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Seanad Éireann debate -
Thursday, 29 Feb 1996

Vol. 146 No. 11

Voluntary Health Insurance (Amendment) Bill, 1995: Committee and Final Stages.

Section 1 agreed to.

I move amendment No. 1:

In page 4, after line 49, to add a new subsection as follows:

"(6) Cross subsidisation whereby less expensive schemes make a subvention to more expensive schemes shall not be permitted.".

We have all been satisfied with the mix of private and public health care in this country. On Second Stage I pointed out that the VHI, which is the only provider of health insurance at present, had managed to keep approximately 30 per cent of the population as its subscribers. Over the past five or ten years there have been financial problems in the VHI and this has led to a certain inequity towards its subscribers. Over 80 per cent of its subscribers are in plans A and B. Approximately 11 per cent are in plan A which gives semi-private accommodation in a public hospital; over 70 per cent are in plan B which gives private accommodation in a public hospital; approximately 10 per cent are in plan C which gives semi-private and private accommodation in private hospitals other than the Blackrock Clinic and the Mater Private Hospital; approximately 6 per cent are in plan D where patients can have semi-private cover in the Blackrock Clinic and the Mater Private Hospital; and approximately 3 per cent, 39,000 people, opt for plan E which gives private cover in both those institutions.

I have no problem with people choosing whichever plan they want. People will choose a particular plan depending on how much they can afford or whether they feel they will be better off in a private or a public institution. The more expensive plans were set up approximately 12 years ago. The institutions covered in those plans are described as high tech hospitals. However, it is important to point out that a lot of the technology there is also available in public hospitals. One does not have to go to these hospitals for high tech medicine. The hotel style accommodation in private hospitals is of a higher standard. I question the equity of people on the lower plans subsidising hotel accommodation in these institutions which are serving a small number of better off people in the higher plans.

It is difficult to get the VHI's figures. I have no intention of finding a mole in the VHI to ascertain what is happening in each category. There was a report in the Irish Medical News that the lower schemes were subsidising the higher schemes. Yesterday in the Irish Independent the chief executive of the VHI was quoted as saying:

Those who pay the more expensive premiums can be treated in hospitals such as the high-tech Blackrock Clinic and Mater Private.

Mr. Duncan said these plans were profitable and if axed subscriptions would rise by about 5pc. "It is correct to say that claims are greater than subscription income from plans C, D and E," he said. However, it is incorrect to say they were being unfairly subsidised by plans A and B.

They must be subsidised by someone. It is unfair that people who cannot afford to subscribe to the higher plans are subsidising those plans. The money must be coming from somewhere if the claims are more than the subscriptions in plans C, D and E. Plans D and E are the problem plans. It is not as if an important technique can only be carried out in these institutions. I am concerned that the maintenance is being subsidised.

I pointed out on Second Stage that clinicians are not making many of the decisions on what will or will not be an in-patient process. Day care is now mandatory for certain procedures. These decisions are made by people who work in the VHI. I wonder are the same procedures mandatory for people on plans D and E as for those on plan B. Equity needs to be shown in this regard. When a former Minister for Health, Mr. Barry Desmond, allowed the VHI to introduce plans D and E, he wanted separate payment systems so that there would not be cross-subsidisation. A firm policy was agreed with the chief executive of the VHI, but that was over ten years ago.

The VHI does not have to disclose its internal costings and it is not under the insurance ombudsman, who only deals with insurance companies covered by the Department of Enterprise and Employment. The VHI got into such a terrible mess about five years ago as a result of these expensive plans that the then Minister for Health had to call in someone to review them. Deputy Harney pointed out that the VHI might have been trading illegally because its reserves were not sufficient to cover the claims. I cannot remember the exact details, but I know that Mr. Noel Fox was brought in and he introduced a plan in 1993 to try to rectify this financial situation. Part of his plan stated:

The introduction of two special plans D and E to cater for the high tech hospitals is now recognised to have been erroneous. The pricing of the two plans, particularly plan E, was bound to be at a level which would appeal to a relatively small number of subscribers. Furthermore, these subscribers are in the higher income brackets and older age categories, and as such have a greater demand for healthcare and a higher claims rate. It was inevitable that plans D and E would suffer from adverse selection (i.e. the tendency for those subscribers with a poor health record to select the highest level of cover they can afford). Anyone subscribing to plans D and E would also desire to be treated in the high tech hospitals even for procedures which could be treated just as effectively in another acute private hospital at a far lower cost to the VHI.

It is now clear that the present plan structure will need to be radically overhauled over the next two years. [I do not know if that happened]. . . . . . Any member wishing to avail of their facilities [those of the high tech hospitals, although we should not refer to them as that because modern technology is now more widely available] for procedures which can be carried out effectively in one of the traditional acute private hospitals will be given the option of purchasing additional cover. This additional cover will not be subject to community rating but will be economically underwritten.

