JOINT COMMITTEE ON HEALTH AND CHILDREN debate -
Thursday, 23 Jun 2005

Health Insurance Regulations: Motion.

Chairman: I welcome the Tánaiste and Minister for Health and Children, Deputy Harney, to speak on the motion on the Health Insurance Act 2001 (Open Enrolment) Regulations, 2005, the Health Insurance Act 1994 (Minimum Benefit) (Amendment) Regulations, 2005, and the Risk Equalisation (Amendment) Scheme, 2005.

Tánaiste and Minister for Health and Children (Deputy Harney)

I thank the committee for facilitating the proposed changes to the health insurance regulations. The motion seeks the approval of the Houses of the Oireachtas of draft regulations to be made under the Health Insurance Acts. Three sets of regulations are involved, the Risk Equalisation (Amendment) Scheme 2005, the Health Insurance Act 1994 (Minimum Benefit) (Amendment) Regulations 2005, and the Health Insurance Act 2001 (Open Enrolment) Regulations 2005. Copies of these have been laid before Dáil Éireann and Seanad Éireann. Amendments are proposed to the risk equalisation scheme and the minimum benefit regulations, while the open enrolment regulations are to be replaced.

Under the risk equalisation scheme, insurers make periodic returns covering January to June and July to December. It is desirable, therefore, that any amendments to the regulations be made in advance of 1 July 2005, the first day of the next six month data return period. The proposed amendments arise from the Health Insurance Authority's working experience of the scheme. Amendments (b) to (d) introduce a provision that specifically recognises the authority’s powers of interpretation of the scheme. Three substitutions for existing definitions are also proposed. The purpose of these changes, which are linked, is to clarify the existing definitions for the claims taken into account in the scheme for the purposes of calculating risk differentials and also potentially risk equalisation payments. The changes provide that all claims settled in a particular period, with the exception of claims in respect of any person who is serving a waiting period for eligibility for services, qualify for inclusion.

The need for the proposed changes was set out in the authority's first two reports made under the risk equalisation scheme, in which it addressed consistency of returns and the need to address differences in interpretation of definitions. As mentioned, the purpose of these changes is to clarify certain definitions and not to change the purpose or scope of the scheme.

Section 8(6) of the Health Insurance Act provides that adult members of restricted membership undertakings who have opted out of risk equalisation are to lose their rights to have previous cover recognised when moving to other insurers. Under article 4 of the risk equalisation scheme 2003, the Garda and Prison Officer restricted membership undertakings availed of the opt out provision. Section 8 also provides for the extension of the right to take out health insurance to persons of all ages. Previously, there was no obligation on insurers to cover persons aged 65 years and over who were not renewing cover.

In replacing the existing open enrolment regulations, the proposed regulations provide for these changes while retaining the basic structure of the existing regulations for the serving of waiting periods before cover takes effect. In a community-rated market it is necessary to have protections in place for the insurers operating in the market and for the market itself.

As set out in the White Paper on health insurance, the proposed regulations provide for an initial waiting period of 104 weeks for persons aged 65 years and over who are not renewing cover, while retaining the existing waiting periods for those under 65 years. which is 52 weeks. For pre-existing conditions, it is proposed that the existing waiting periods be retained.

The envisaged amendments are limited to updating references to the proposed open enrolment regulations contained in the minimum benefit regulations and, likewise, substituting the term "relevant" for "ancillary" in line with that change made in the 2001 Act.

Deputy McManus

I thank the Tánaiste for explaining these proposals to the committee. These are largely technical changes and do not appear to raise any difficulties. They are in line with the recommendations from the health insurance authority. However, we are debating a matter that is very opaque. It has been made so unnecessarily as we did not receive the statutory instruments. I had to get them yesterday from the Library.

The explanatory memorandum of statutory instruments does not explain much. In one statutory instrument it simply states the scheme amends the risk equalisation scheme. That is hardly informative. I have no basic problem with what has been said but I am not absolutely confident that I can make a judgment on the proposals. It concerns me that I have not been able to scrutinise the proposed changes. I did not have the necessary material and the explanations are unclear and deficient. I support risk equalisation as it is a vital component in the balancing the community-rated scheme and ensuring there is no cherrypicking by the health insurers.

