We have received apologies from Deputy Rory O'Hanlon. I welcome the Minister for Health and Children, Deputy Mary Harney, and her officials for consideration of the motion on the risk equalisation (amendment) scheme, 2008. We will receive a short presentation followed, as usual, by a question and answer session. I call the Minister.
Risk Equalisation (Amendment) Scheme 2008: Motion.
I thank the Chairman and congratulate him on his appointment. I wish him well and we look forward to working with him. As set out in the explanatory note, the amendments address two principal issues — improving the structure of article 11 of the scheme dealing with the six monthly calculations carried out by the Health Insurance Authority on foot of data returns from undertakings; and implementation of a recommendation of the authority contained in its recent report on the operation of the scheme in dealing with the "small value adjustment". This adjustment arises where an insurer has a relatively small data return for any particular data cell.
I will briefly outline the nature of the proposed amendments. Amendment No. 2(a) is purely a drafting amendment relating to definitions contained in the scheme. Amendment No. 2(b) covers sub-articles 11(3) to 11(5) of the scheme.
The 2007 amendments approved by the Oireachtas introduced the concept of a "curtailment adjustment". Sub-article 11(3) already provides for the authority to apply this adjustment and, in the view of my legal advisers, to do so for different periods. The amendments introduced in 2007 and here make it explicitly clear that this is the case. Article 11(3) also puts beyond doubt what is intended by the references to "equalised benefits" and "claim value" by linking them to defined terms in the scheme, namely, the "cell equalised benefits" and "cell claim value".
Article 11(4) deals generally with the correction of any material calculation errors that may subsequently come to light. The amendment to article 11(4) confirms that the schedule under which calculations under this article must be carried out is the schedule that was in force at the end of the period in respect of which the calculation error arose.
Article 11(5) sets out calculations for a "data adjustment", that is, where there are amended data relating to a previous period or where there is a curtailment adjustment. It clarifies the relevant Schedule under which any such calculations are carried out and the circumstances in which interest shall be added to the various elements of the payments. In general, interest will apply to amounts determined under this article with the exception that the Health Insurance Authority shall disregard any interest amounts that it determines to have arisen as a result of a "curtailment adjustment".
The Article also provides for applying the change under 2(c) and (d), to small or limited data cells following a future curtailment adjustment in respect of the period commencing 1 January 2007 — the first period to which the 2007 amendments applied. This will extend the impact of the adjustment to settled claims from that period.
The third and fourth amendments reflect a recommendation from the HIA concerning the small value adjustment calculation. They are, in effect, identical and provide that, for any cell with sparse or no claims data, calculations are undertaken by reference to the lesser of an undertaking's own equalised benefit or the market equalised benefit.
The amendment at 2(c) relates to calculations undertaken by reference to age, gender and health status whereas the amendment at 2(d) is a comparable amendment in respect of those calculations undertaken by reference to age and gender only. Currently, payments are calculated on the latter basis. The experience to date is that this amendment would most likely be of benefit to small or new insurers who at present are assigned 80% of the market average for such cells.
As I have outlined, the proposed amendments do not involve any substantial changes to the risk equalisation scheme which is widely recognised as a necessary measure in a community rated market. I trust the committee will accept the amendments and agree to the adoption of the resolution by both Houses.
I thank the Chairman and Minister and welcome her team. One of the big issues in regard to risk equalisation, a concept I fully support as I am sure do all sides, is the level at which it is set. I understand the level is set at 20% whereas in countries such as Australia it is 3%, 4% or 5%. Will the Minister explain the reason it is set at such a level here and why it is being implemented at this juncture when the VHI currently has such profits and such a major shareholding of the market?
What we are being asked to do today is not of major significance. I want to ask the Minister a couple of questions. I understand the Supreme Court has not come back with its decision on some of the issues raised in regard to risk equalisation. Why did the Minister not wait until that happened? I understand there was no consultation with the insurance companies in regard to these changes while there is ongoing consultation on risk equalisation in general with those companies. I understand they are to return submissions to the Health Insurance Authority in August. Why are we being asked to approve this today while that consultation is ongoing and while the Supreme Court has not come back with its view on risk equalisation?