I do not believe that ever happened. This plan made many recommendations which were never put into place. It also stated that "Larger increases are being applied to plans C, D and E in an attempt to bring them a step closer towards becoming self-financing.". This happened initially but it did not continue, otherwise the chief executive would not be quoted as saying that "claims are greater than subscription income from plans C, D and E".

This is a great inequity for over 80 per cent of VHI subscribers who are not the most affluent in our society but who value private health care. I pointed out before that under this system people had a choice of doctor and they also had control over the timing of an elective procedure. We have to see if it is just to subsidise hotel accommodation for the higher schemes from the moneys collected from the lower schemes.

I agree wholeheartedly with Senator Henry in this area. It is very disturbing news that there is cross subsidisation of what could be termed super care. It is unfortunate that those who have maintained their subscriptions to the VHI over the years now find themselves to some extent subsidising this super care in what could be described as grade triple A hotel accommodation. I wonder if this in the best interests of health cover. The whole health system would collapse without private health insurance. However, will we create an albatross for private health care if we continue on this basis?

I would like to get a breakdown of the figures. I do not know if such figures are available to the Minister but the Joint Committee on Commercial State Sponsored Bodies, of which I am a member, attempted on a number of occasions to get a proper breakdown, which did not seem to be available. I fear that the problem is not with payment to consultants in this case. I cannot prove that but perhaps the Minister can shed some light on it. Many of the consultants I know are inside the system of agreed payments and, thankfully, an increasing number are coming into that category. I hope that the initiative shown by the Joint Committee on Commercial State Sponsored Bodies a couple of years ago in attempting to get a list published was helpful in that area. It brought into the public domain who was or was not accepting the VHI fee structure.

I would like to get the breakdown of the figures in order to know whether it is the accommodation which is being subsidised or the cost of consultants and technology. If the former is the case, it is definitely time for it to be reviewed. Subscribers are greatly worried about this and it has been brought to my attention on a number of occasions. It is a matter of public debate that we are subsidising the super care available under the D and E plans of the VHI. We should establish the situation and explain to the public what is happening. I hope the Minister can throw some light on the situation.

I also hope that the Minister can enlighten us on this confusing matter. When I contacted the VHI about this issue they seemed to come up with two different answers, depending on whether they looked at the situation on an actuarial basis or a community rating basis. I was led to believe by the end of conversation that if they did what we wanted in this amendment they would have to reduce the charges for plans D and E and increase the charges for the lower plans. I cannot reconcile that with the statement by Brian Duncan in yesterday's Irish Independent. Perhaps the Minister can help us on that.

It is important for people to have confidence in the VHI and remain as members. Those who can afford to pay for their health care should do so because although we spend in the region of £2.4 billion on our public health services, they are stretched to the limit. We do not want the 1.3 million subscribers to the VHI to come into the public health care system because there would then be less available for everybody. My party and I are in favour of a mix of private and public health care. It is in all our interests to ensure that the VHI organisation continues to be acceptable to its 1.3 million subscribers and that the services it provides continue to attract members.

I cannot work out whether what Mr. Brian Duncan said in yesterday's newspaper is true or whether the more expensive schemes are being subsidised by the less expensive ones, which would be unacceptable. Perhaps the Minister can inform us about that. When I asked the VHI I was given different answers on actuarial and community rating bases. I could not understand it.

Limerick East): I shared the views of Senator Henry until we had the situation examined last year. The best starting point is to refer to motor insurance, where those who are high risk pay higher premia and those who have accidents lose their no claim bonuses and their premia are increased — the insurance is related to risk. The policy position on VHI is that we do not relate the level of premia to risk, which is the essential ingredient of community rating. Therefore, by definition, in general terms the young and healthy subsidise the old and ill.

There is a subsidisation involved in the community rating. We all agree with that policy because otherwise older people and those with a history of illness could not obtain any cover. The policy of community rating does not arise as an issue in Senator Henry's amendment but it is true that in all VHI schemes the young and healthy — those who do not need hospital services — subsidise those who get ill and go to hospital. No penalty is applied to the premia of those who use hospital services more than others. That level of subsidisation is part of the policy. However, there is not subsidisation between the different schemes.

Senator Finneran is right in saying that the level of information available from the VHI, even to the Joint Committee, is not very good. Last year, we brought in an independent firm of actuaries over an 18 month period to advise the Department on this issue. Based on confidential information available to my Department, in reference to the principle of community rating there is no subsidisation by less expensive schemes of more expensive ones. The matter was examined by an independent firm of consultant actuaries whose advice the Department of Health had sought. These actuaries found that no such subsidisation existed.