Were these amendments produced by the Office of the Attorney General or the Department of Health and Children? Will the Tánaiste explain the implications of the court case taken by BUPA Ireland? I am not clear what is being done for the 65 year olds category.

Deputy Harney

I understand the draft regulations were circulated to the committee a week ago.

Deputy McManus

The Tánaiste has used references to amendments (b), (d), (e) and (f). However, the difficulty was that we did not receive copies of the statutory instruments.

Deputy Harney

I have been advised the briefing note was sent on 16 June. Technical changes, even when explained by my wonderful officials, may seem strange.

We believe the authority has the power of interpretation. However, because we are in a litigious environment we want to put that beyond doubt. This is the purpose of the changes. Health insurers did not have to take on over 65 year olds but now they will. If an over 65 year old person has not been in health insurance before, he or she must wait for 104 weeks before cover is given, except if he or she is in an accident. Regarding the BUPA Ireland court case, the court made a decision that the Minister can proceed to trigger risk equalisation. This decision has to be made on Monday, 27 June. No money can be paid over until the outcome of the case. That was the outcome of the court proceedings. Risk equalisation is important if we are to maintain community rating.

The Garda and prison schemes have opted out of risk equalisation and therefore will not get the benefit of it. If they wish to move they must go through the waiting period rather than being automatically covered if they join BUPA or VHI. The ESB opted in for risk equalisation but gardaí and prison officers did not.

Deputy McManus

Were these produced in-house?

Deputy Harney

They were produced in-house in consultation with the Office of the Attorney General.

Deputy F. O’Malley

We have had quite a few discussions with the Health Insurance Authority and the insurers and some people have different attitudes to risk equalisation. Those of us who attended the second meeting with the HIA came to the realisation that the legislation as drafted is flawed. The accounting periods do not relate directly to one another and we had an informal discussion about the matter afterwards. Professor Wood said that once started, risk equalisation is very hard to stop. We spent quite a bit of time looking at the flawed legislation. Should we not repair this before we start to activate risk equalisation because it will be impossible to stop?

The Minister must make a very important decision on Monday which will have an impact on market stability. The rate of health insurance has increased greatly since competition entered the market and BUPA and VIVA are to be welcomed. It is a pity they have not competed aggressively on price and it is not a perfect market. However, I am very worried about the impact of risk equalisation. Does the Minister agree or have anything to say about amending the legislation before triggering risk equalisation? She is not required to trigger it on Monday. She must only make the decision as to whether she will do it. Perhaps the market is too tender at this time.

Deputy Harney

That is correct. The decision is for the Minister for Health and Children. The authority gives advice and the Minister makes a decision. I do not believe there is any fault in the legislation. There are issues regarding risk equalisation. One cannot have a community-rated system if one does not have risk equalisation. It is not a level playing field if one insurer has all the people from a vulnerable group, such as those over the age of 50 years, and another insurer has everybody under that age. Risk equalisation is not about subsidising inefficiency, but about younger people subsidising older people. I know of no country with a community-rated system that does not have risk equalisation.

On the other hand, we must be mindful of competition. One player has 80% of the market, another has 19% and the new player has 1%. In an ideal world it would be better if the three players has some 30% of the market each. That is real competition. The onus is on the Minister for Health and Children to take all of these factors into account when making a decision, which is what I will do next Monday.

Deputy O’Malley

Would the Minister consider restructuring the VHI into smaller groups before triggering risk equalisation? Being a dominant player is not very fair.

Deputy Harney

There are two issues. The VHI has a derogation, so it does not have the same requirements as the other players. It is my intention to establish the VHI as a commercial State body and end derogation, although I must get Government approval for this and intend bringing forward legislation in this regard. People will then be able to compete on a fair basis. However, that is separate to these issues. We must achieve this going forward and it is my wish to do so. I recently had discussions with the VHI, which has been before the committee. It favours mutualisation but that would not be my preference and would not be in the interest of the market. The matter must be subject to consultation and a Government decision.

I do not accept what Deputy O'Malley says about the Act, although I know some of theplayers were making the same point and this will be tested in court proceedings. Other issues have been referred to Europe and will also be tested. However, the principle of risk equalisation is simply that younger people subsidise older people, which is right, and represents inter-generational solidarity. Otherwise, 52% of the population will not have private health insurance. The UK figure is 11% and it is no higher than 20% in many other countries. It would not be affordable if people had to pay the full economic cost of their insurance. The over-60s would find it totally prohibitive to have any private health insurance and only a very small percentage of the population would be able to afford it.

