay in a hospital bed in private hospital accommodation by an insured person where the health insurance cover of the person's contract covers that hospital stay. The rate which I will propose on Committee Stage to be inserted in Schedule 3 will be set at a level so as not to encourage inefficiencies in any way. As I stated, we will be looking to charge more by procedure than by bed day because by procedure charging will ensure greater efficiency.

One criticism of the current interim scheme has been that younger persons taking out products with benefits below the standard level are potentially cross-subsidising standard level benefit products taken out by older persons. The provision for differentiated levels of stamp duty and risk equalisation credits for the two types of cover - advanced cover and non-advanced cover - addresses this point. Section 11E requires the HIA to evaluate and analyse each type of contract and ascertain to its satisfaction whether a contract provides for advanced or non-advanced cover and make regulations accordingly. As I mentioned, insurers have been consulted on the Bill and I am happy to be able to signal my intention at Committee Stage to amend the definition of contracts not providing for advanced cover to reflect discussions between insurers, the Health Insurance Authority and my Department. In addition, provision is made for the Minister to make regulations for the making and determining of claims under the scheme. These regulations are being drafted and will be in place by the end of the year.

Section 17 amends the principal Act by inserting new sections 18E, 18F and 18G to provide for the appointment of and the powers of authorised officers of the HIA. These officers will assist the authority and the Minister in carrying out their respective functions.

Section 18 amends section 21 of the principal Act. The amendment gives additional functions to the HIA in administering the risk equalisation scheme. Section 20 repeals sections 12, 12A and 33A of the principal Act.

Section 21 substitutes a new Schedule for Schedule 2 of the principal Act.

The purpose of the framework is to spell out the conditions under which state aid can be found to be compatible with the Common Market, pursuant to Article 86(2) of the EU treaty. An updated schedule replaces the existing framework, 2005/C 297/04. The revised framework is entitled, Communication from the Commission: European Union framework for State aid in the form of public service compensation, 2012/C 8/03.

Section 22 provides for the title, collective citation and construction of the Bill. With regard to Schedules 3 and 4 to the Bill, I expect to have the report of the Health Insurance Authority by the end of this week. Following consideration of that report and consultation with the Minister for Finance, I will propose applicable rates on Committee Stage.

A robust and fair risk equalisation scheme has long been awaited to support community rating in the private health insurance market. I am pleased that I can now deliver on this important programme for Government commitment to put a permanent scheme of risk equalisation in place. This market, like all markets, requires certainty for those who seek to enter it and the availability of the Bill, although it is only now published, provided the certainty to allow a fourth player into the market. That is to the benefit of insurance customers. I commend the Bill to the House.

I welcome the opportunity to speak to this Bill. I also welcome the principle, namely, to place community rating and risk equalisation on a sound statutory footing to ensure that we have equity in the marketplace and that the young, the old, the ill and the healthy are treated equally. That is something that must be part of any civilised society. We must make sure that people have equality of access to private health insurance regardless of age, health status and so forth.

One thing that was notable by its absence from the Minister's speech was the mention of people who take out private health insurance. The Minister spoke a lot about private health insurance companies and the industry itself, but the key is that we have people who are willing to take out private health insurance. In the context of the debate to date, I find it amazing that the view persists that those who take out private health insurance are in some way elitist and enjoy an advantage over others. The vast majority of those who take out private health insurance have already made a substantial contribution to the Exchequer, which provides public health and other services, through general taxation. It is after making that contribution that they pay for private health insurance to insure themselves in the event of illness or a need for medical treatment. Very often, that medical treatment is provided in public hospitals. The problem I have with full cost recoup for people who are treated in public beds as private patients is that it will inevitably lead to an increase in the cost of private health insurance. We are talking this evening about community rating and risk equalisation, but for that to succeed we must have a continuous stream of young healthy people entering the private health insurance market so that there is cross-subsidisation of those who are older, sicker or require more treatments and who are, by extension, more expensive for health insurers. What is absent from this entire debate is a policy that will encourage younger people into the health insurance market. The four insurers recently appeared before the Joint Committee on Health and Children but not one of them could outline what is required to ensure that we have a continuing stream of younger people taking out private health insurance. If one looks at the statistics, it is quite evident not only that young people are not entering the private health insurance market but that many who have entered it are leaving again or reducing their cover. If that continues, we will not have intergenerational solidarity, cross-subsidisation, risk equalisation, community rating or whatever one wants to call it, because we will have a diminishing market in which only those who are older and perhaps less healthy will be cross-subsidising each other. That will be utterly unsustainable in the long term. We must have a health insurance market that is sustainable and that attracts younger people so that the cross-subsidisation and risk equalisation that this Bill proposes is possible. That is not the case at present.