Section 3 of the Bill requires the VHI to notify the Minister of proposed premium increases and gives the Minister the power to veto any such increases for stated reasons. The Bill, therefore, gives the Minister the power to ensure that increases are justified on commercial equity and other grounds.

The report we received from the actuaries last year said that there was no subsidisation of more expensive schemes by less expensive ones on the basis of their examination over more than a year. Section 3 of the Bill gives me the power to ensure that in regard to proposed increases in the future the VHI will not be able to implement that element. Therefore, the VHI would have to notify me or my successor if it wanted to move to a situation of subsidisation. Consequently, we can maintain the current situation where there is not cross subsidisation of more expensive schemes by less expensive ones. In fact, if there is any evidence of cross subsidisation it is the reverse position. It is not relevant to the amendment, but there is probably some element of subsidisation of the less expensive schemes by the more expensive ones.

How does one reconcile the figures if so many of the plans are losing money? The VHI is losing money on a trading basis, and if last year's accounts had not included £10.3 million in investment income it would show a loss. Under its mandate in the 1957 Act, the company is supposed to trade on a break even basis — it is a non-profit organisation but it should cover its costs. It was strong at the time when it could make investments from which income is now derived, but if there was no such income from previous good balance sheets the company would be losing money. If expenditure and premium income for last year are compared, there is quite a discrepancy, which was made up by drawing investment income and putting it into the accounts. More than £10 million was used last year and more than that, I understand, in previous years. I think that reconciles the figures.

The other reason I cannot accept the amendment is that if the restraints it suggests were imposed on one insurance company, under the EU directives and single market rules it would have to apply to other competitors. The legislation which regulates the market is the Health Insurance Act, 1984, but this amendment would in my view be considered anti-competitive as it would be a restraint on the market. In Senator Quinn's business, for example, not every section of a store has to show a profit. A business may have different pricing policies for different elements and removing that option by law would be considered anti-competitive and we would not receive sanction from Brussels to do so.

The issue does not arise. I had the same view as Senator Henry 12 months ago, when I would have said there was cross-subsidisation — that arose from the debate on the establishment of the big private hospitals in the 1980s. However, the position has changed and one factor which led to that is the manner in which price increases are organised. Since 1989 the average price increase for Plan A has been 4.65 per cent; for Plan B, 5.27 per cent; for Plan C, 6.39 per cent; for Plan D, 7.85 per cent; and for Plan E. 8.59 per cent. The increase for Plan E is therefore almost double that for Plan A. As Senator Honan said, this is further complicated by community rating. We all share a health insurance policy whereby people who do not get ill and do not avail of the services subsidise those who do. To compare this with motor insurance, those regarded as a low risk clearly subsidise the high risk people when there is no loading for risk on the premium.

I am glad Senator Henry raised this issue because there is much misunderstanding about it. Senators will see why I want to bring more commercial expertise on to the VHI board, because we had to ask our own actuaries to establish the facts when the information was not readily available from the company.

Is amendment No. 1 being pressed?

I cannot quarrel with the Minister's confidential figures from actuaries and as a Plan B subscriber I am pleased to hear the subventions may be going in the other direction. However, I am not quite so enthusiastic about the comparison with motor insurance to the effect that Mazdas and Nissans keep Jaguars and BMWs on the road. I see the logic of his argument and from an anti-competitive view I would like this provision to apply everywhere. The great advantage of a scheme like VHI is that the young and healthy subsidise those who have the ill-luck to get sick and it is marvellous if one goes through life without having to draw on the VHI.

The Minister also said that the next section of the legislation allows him to monitor what happens in this area. It is the secrecy which has caused much of the trouble here. I would not mind if specialised medical technology was involved, but many people on the lower schemes resent the thought of subsidising what is effectively hotel accommodation. As Senator Honan said, the private health care system is most important and if the rumours in the medical press about the Minister's proposals on where consultants will be able to work are true, if geographic whole-time becomes the order of the day, it will become even more so. These areas are vital for the future of medicine. I withdraw the amendment.

Amendment, by leave, withdrawn.

I move amendment No. 2:

In page 5, between lines 4 and 5, to insert the following subsection:

"(7) Subject to the provisions of subsection (3), nothing in the Competition Act, 1991, shall prevent or restrict any health insurer from exercising any of the powers or doing any of the things provided for in section 2. The Minister may, at any time, suspend, vary or revoke the exemption provided to health insurers by subsection (1) if he thinks it necessary to do so for the common good.".