Deputy Twomey

There is a waiting period of two years for anybody over the age of 65 years and one year for anybody under that age. If one joins at the age of 64 years and nine months, one must wait 12 months. However, there is a delay of two years if one waits four months. Would that not raise problems with regard to the equality legislation in that one would be discriminating against a person on the grounds of age?

Deputy Harney

The equality legislation to which the Deputy refers does not apply to insurance.

Deputy Twomey

What is the Minister's view of Deputy O'Malley's comments? Risk equalisation is part of a community-rated market. However, as the Minister pointed out, VHI has 80% of the Irish market. Is she thinking of going the same way as the Bell telephone company in England by creating a number of baby VHIs for the different regions?

Deputy Harney

I am not thinking in that direction. If one was starting from a green field site, one might like things to be different. However, we have open enrolment and much brand solidarity and affinity. If a Minister decided to break the VHI into three components, one would not be able to stop the three going back to one. It would be an administrative nightmare.

It would be wonderful if we could get the other main market player or the new entrant to take 20% of VHIs over-50s. We would then have a more level playing field, but that is also a difficulty. There are no easy solutions to the challenges we face. It is a question of balancing the effects on competition in the market while ensuring a proper functioning insurance market with the need for risk equalisation in a community-rated system. That is the decision which must be made. I have many advisers, both internally in the Department and externally. Mercer is also advising the Department on these matters. It comes down to judgments and decisions.

Deputy Twomey

When can we expect the Minister to make a decision?

Deputy Harney

I must make the decision next Monday.

Deputy Twomey

One way or another.

Deputy Harney

There is a legal process which must be strictly adhered to for all sorts of reasons.

Deputy O’Connor

I welcome the Minister. It is always good to see her attend the committee. The term "baby VHIs" will now become the soundbite of the day. I had hoped that the term "real competition" would be the soundbite because that was the point made by the Tánaiste. As I attended the hearings, that was the message I received. On a number of different occasions, I asked how consumers will be served by this process and it is important that they should be. I made the point to the delegation from VHI that I found it difficult to grasp this particular subject because their presentation dwelt so much on BUPA Ireland rather than on the VHI itself. I am sorry if that upsets them, but that was my sense. I am still trying to grasp this issue. I hope she will not take offence, but I am trying to look into the Tánaiste's mind in order to figure out whether the committee's work this morning will have an impact on what she might do in terms of addressing the jury of public opinion.

Deputy Harney

The last man to do that played a major role in the Deputy's party.

Deputy O’Connor

I ask the Minister not to get me into any trouble.

Deputy Harney

I believe "looking into the heart" was the expression.

Deputy O’Connor

The Minister understands my point. I am trying to establish the importance of the contributions we might make this morning. This is an important matter. During the various hearings, in which I took much interest, one point that struck me was that risk equalisation will raise prices. In its report to the Minister the HIA stated that that it agrees that risk equalisation is likely to raise average premiums. I wonder how the public will react to that. The HIA's statements about the current stability of the market should also be taken into account. It stated that currently, the market appears to be stable, in that it is not clear from the evidence available that instability is imminent or will inevitably arise as a result of the absence of risk equalisation. It struck me, listening to the various presentations, that BUPA Ireland is being asked to pay over twice its profits to a competitor four times its size every year. There are many issues involved. Deputy Fiona O'Malley made the point that during the various hearings, the committee members all tried to grasp these issues but in the end, the picture was still somewhat fuzzy.

The Tánaiste should also understand that as far as this question is concerned, a number of issues have yet to be addressed. Without wishing to repeat my previous point, the jury is out and I am not convinced. I note Deputy McManus's comments but it is not clear that the public will benefit from a particular decision in respect of risk equalisation.

Deputy Cowley

I welcome the Tánaiste and her official. I welcome the idea of risk equalisation and I do not see a problem with those amendments. More than half the population currently has private health insurance. People feel compelled and pressurised to have it. I know from dealing with people that if one must wait for five years to have a 20 minute operation, as must people with urology or prostate problems, or if one must wait for months for a cancer appointment, one will break down doors to try to get health insurance whether one can afford it or not. It is only right that people should be facilitated.