If one looks at past statements by the Minister for Health one can see that he condemned any increase in insurance premiums, but we are now talking about increases of between 15% and 20%. VHI stated that if the Minister went ahead with his proposals for full cost recoup from private patients in public beds, as announced in last year's budget, it would have cost that company approximately €200 million, which would have led to premium increases of as much as 45%. How that proposal was included in the budget baffles me to this day. Last year, the Minister announced in the House that he intended to charge insurance companies full cost for the use of public beds for private patients, which would be anything from €560 to €1040. That would have had a devastating impact on the market. I raise this issue because I am not sure that anybody in the Department of Health fully understands the complexities of health insurance. If they did, they would have begged the Minister not to go ahead with this policy proposal. How he could walk into this House and say he was going to do it is beyond me. If he was allowed to do that, it suggests that those who are advising him - if he listens to advice - do not fully understand the market. That policy would have had a devastating impact on the ability of insurers to keep their premiums low, to attract younger customers and to cross-subsidise. Actuarial studies show that the only way a vibrant insurance market will work is to have a continual flow of new entrants who start early, contribute and cross-subsidise. If we do not accept this simple premise then this legislation, while noble, will fail, because the market will not be sustainable. The figures are there to prove the point.

VHI, a State insurance company, is not sustainable as currently structured. It must meet minimum capital requirements for licensing purposes but the fact that the profile of its customers is much older and it cannot attract younger customers simply means that it will haemorrhage money. The more money it haemorrhages, the bigger the problem for the State in terms of trying to ensure it is fit for purpose, qualifies for licensing and can go about its business. There is a lot of work to be done in this regard.

My party has supported community rating and risk equalisation for some time, but Fine Gael previously opposed it. In 2006 the current Taoiseach said he was not in favour of risk equalisation. Deputy Olivia Mitchell, the party's former health spokesperson, said that she had major concerns and would oppose risk equalisation. In that context, at least the party has come around to the idea that risk equalisation is part of social solidarity. However, the Government must accept that the full cost recoup policy it is pursuing will have a very damaging effect on the health insurance market. It will only lead to an increase in the cost of premiums, which in turn will lead to fewer people taking out health insurance. That will mean that older people will have to pay more for health insurance cover. It is as simple as that. No matter what way one looks at it, that cannot be denied. It is a mathematical, statistical, actuarial fact. Until such time as we deal with that in an honest and fair way, we will have major difficulties. We can have every insurance company there is entering the market and providing cover but the bottom line is that if they are providing cover in a shrinking market they will have to find some way of subsidising older people. Otherwise the cost of cover for older people will not be sustainable.

We must have an honest debate on the full cost recoup policy and I welcome the fact that the Minister has delayed its implementation. I have heard people ask why the State should subsidise those who take out private health insurance, but such people are taxpayers and are making an enormous contribution through their private health insurance to lightening the burden on the State. If it is not as if they are obtaining runaway supports over and above those who are uninsured. If the private insurance market collapsed in this country the public health system could not meet the demand that would be placed on it to provide health care for those who currently have private health insurance. It simply could not do it. Privately insured people are lightening the burden on the public health system. We can have an ideological or philosophical debate about what type of health system we want, but we must deal with what we have in place now.

The Minister has promised to change the system and stated that there will be universal health insurance. The difficulty is that we are still unsure what type of universal health insurance model he prefers. He had a fascination with the Dutch model but while that might be a very fine model I am not sure it is suitable for this country given the number of possible entrants to the market. The Netherlands has a population of 22 million in a relatively small land area, which allows hospitals to be grouped. I do not believe the number of entrants to the Irish market will be sufficient to provide competition for universal health insurance. The then Minister of State at the Department of Health, Deputy Róisín Shortall, stated in this Chamber that she was not sure what type of model would be used. This is critically important. Will the system be based on the European model or the United States model? Will it be based on social insurance or the open market, which will mean the insurers can dictate the types of treatment and policies available to individuals? The Minister asserts that a suite of treatments will be defined in legislation and made available. First, however, we have to find out what type of model will be used. His infatuation with the Dutch model appears to have diminished recently.