It is proposed that the VHI will enter into agreements with health care providers in the future. Although it may not be warranted, there is some public worry about this and section 2 may be open to challenge. In the other House the Minister did not see that happening, but he left the door slightly ajar. The VHI should not be open to challenge but it could be under proposed competition legislation from another Department — I am not fully au fait with the position but it has been brought to my attention. Perhaps the Minister could provide the House with his information on the subject because undoubtedly he has investigated the matter and is in a far better position to allay fears. The Attorney General must have given advice because the legislation would not have been drafted if he did not. If the Minister outlines that advice we could see how we should proceed.

I dealt with this in passing on Second Stage. It has been argued that there is an anti-competitive element which could be detrimental to VHI subscribers if they were not able to select their suppliers. However, if this helps in keeping down VHI running costs and premia it will meet with general approval.

(Limerick East): The application of competition law, which reflects the position in European law, is a key economic policy of Government which cannot be set aside in respect of any one sector of business activity. One clear consequence of our membership of the European Community was to embrace both the principles and mechanisms of a fully competitive single market. Each section would make its case for being an exception to the rules of competition. I am not aware that any Government, whatever its political make-up, regarded the Competition Act as other than applying to the economy as a whole without favour or exception.

The exemption of health insurance from the scope of the Competition Act would have a detrimental effect on the integrity of the Act. Such a step would be wholly inconsistent with the thrust of policy of successive Governments to foster an open, competitive and efficient business environment both for the benefit of the consumer and the better operation of the economy generally.

The Government's current initiative is to strengthen competition law by increasing the powers and resources of the Competition Authority. It is open to the VHI to consider seeking to avail of those protections which the Competition Act provides in terms of the rules of competition. The avoidance of abuse of a dominant position is the key, not exclusion from the Competition Act itself, which is in effect the general policy position on the Competition Act that has been pursued by all Governments in recent years.

The insurance market is opening up as a result of the EU directive and that will also apply to health insurance. We laid out our statutory position in the 1994 Act. The insurance regulations were published last March for consultation and I hope that, after that consultation, the final version will shortly be brought before the Oireachtas and that it will lay out in precise detail the ball park in which competitors will have to play in the heath insurance market. However, in the light of the movement towards more competition, to exempt the VHI from the Competition Act would be a retrograde step and would not be consistent with general Government policy.

That does not put the VHI in any difficulty. It is not an offence to be in a dominant position in the market; the offence is to abuse that dominant position. If the VHI does not do this, there will be no difficulty. Some people may ask how we can be sure that at a later date somebody might regard this abuse as normal business practice. There is provision under the Competition Act for companies or service providers like the VHI to discuss the situation with the Competition Authority and agree Protocols and procedures with the Authority which it would regard as fair, just and equitable. I have advised the VHI that it should proceed on that basis. If the VHI negotiates its arrangements for Protocols and procedures with the Competition Authority in advance, it will have an assurance in place that the Authority will not fine it subsequently if it abuses its dominant position. The VHI should do this rather than seek an exemption.

I am pleased to hear this. The Minister seems to be talking about a type of licence that would allow the VHI to enter into a form of arrangement with the Authority and that would be helpful. Can he confirm if derogations or exemptions have been provided to help health insurers in other EU states? We have heard reports of this occurring.

I support Senator Finneran. I have also been informed that national health service contracts in the UK do not give rise to contractual rights and liabilities and in the United States, certain activities of health service providers may be exempt from anti-trust laws. The European Court of Justice has recognised the need for non-selective insurance providers which will have an obligation to deal with all applicants, regardless of their age or state of health. It has control to limit its outgoings even if it has a negative effect on trading goods and services.

Under the terms of the Health Insurance Act, 1994, all health insurers are obliged to act as non-selective insurance providers. The VHI is concerned that, because of this Act, it may be open to challenge under some of the provisions of the Competition Act, which is why it is seeking a limited exemption. In doing so, it believes it is acting like health insurance providers in other countries.

Health insurance is different from other services because there can be supplier induced demand. It is recognised by many people with responsibility for the management of national health services that demand for such services can be manipulated by the providers. The VHI is concerned that providers can stimulate demand because often the ordinary patient does not know if they require these services and the person providing them can make these patients believe they do. The VHI is seeking this exemption to curtail its costs and the insurance costs to its members and in the perceived knowledge that health services in other EU countries have this limited exemption.

(Limerick East): Over the years, many sections of the economy, especially those in the general State sector who are service providers in one way or another, have said they would like to have been exempt from competition. One can see it in the provision of telecommunications services, where the debate is still active, and the ESB. Anywhere there is a dominant service provider and the market is opening up in line with EU policy and practice the issue always comes up with a case to be made for a particular sector. It has been Government policy not to make exemptions. Indeed, the Department of Enterprise and Employment propose to extend rather than restrict the scope of the Competition Act.