However, it is taking the wrong end of the cart. The emphasis should be on trying to help people rather than on the for-profit industry. The housing situation is similar. The skyline is full of cranes building houses into which the Government can put people while paying others to make a profit. If one must wait that long, the emphasis should be on supporting the existing private services. This is where the emphasis is wrong. It is likely that people would be better served if, for instance, there was a urologist in Mayo General Hospital, rather than having 20 people, or ten new people, seen per month. The list goes back to 1998 for people to have prostate operations which is a long time.

Chairman

I ask the Deputy to debate the issue before the committee.

Deputy Cowley

The issue before the committee is health insurance and attempting to ensure that people over 65 can get it. However, my point is that we should emphasise people rather than competition or profit. This is the way forward. For example, in Mayo General Hospital, I started a campaign for an orthopaedic unit which would not be there under the terms of the Hanly report. That unit was closed from January until a week or so ago. In the meantime, people travelled to Galway. The same surgeons were paid to go into——

Chairman

I ask the Deputy to concentrate on dealing with the issue before the committee.

Deputy Cowley

The question is if the Minister——

Chairman

This is a question session.

Deputy Cowley

It is a question session but it raises some important points.

Chairman

The Deputy has been making a speech. I must ask him to ask a question.

Deputy Cowley

It is not a speech. It is simply a plea on behalf of the people who must wait for five years. If one gives a man a fish, one feeds him for a day, while if one teaches him to fish, one feeds him for life. A similar situation arises if one supports local services. While critics of the Hanly report are often accused of not having an alternative, it is to support local services. If the Tánaiste did so, there would be less need to discuss health insurance and a greater emphasis on treating people and ensuring they are not obliged to wait for five years.

Chairman

The agenda this morning is specifically concerned with this issue. I ask him to ask a question. Other members are waiting to contribute.

Deputy Cowley

I pose this question. The philosophy appears to be more important than people. I want the Tánaiste to address that point.

Chairman

That is good enough.

Senator Browne

I have two brief questions. The Tánaiste often mentions the word "competition". We abuse the word in Ireland because we do not understand it. During the joint committee's hearings I learned of the term "shadow pricing" and was appalled to learn that both BUPA Ireland and VHI have increased their prices by 98% since 1997. What steps can or will the Minister take to ensure that shadow pricing will not simply continue, and that we get genuine and real competition? The joint committee heard that almost 50% of the population has private health insurance and my understanding is that, roughly speaking, 25% have medical cards. Hence, another 25% have neither medical cards nor private health insurance and surely they must be a cause of great concern for everyone. What steps does the Tánaiste plan to take to give them a decent level of medical cover and to bring them inside the loop?

Chairman

We will take one or two further questions in this round.

Senator Feeney

I also welcome the Tánaiste. I agree with the her when she states that it is not fair to have one insurer covering all the over-50s. However, during the discussions that took place when the insurers appeared before the joint committee, I pointed out that one company, the VHI, has been operating for 47 years. It was born and grew up here. Most people who are over 50 have grown with them. I am covered by the VHI and have been since I was a child. As a nation, we do not like change. Personally, I am too lazy to change from one telephone company to another or to change from one health insurer to another. I remain where I am, complain about the premium but go along with it.

The VHI told the joint committee that it had the burden of covering many older people, particularly clergy, nuns and the religious orders. While it did not complain about having them, that was its the type of customer. My point is that it has such customers because it has been in the market for 47 years and for the bulk of that period it was a sole trader. It did not have a competitor as BUPA Ireland only came on the scene in the last ten years.

Like Deputy Fiona O'Malley and others, I have concerns. As the Chair is aware, the committee members have spoken about this issue off the record. For instance, if risk equalisation is introduced as appears likely, I am worried about what will happen to the BUPA Ireland customers. Will they see an increase in their premia? If so, I can state with certainty, given the feedback I have already received, that they will be angry and annoyed. As Deputy O'Connor has observed they see a doubling of BUPA Ireland's profits which will not go back into community rating or be for the consumer's benefit but will go to two companies which are already wealthy. There will be a huge backlash against the Government if this goes ahead.