The Government made a commitment in the HIA Act 2001 to legislate for lifetime community rating. Apart from a few regulations published last year nothing else has happened in the seven year period. Why has it not been legislated for?
I will begin with the last question asked by Deputy Reilly. We are awaiting the determination by the Supreme Court. The intention is to have the lifetime community rating regulations before this committee in the autumn but the advice is that we should await the outcome of the Supreme Court decision. To reply to Deputy O'Sullivan, we hope to have that decision before the end of the legal term at the end of July. The action in the court of first instance was successful. I do not know whether that will have a bearing on the outcome from the Supreme Court. We have been in a period of great legal uncertainty because of the volume of litigation. There are also two cases before the High Court on this whole area. It is being done now on the recommendation of the HIA to put the issues beyond any legal doubt and because the reference periods are six month periods.
Our risk equalisation is low. Many would criticise the fact that it only takes into account age and gender. I do not think what Deputy Reilly has said in regard to Australia is correct. The issue is one of competition and by the end of this year VHI has to be authorised. That process is under way. The authoriser, the Irish Financial Services Regulatory Authority, requires companies to have a solvency ratio of 40%. The new solvency II EU directive will require a 25% solvency ratio. Although it is an independent body we hope the regulatory authority will not require a 40% solvency ratio which we regard as excessive in a health insurance market. However, that is a matter for the authority. I am sure it will be mindful of what is coming from the EU in regard to the solvency II directive. The intention is that the VHI will be authorised by the end of the year. That means it will compete on the same basis as every other company.
Risk equalisation is about transferring to generational support. It is about transferring the benefits that come from having a younger population with relatively few claims to a company that has a much older population with many claims. The size of the company is not the relevant issue but rather of younger people supporting, through risk equalisation and community rating, older members who have claims. That is what makes insurance so affordable for older and sicker people.
I told the committee previously that I am aware of an Irish couple in their sixties who lived in the UK, both in bad health, and whose insurance in the UK was the equivalent of €18,000. The similar products they purchased here cost in the order of €3,000. That is just to compare a situation of which I am aware. The UK does not have risk equalisation and approximately 10.5% to 11% of its population have private health insurance. Risk equalisation, community rating, makes health insurance much more affordable in Ireland and is one of the reasons such a high proportion of the population has health insurance.
In respect of the issue raised by Deputy Reilly concerning the lifetime community rating, I will attend the committee as soon as possible after the Supreme Court determination.
I will take a further supplementary from Deputy Reilly.
The UK is not a useful comparator. It has very little health insurance. It has the NHS, which covers most of its population. I am not sure what percentage of the population is covered by private insurance but it is very low. My figure for risk equalisation is correct for Australia. The Minister mentioned VHI and the size of the company. I did not mention the size of the company, rather its market share. With a huge market share and new players trying to come into the market it does not make sense. Given that it has 60% to 70% of the market, smaller players will be penalised and made to pay moneys over to VHI. I would have thought that would make sense when the situation changed somewhat and VHI's profits were falling rather than continuing to rise.
We had a debate at this committee which lasted for months on end when we had hearings from all the various insurance companies on that matter. It is all there in the minutes of previous meetings. It is clear we all came to the conclusion that risk equalisation was the way forward.
We all came to the conclusion——
All parties.
That was not my point, if the Deputy was listening. The point is not the concept of risk equalisation which I have already supported here this morning but the level at which it is set and the timing of its introduction.
As there are no further questions I thank the Minister. As we have now completed our consideration of the motion in accordance with Dáil Standing Order 87 and Seanad Standing Order 72, the joint committee will report back to the Dáil and Seanad to the effect that it has completed its consideration of the motion under Dáil Standing Order 86(2) and Seanad Standing Order 74(2). The message is deemed to be the report of the committee.
Is it agreed that there should be no further debate on the matter by the Dáil and Seanad? Agreed.