It is not that the VHI has a dominant position which was the issue in the Ballinderry case but the abuse of it. The VHI can make provision in accordance with the Competition Act to have its practices, Protocols and procedures agreed by the Competition Authority in advance of putting new practices, Protocols and procedures in place. That should give it the safety net it needs and ensure it is not running foul of the Competition Authority subsequently if it was accused of abusing its dominant position.

Senator Finneran and Senator Honan raised points which also came up in the other House. For the information of Members, I will read what I said in that debate which deals with the question of whether parallel cases of exemptions arose in Europe and the Attorney General's advice.

The Government made its decision not to exclude health insurance following consideration of all the issues involved and advice thereon, including that of the Department of Enterprise and Employment. However, the Attorney General's advice, generally, in regard to section 2 was that it is legally sound and that it does not conflict with the provisions of the Competition Act, 1991.

Section 2 removes legal doubts which arose following the Supreme Court judgment on the Ballinderry case in regard to the VHI's legal powers to enter and not enter into contracts with service providers. Furthermore, the issue of whether any exercise by the VHI of a power to be conferred on it under the section would be in conflict with the Competition Act is a separate issue, which, in the event of a challenge would ultimately fall to be determined by a court on the facts of the case.

The exclusion of health insurance from the Competition Act ambit is a matter of policy. It was not the intention that section 2 would exclude the VHI from the parameters of the Act, and it is a matter for the VHI to work within it. While it is Government policy that health insurance is governed by the Act, the matter will be kept under constant review.

On the issue as to whether cases in Europe have allowed other insurance companies in Europe to be exempt from the competition directives of the EU, the Deputy [Máire Geoghegan-Quinn] said on Second Stage that the European Court of Justice had recognised explicitly the need for insurance providers who are obliged to offer cover to all applicants regardless of age and health and to be able to limit their outgoings, even if this had a negative effect on their trade in goods and services. The reference is understood to refer primarily to the Duphar case. This is not regarded as constituting a parallel for exempting the VHI from domestic competition law, and I have a series of reasons for this. . . .

First, the case was about a statutory public sickness fund, and not a private health insurance scheme. Second, the main issue related to Article 30 of the Treaty of Rome, which deals with the elimination of quantitative restrictions on imports between member states. Third, the courts did not specifically address the Treaty articles on competition, Articles 85 and 86, as these only apply to undertakings to which a public sickness fund was not deemed to apply.

The point about insurers having to make cover available, regardless of age and health status which featured in the case, is lessened under our regulatory framework, which will provide for the operation of a risk equalisation scheme. The case was concerned with very specific cost control measures carried out on the basis of objective and verifiable criteria, and not with a sweeping measure, such as the exemption of all private health insurance from the Competition Act, [1991] which the Deputy's amendment would appear to constitute.

To put the matter in context, we are preparing the market in Ireland for competition, which I believe will come. We have reached agreement in Brussels for the policy as stated in the 1994 Act. We have almost completed our negotiations on the regulation which, for example, will pick up such controversial items as the level of care for psychiatric illness. We are making progress towards enhancing the provisions under the regulations and we hope to come back to the Houses of the Oireachtas in a couple of weeks to finalise matters.

In general terms, competition will come and competitors will have to operate within the guidelines set down in the health insurance regulations. This Bill, in its totality, will improve the VHI's ability to face competition. It is another element in a series of initiatives to prepare the VHI for a more competitive market. But in the context of policy in these Houses being to prepare VHI for competition in accordance with the EU directive, to exempt VHI from the terms of the Competition Act, 1991, or from the scope of the Competition Authority would be an adverse step.

I am pleased the Minister is making progress on the regulations on psychiatric services, in particular. I know it has been a hot issue as people had felt psychiatric services might be discriminated against in some instances.

I accept to a great extent what the Minister has said with regard to competition but are we taking matters for granted as my understanding of the future of the VHI is that it will be a non-profit organisation. Competitors who can enter the market with attractive and innovative schemes could through their ingenuity leave the VHI with only senior citizens and high risk category patients as members and thereby put the future of the VHI in jeopardy. I say this in the context of what the Minister said earlier in the debate in so far as I know, and he confirmed here today, that the VHI has had to subsidise its running costs over the last number of years through the sale of assets. In a competition situation, where the VHI cannot continue to sell the family silver forever, will not be in a position to introduce innovative schemes and compete with companies some of which would have massive profits, is the VHI heading down a dangerous stony road? Can the Minister see the VHI being able to survive under the type of health insurance climate before us without some sort of exemption? That is my basic worry.

I thank the Minister for his previous reply. The VHI was not looking for a special exemption from the Competition Act, 1991, as it believed the VHI and all other insurance providers who might enter the market would also have the same exemption.