Senator Henry

I welcome the Tánaiste and Minister for Health and Children. What she and Senator Feeney said about brand loyalty is very important. Having worked in the health service for decades, I have rarely found that people have complaints about the VHI. Therefore, few of them see a reason to change. However, the new companies are attracting younger customers. It is important to remember that they knew about the principle of risk equalisation when they entered the market.

I would like to comment about the increase in membership which, unfortunately, is not due to competition in the marketplace but the concern of the general public that it will not be served by the public health service. I am sure the Tánaiste does not wish to see this happen, anymore than the rest of us. Even with risk equalisation, will the insurance companies be able to deal with the enormous increase in the number of private hospitals? The Tánaiste may be aware that a number of people who have a great deal of experience are issuing warnings about this. I remember being in Detroit approximately ten years ago when both private hospitals and private insurance companies went into liquidation.

Deputy Cooper-Flynn

I also welcome the Tánaiste. What other options has she considered? The HIA report stated it would be preferable if the concept of unfunded lifetime community rating was introduced. Will she explain this option and why she has disregarded it?

Deputy Harney

A number of issues have been raised. Deputy Cowley spoke about people and profits. I do not disagree him but he is a GP and I am sure his practice makes a profit. If it did not, he would not be in business. We must be realistic. There is nothing wrong making profits and health is big business. The Government spends €12 billion per year on the health service. It is about providing a service for patients in the most cost-effective way, be it in the public or private sector.

In Ireland we have a system under which everybody is entitled to universal coverage. This is a fact, yet 52% of the population have private health insurance. One of the reasons the figure has increased beyond 50% is many companies now provide private health insurance for their employees. This has introduced a new class of individual to the private health insurance market, which I very much welcome.

It would be wrong of anyone to assume he or she knows the decision I will make next Monday. I have not yet made my decision and will not do so until Monday. The VHI spends approximately €700 million per year on people over the age of 50 years. Thankfully, in general, younger people do not have a bad claims record with insurers, although we do not get all the benefits of our younger population because our people are not as healthy as those in other countries.

The purpose of risk equalisation is to maintain the concept of community rating which means everybody pays the same for the same package of benefits, regardless of age and claims experience. That is the principle. It is not about subsidisation of one company by another.

Reference was made to BUPA which makes substantially more in profits in the Irish market than it does in the United Kingdom where, I think, its profit margin is approximately 5%. I think its profit margin here is in double figures. It is important to remember this point. The way to secure true competition is to allow at least three players to compete in the market. Generally, when there are only two, one company trails the other in prices.

Senator Feeney is correct in saying people do not tend to change their private health insurer. I am a VHI subscriber. People also do not tend to change their lawyer, doctor or insurer for many reasons. If they are satisfied with the service they are receiving, they do not feel the need to change. We all sign standing orders on our bank accounts. They continue for years; I think I have been a member of the VHI for approximately 28 years. Now that I have entered the problem age bracket — the over-50s — I do not feel the need to change. It had not been put to me before that the VHI had an abundance of nuns and priests but I do not believe they impose a larger burden than any other group. They probably impose less of a burden than others.

I do not know whether I have covered all of the issues raised. Perhaps it would be better to have a discussion about the reasons behind the decision I will make on Monday and the other options available.

Senator Browne

I have a query about shadow pricing vis-à-vis competition.

Deputy Cooper-Flynn

What about the recommendations made in the report on lifetime community rating?

Deputy Harney

I understand it means that effectively when a person joins a private health insurance scheme, he or she will start putting money away for when he or she is over 50 or 60 years of age.

Deputy Cooper-Flynn

They start putting money away for a rainy day.

Deputy Harney

It is more like an investment in one's health needs of the future, like a pension fund.

Deputy Cooper-Flynn

The principle is very interesting because it means that each individual funds the totality of his or her insurance costs over his or her lifetime.

Deputy Harney

We could decide to trigger it for young people in order that 30 years from now this issue would not be a problem but what would we do with the existing cohort of over-50s? Can one imagine the amount this group would need to put aside to provide for their health needs?

Deputy Cooper-Flynn

What if it applied to new entrants only and the existing system covered existing members? Is that not the fairest form because each individual equalises his or her own premiums throughout his or her lifetime from the time he or she enters the scheme?