When a public health system operates alongside a system of private health insurance, private health insurers are equally subsidising the State because if individuals were not taking out insurance the State would have to provide care for them. We are obliged to provide care for every citizen of this country. It is not the case that the public purse is solely subsiding the private system. Citizens who take out private health insurance are subsidising the State through their taxes and willingness to make sacrifices in other areas. Many people cannot afford private health insurance, and we must provide proper facilities and supports for them, but many others make huge sacrifices to take out private health insurance. These ordinary, middle-of-the-road people are subsidising the State because they are reducing the burden on the public health system. There appears to be an undercurrent of sneering against those who take out private health insurance.

VHI is a critical player. It is the dominant insurer in the market, with 58% of premiums. Approximately 80% of insurance moneys paid out come from VHI. That is not sustainable over the longer term. If it is to be licensed to function without exemption it will need to meet capital requirements and develop a sustainable business plan. It meets neither of these requirements. It is trying its best to develop a business plan but it will need time and certainty regarding full cost recovery. I welcome the fact that the Minister postponed the mad notion of introducing full cost charging from 1 January 2012 because of the massive impact it would have on VHI. It must be delayed further, however, because it needs to be introduced incrementally over a number of years if the VHI is to have a chance of surviving. We should be finding ways of making VHI fit for purpose in terms of universal health insurance. It could be a State asset and if its sustainability is ensured it can be sold, developed or split up to ensure competition in the market. It cannot be given away, never mind sold. It is not a State asset; it is a State liability. Its current customer profile, which is dominated by older people, is unsustainable. It needs to become more efficient by ensuring the supplier-induced demand theory does not increase its payouts.

When premiums increased by a small percentage in January 2011, the Minister, who was then in opposition, claimed it would be the straw that broke the camel's back. There have been several increases since then. The camel's back is broken and it is lying in the sand. Risk equalisation is a noble idea which promises intergenerational solidarity. We supported risk equalisation from the outset, but if it is not sustainable it will fall down around us and universal health insurance will not function. Last year the Minister waltzed in and announced that from January 2012 he intended to charge private health insurance companies full cost for treatment of private patients in public beds. I was stunned when I heard that, as were the insurers and those who cannot afford to give any more. We speak about the squeezed middle in Ireland. Most health insurance customers are ordinary people. They work and save to take out private health insurance for a rainy day. It irritates me that premiums are continually hiked in the belief that people will continue to pay for them. The figures reveal a dramatic decrease in the number of people who have private health insurance - a reduction of 60,000 over a 12-month period. Others are downgrading their cover, and it is forecast that a further 120,000 people will drop out over the next two years. These are the younger people. If they are dropping out, who will subsidise the older people? We have to be imaginative in persuading young people there is value in taking out private health insurance. The uncertainty of the Minister's Holy Grail of universal health insurance does not encourage people to do so. We were promised that the roll-out would begin with free GP care, but that is a myth because nothing is free. The universal health insurance commission must publish its report so we can hold a debate on the type of model we want.

Supplier-induced demand is a concept most economic commentators understand, but it must be explained to lay people such as me. I have seen supplier-induced demand in practice. When one has private health insurance one gets the MOT at its best. One is whipped in, gowned down and administered test after test. The problem is that the tests may not be necessary. A problem also arises in regard to going home from hospital at the weekend. In some private hospitals it is not possible for a patient to discharge him- or herself until the following Monday.

They will keep the patient over as there is a charge per night, despite the fact that he or she needs little care or has no serious problem. This charge is the cream or profit for the private hospitals and there is no point in pretending this does not happen. It happens week in and week out. VHI and all other insurers must ensure they tighten up on this issue.

We have all heard the anecdotal stories. I am sure there is not a Deputy in the House who has not met somebody who questioned the amount of money paid to a private hospital by his or her health insurer. A person came to me once whose Bill had amounted to €18,000 or €19,000. When that person questioned the amount, he was told emphatically that it was not his concern. However, it concerns all of us because these charges are lumped into our premiums. We need to ensure there is a clinical audit to discourage induced demand in order that it does not encourage the medical industry to start providing tests and treatments and other ancillary services that are unnecessary. Unfortunately, however, this happens from time to time.