I was pleased to hear the Minister say he did not believe the VHI would be exposed to threats of proceedings under the Competition Act, 1991, and that the Ballinderry case was a different issue. However, when the Ballinderry case was being dealt with in the courts, the judgment was given against the VHI because it had abused its dominant position, but I think the judgment stated that they would have had a case under the Competition Act, 1991, if they did not win the case on the basis of the dominant position. That is why the VHI was concerned that it would be exposed to being sued under the Competition Act, 1991, in future.

(Limerick East): I share concerns expressed about the VHI and much of what we are doing is in order to strengthen its position. If one goes back to the debate on Senator Henry's earlier amendment, it is fair to say that the VHI nearly went under. If one looks at the position in the late 1980s and the balance sheet at the time, there were huge deficits; but the company has been brought back to having an income versus expenditure balance sheet. The VHI still needs investment income; but rather than income from the sale of assets, it is income from investments which were made in the past when the VHI was stronger. If we have not put in place the statutory provisions in the 1994 Act and those we will be putting in place by way of health insurance regulations, the fears which people are expressing would be valid.

If a UK insurance company could cherrypick the market, the VHI would not survive at all. The cherrypicking would involve giving cheap insurance to all the low risk people and letting the VHI pick up all the high risk people. It is absolutely essential that nobody can do that, which is why we needed a 1994 Act and why we needed to get EU agreement to the central concepts of community rating, which has been achieved. We are going on now to ensure there will be fair competition and that the regulations will protect the position of the VHI and ensure everybody who competes with the VHI must trade on the same basis.

Senator Finneran said that a company could come in from abroad and sell very attractive schemes. He is right. That is why we started restructuring the management of VHI to provide for a new chief executive and four managers to look after different sections of the company. The VHI must pay more attention to marketing and its financial controls, for instance. It must begin to trade as a fully commercial company, conscious that other companies which trade under the same rules in the market may provide more attractive packages. It must position itself for that. This is one of the reasons that, in the context of a later section which increases the numbers on the board from five to 12, I have said that we will not make it a representative board. We want people with commercial skills. The VHI is not providing health care so we do not need solely doctors and medical people on the board. It is a commercial company in the insurance business. The rules of the insurance business and the commercial world will apply and those are the skills we need to import on to the board.

There is a systematic progression to strengthen the VHI which has spanned the change of Government. It started in the 1994 Act and continues in this Bill and the regulations. In tandem with that process, one has the restructuring of the management in VHI. It would be helpful to the new management structures in VHI to have a bigger board which includes skills other than those available at board level at the moment. The five people on the board at present also have valuable skills but I simply make the point that a commercial insurance company requires certain skills at board level. We will take this into account when appointing new members.

Will the VHI continue to be a non-profit making organisation? That has a great bearing on the situation.

(Limerick East): We are not changing the requirement that it operate on an equilibrium basis where it must match expenditure against premia in general terms.

They are not moving into profit.

(Limerick East): No, they are not. Over the years, the accounts tend to show small surpluses. However, if the VHI becomes more effective and profitable, I would expect that rather than showing a profit on the balance sheet, it would provide greater benefits for its members or alternatively that there would be no increase of premia. We are long way from that situation.

Over one-third of the population are VHI subscribers. We could end up with the wrong one-third, that is, the mature one-third who make serious demands on health care. The future of the VHI depends on the VHI attracting young people as subscribers.

That exacerbates my worry. The Minister says the VHI will become fully commercial and I appreciate that. It still cannot go into a profit making situation. Its competitors may be large financial institutions which will be able to promote attractive and innovative schemes which will gather in many subscribers and tilt the balance. The luxury they will have is that if one of those schemes goes down, they will be able to absorb the loss. The VHI will not have the luxury of being able to promote innovative schemes because it will not be able to take the risks. They may take good financial management decisions but they will not be able to take the risks other financial institutions in the health insurance market will be able to take. If they do, they may bring the whole house down around them.

There is an inequality of trading to some extent and it is a worry for the VHI. The Minister's statement indicates that he has seen at least some red flags. The public and Members of this House would not want the VHI to go under. It has been an excellent health provider in this country and has compensated the Government approach to health through the years. Health services would have crumbled years ago if the VHI had not provided cover for private care. It is in all our interests to protect and maintain private sector health insurance. This Bill and all other health insurance legislation should have that in mind.

While I am reassured to some extent by the Minister, I have serious worries as regards the ability of the VHI to compete on a favourable basis in the health insurance market.

(Limerick East): I want the position of the VHI strengthened. We are debating the Bill because I have concerns about the VHI. This Bill strengthens the VHI position and the regulations which we will introduce shortly will further strengthen the relative position of the VHI. It will ensure that other companies will have to compete on a level playing field.