Deputy Harney

Risk equalisation effectively means that those in their twenties and thirties subsidise people over 50 years of age, particularly those over the age of 60 years.

Deputy Cooper-Flynn

Now it would be an 18 year old subsidising his or her own premium by paying slightly more now to fund himself or herself when he or she is 60 years of age.

Deputy Harney

Many submit virtually no claims over their lifetime. If one were to add up what we have all paid over 28 years and inflation-proof it, it would come to quite an amount. In the years ahead we will be claiming on that figure. There is no country with the system we operate that does not also apply the concept of risk equalisation. For example, in the United Kingdom only 11% have private health insurance, even though 17% of the population are over 65 years of age, compared to a figure of 11% in Ireland. Community rating, which means one does not pay a different amount for the same package on the basis of one's claims history or age and young people effectively subsidise the old, is the only model that will work. It is the same, regardless of whether one starts in one's twenties.

Deputy Cooper-Flynn

It is the same but is it not fairer to the insurance companies, given their market share? In its report the HIA states it cannot disregard any potential effect introducing risk equalisation might have on the stability of the community rating system and that, therefore, it would be preferable if unfunded lifetime community rating was introduced. Was this option given serious consideration?

Deputy Harney

The legal process requires me to consult all the companies in the market and we have done so. I now must consider their responses and make a decision. Certainly, everything will be on the table.

Deputy Cowley

I would like to clarify my point about people and profits. The Tánaiste said that in some way I was opposed to for-profit operations. I am not but I do oppose a situation where it appears there is no end to the funds available for private hospitals, the likes of Dú Uisce and the national treatment purchase fund, yet when the State puts millions of euro into developing public units such as the orthopaedic unit at Castlebar general hospital, it can stop the units working for several months while patients continue to be treated privately by the same consultants who are paid to run the units which are lying fallow. Patients are receiving chemotherapy treatment on chairs in Mayo General Hospital.

Deputy Cooper-Flynn

That is not relevant.

Deputy Cowley

There is no dedicated ward at a time when there is no end to the money available for private facilities.

Chairman

Does Deputy Cooper-Flynn have a question?

Deputy Cooper-Flynn

My question is related to the amendment.

Chairman

Deputy Cowley, other members have questions to ask.

Deputy Cooper-Flynn

I do not wish to labour the point but I want to explore the issue further. Given the dominance of the VHI in the market — 80% — and the Tánaiste's comment that if each company had an equal share, there would not be the same difficulties——

Deputy Cowley

There would not be as much pressure if the Government looked after public facilities.

Deputy Cooper-Flynn

I am not interested in the Deputy's point. I am trying to address the amendment.

Chairman

Deputy Cowley, please allow Deputy Cooper-Flynn to continue.

Deputy Cooper-Flynn

Before Monday will the Tánaiste give serious consideration to the concept of unfunded lifetime community rating in the light of the various companies' market share?

Chairman

All matters have been dealt with.

Deputy O’Connor

A number of members have made this point and referred to the Health Insurance Authority's recommendations. I hope the Tánaiste understands——

Chairman

The Tánaiste will take all of these matters into consideration on Monday.

Deputy O’Connor

I am impressed by my colleagues' points which are worthy of consideration.

Chairman

They have been conveyed to the Tánaiste who has promised to consider them on Monday.

Deputy Twomey

Will she decide on the amount involved?

Deputy Harney

No.

Deputy Twomey

As the rules are laid out, the Tánaiste will not decide the amount.

Deputy Harney

I can make a recommendation which those involved do not have to accept.

Deputy F. O’Malley

Must it be a financial transaction?

Deputy Harney

Yes.

Deputy F. O’Malley

Can it be an imaginative solution such as halving the number of patients in whatever way we can?

Deputy McManus

This issue has been raised several times. The idea of forcing patients to move from one insurer to another——

Deputy F. O’Malley

It is not forcing.

Deputy McManus

It is. What the Deputy is talking about is incredible. If people have a choice, they will stick with their current insurance company.

Deputy F. O’Malley

It is terrible to have to give away all one's profits when one is a small player.

Deputy Cowley

One must have private insurance in the first place. Some cannot afford it.

Chairman

I thank the Tánaiste and her officials for attending.