Same day admittance is a key issue. It is also important that people get home earlier and that they not be required to wait until the Monday morning to be discharged. As we know, the only reason they are being kept in is the empty bed costs the private health provider money. These issues can be dealt with through clinical audit and other forms of auditing to ensure efficiencies. Private health providers must be forced to provide a streamlined and efficient health care system funded by private health insurance, without those paying for private health insurance being flogged to death by the need to save money to pay their premiums, but this is what is happening. Recently, people spoke on radio programmes about the decisions they had to make. They must choose whether to prioritise paying for insurance. The father in a family of a husband, wife and three kids said he had to stop paying for insurance for himself because he could not afford to pay the premium, but his wife and three children are insured. People must choose between filling their oil tanks and paying their private health insurance premiums. They are being put to the pin of their collar. Any forthcoming policy proposal from the Government must be focused on ensuring there is no upward pressure on premiums.

In the meantime, private health insurers and providers must be audited and monitored to ensure there is no fat or leakage with regard to costs and efficiencies in the system. This is the key to ensuring that whatever insurance model we end up with will ensure we have a sustainable private health insurance market. The Minister's policy should be to encourage as many as possible to take out private health insurance in the meantime. He is moving towards a universal health insurance model under which it will be mandatory to have insurance. Therefore, if people can afford it, they must take it out. If they cannot afford it, a process will be applied whereby the State will pay. I assume the model is of that nature. We can argue whether it will be a social insurance model, but the principle behind it will be that it will be mandatory to take out private health insurance if a person can afford it and if not, the State will pay. At this stage, the Minister should be trying to encourage as many as possible to take out health insurance in order that when the shift towards the universal health insurance model takes place, fewer people will have to start the process.

I welcome the consultative forum, although it is the oldest trick in the book to set up such a forum, let it play hard ball for a while, get involved in horse trading and eventually announce that it is very happy with the progress it has made with the Department and the Minister and that as a result some amendments will be made on Committee Stage. It is a little presumptuous to expect the Bill will pass through the House. Perhaps there will be no Committee Stage debate and the Bill will fall before that Stage is reached. However, it is welcome that the consultative forum is working and that the Minister has made changes such as changing the duration from 90 days to 60 and other similar changes.

The consultative forum should, perhaps, have been set up earlier to avoid the difficulties we have with the overall budget. Health insurers are providing cash flow for the Minister to keep the show on the road. They are front-loading their payments to him to the value of €125 million for treatments that will be provided in 2013. It is as if they are providing a short-term overdraft facility for him. That is what it is and this has happened because he included this method of charging private health insurers the full cost of treatment in public beds. That is why we have a hole in the budget and the reason we have had cutbacks to home help and home care packages and other difficulties. It is due to the unsustainable nature of the health budget.

That brings me back to the question of how this could have happened. Was the Minister not listening? Was he not told, or does anybody know? The proposal brought forward by him to apply the charge would have had a devastating impact on the capacity of insurers, particularly VHI, to continue to function as health insurers. It would have cost VHI approximately €200 million, resulting in an increase of 30% to 40% in VHI premiums. This would have had to happen within one year. Thankfully, the Minister saw sense. More importantly, he must now ensure the Bill is not introduced quickly such that it will cause panic next year. We must ensure we allow for a sustainable, incremental introduction period in order that insurers can find their feet, the capital ratios and attract more people by retaining lower insurance premiums.

The figures for private health insurance are alarming, but I do not intend to read them all. The total number aged under 17 years insured by the three insurance companies - before GloHealth which is at a figure of 0.4 % entered the market - Aviva, Laya and VHI, was 496,000 in 2007. By 2011, this figure had reduced to 494,000. However, there is a big problem in the case of those aged over 80 years. In 2007 some 33,900 of those aged over 80 years were insured. This figure has risen to 44,250. What is happening is that younger people are dropping out of the health insurance market, at a time when people are living longer generally. This shows that advances in medicine and changes in lifestyle and diet are having an impact. Fewer people are smoking and people are living longer. However, how can we sustain a position where numbers are increasing in the insurance market in the over-80 age bracket, but fewer are committing to taking out private health insurance? If anybody on the Government side can tell me how we can do this, I would be delighted to hear how. Unfortunately, we are sitting on a demographic land mine in this regard.

While my contribution may have sounded negative, it is because I was trying to offer advice more than anything else. I have always tried to be constructive in opposition, but it is very difficult to be constructive having observed destructive opposition for many years. I am trying to change the tradition and come up with ideas. I welcome the Health Insurance (Amendment) Bill. It is important it is being brought forward and that we promote the noble concept of intergenerational solidarity. At the same time, if we are to be fair and honest, we must bring forward a mechanism and policy changes to ensure premiums will be retained at levels people can afford. I commend the Bill to the House and look forward to the broader discussion that will take place on Committee Stage.

Debate adjourned.