If the VHI was trading on a fully commercial basis in accordance with its mandate and community rating, it would be in a better position to provide a service than an insurance company which is required to show a profit and pay a dividend to shareholders. If the requirement of one company is to break even and the requirement of another company is to show a profit and pay a dividend, the company with the break even mandate, if it does its job properly, is in a better position in the market.

Competition is most likely to come from United Kingdom companies, some of which have been looking at the market. Some of the biggest UK insurers are mutualities and are not, in essence, companies which are solely profit oriented. The competition therefore will not be along the lines suggested by the Senator when he spoke about large finance companies taking a risk in one sector and cross subsidising losses. The mutualities are not solely profit driven.

There is cause for concern and that is why we are legislating, introducing regulations and restructuring the management of VHI. The changes have not been concluded yet. That is the main justification for the changes I will be making at board level. It is in accordance with what is happening in Europe, where everything is opening up to competition. The VHI cannot operate isolated in a protected environment and free from the forces of competition which must be faced by every other sector in Europe. I want to strengthen the VHI so it maintains its position as the dominant provider in Ireland because it has done a very good job. It had its bad moments in the past but overall it has provided a great service for people. It is because of the concerns that we are making the changes to strengthen the VHI position in advance of competition.

The investment income is important to the VHI at the moment and has decreased considerably in the last few years. Is the investment income applied to the schemes on a percentage basis? For example, is only 3 per cent used to prop up plan E while 80 per cent goes towards any deficits in plan A and B or, alternatively, is most investment income used for the higher and more expensive, but apparently loss making, schemes? This is important. Senator Finneran talked about selling off the family silver. If the investments have gone down this much, it would be a serious worry for all of us.

(Limerick East): According to the information I have, there is not that kind of subsidisation through the investment income. It is simply investment income which is available and is put in to get you to the break even point. The Senator is right, the VHI will have to match premium income with its expenditure on a break even basis. One must take that into account together with what the Senator said on Second Stage about how expensive hi-tech medicine is becoming. Medical inflation is running at about 8 per cent compared to the consumer price index rate of 2.25 per cent.

Pressures on the VHI will inevitably lead to premium increases but I will have to agree to them first. I hope that when the VHI seeks any premium increase it will follow Senator Finneran's advice to offer more attractive packages in the market place, particularly for young people, and thus be in a better position to face competition. Senator Doyle is right in saying that if it becomes imbalanced and if sufficient young people are not attracted to the VHI, the whole basis of community rating becomes doubtful. In a worst case scenario the VHI could end up with a lot of high risk people.

The Minister said earlier that the VHI is not in the health care business, it is in the health insurance business. It is important to remember that. Senator Finneran and Senator Doyle are right to say it is essential to market schemes for young people. We must make sure, however, that the investment income coming from such schemes will not be used to subsidise loss making schemes.

Senator Quinn has left the Chamber, otherwise he may have been able to give us some information on what to do with loss making products.

Get them off the shelves.

In general, the advice is to get rid of them. I wish we had more information about where the investment income is going within the VHI. It would be an unfortunate situation if the £10 million was only for keeping schemes D and E going. Is the Minister in a position to provide us with that sort of information?

(Limerick East): I do not think what you are saying is correct, but I cannot prove it to you for the reasons Senator Finneran outlined. Even when the VHI appeared before an Oireachtas Committee it did not seem to be able to give precise financial information which Deputies frequently requested. It is commercially sensitive information, especially with competition coming in, and because of that the VHI is reluctant to give a demographic breakdown of subscribers to individual schemes. If you gave too much information you would be pointing out areas that competitors should target. I would like the VHI to note the views of the House that it should not use commercial arguments to avoid providing the fullest information to the Houses of the Oireachtas.

So say all of us.

One of the most important financial issues facing the VHI, which was identified by the Kennedy review group, was that under the EU insurance directive it is required to conform to solvency margin criteria. In 1993, £10.5 million had to be drawn down from its investment income in order to fund its operational costs. In 1994 and 1995, the results were significantly improved by the decision of the board to release an age equalisation reserve. But for the fact that it had that reserve, which it released quickly rather than over a number of years, the VHI would have been in trouble.

A combination of measures are needed to increase the VHI's income and reduce its claims costs. The Kennedy review group recommended a comprehensive review of its product portfolio, particularly as it will shortly face competition from Britain. Such a review is needed in order to attract young people into the VHI. Young people currently feel the VHI has little to offer them, yet these are the very people who need to be attracted in order to fund the sick and the elderly.

I can understand that such information is sensitive as regards competitors coming in, but it is pretty sensitive information regarding the subscribers also. They might like to know what is happening.

Is the amendment being pressed?

The Minister has made a serious attempt to address the situation. In view of what he has said I am prepared to withdraw the amendment.

Amendment, by leave, withdrawn.
Section 2 agreed to.

I move amendment No. 3:

In page 5, to delete lines 45 to 48, and in page 6 to delete lines 1 to 6 and substitute the following:

"under section 2, it shall notify the Minister in writing of the proposal not less than 30 days before the date on which the proposed increase is intended to have effect and, in determining the amount of the increase, shall have due regard to any representations made by the Minister to the Board during the said 30 day period.

(2) The Minister may make regulations enabling him to issue, within 30 days of the notification of a proposed increase referred to in subsection (1), written directions to the Board requiring the Board not to implement the said increase. Any such regulations shall provide that the Minister shall, when giving a direction to the Board pursuant to the regulations, at the same time give to the Board his or her reasons in writing for the direction.

(3) The Board shall comply with a direction issued by the Minister pursuant to the regulations referred to in subsection (2).

(4) Every regulation made by the Minister under this section shall be laid before each House of the Oireachtas as soon as may be after it is made and, if a resolution annulling the regulation is passed by either such House within the next 21 days on which that House has sat after the regulation is laid before it, the regulation shall be annulled accordingly, but without prejudice to the validity of any thing previously done thereunder.".

On this occasion the Minister has tried to address the situation but I have gone a little further. The amendment would involve the Houses of the Oireachtas in debating proposed VHI premia increases. It is appropriate that both Houses should have the opportunity, if they so wish, to debate any proposed increases in health insurance.

The situation to date has involved an arrangement between the VHI and the Minister of the day whereby the VHI informs the Minister of a decision to increase premia. Other than that there is no great involvement with the Minister and there is certainly no direct involvement with the Houses of the Oireachtas. In the new situation it would be appropriate to discuss health insurers' applications for premia increases, not alone in the VHI's case but in others also.

It would also give us the opportunity to talk about the issues we discussed in the other section — how the VHI could develop different schemes to maintain and increase its position in the health insurance market. It would provide an ongoing forum to evaluate the performance of the VHI when it applies for an increase. Members would then have the right to refuse applications for premia increases from the VHI or other companies on the basis that they were taking the easy option rather than trying an innovative approach with new schemes on the market. Both Houses of the Oireachtas should have the opportunity to debate proposed increases and to reflect on the performance of the VHI and other health insurers.

As long as the VHI has a monopoly position in the health insurance business it is appropriate for its premium levels to be subject to approval by the Minister for Health. That does not need to be set in stone in the Act, it could be done by ministerial regulation. The Kennedy review group mentioned that when competition is introduced it would not be appropriate that the VHI would be the only health insurance group which would be subject to ministerial approval for increases. The review group said that if and when a competitive market place starts to develop, this requirement would be inappropriate and would inhibit the ability of the VHI to operate commercially. Why has the Minister inserted this provision?

The VHI will be the only insurance operator, in the health or any other sector, whose premiums would be controlled by the Minister. That is acceptable at present because it is in a dominant position, but if other insurance companies come here to compete for the same market how will the VHI operate commercially? In any case, when the VHI faces competition, that in itself will impose control on the premiums it will be able to charge. If the VHI continues to raise its premiums and other competitors offer better packages, then it will not get the business.

(Limerick East): Before I comment on the amendment, the provision being sought under section 3 places an obligation on the board to give notification of proposed premium increases to the Minister and allows for each such increase to take effect automatically unless the Minister issues a reasoned direction against implementing it. The present position is that the board of the VHI must inform the Minister that it intends to raise premiums, to reconstruct packages or to charge more for them, although he can do nothing about it. I and my predecessors had to take political responsibility after having been informed of increases, although we were not able to do anything about them. That is not a good situation.

The power being sought is not being vested in the Minister as the political head of the Department but as the 100 per cent shareholder in the VHI. Shareholders have rights. While the board of the VHI runs the company, the Minister is the shareholder. There is validity in the shareholder having such a function.

We have introduced this in a straightforward manner. The company notifies the Minster for Health of premium increases. If the Minister for Health does not act, then the premium increases come in automatically after 30 days. That protects the commerciality of the enterprise. We have seen over the years where State companies were subject to political rather than commercial decision making. If the political side second guesses the commercial side, difficulties can arise — this happened in a number of State companies in the past.

Under the subsection (1) (a) the board is obliged to inform the Minister of any proposed increase in premiums at least 30 days before such increases are to have effect. I believe this is reasonable in view of the need to have applications analysed by the Department of Health in sufficient detail. Under subsection (1) (b) the board may implement any increase notified to the Minister after the period of 30 days has elapsed unless before the expiry of the period the Minister has directed in writing that this should not be done.

Subsection (2) imposes a duty on the Minister to give the board his or her reasons for directing that an increase should not be implemented. This will be done at the same time as giving the direction. Subsection (3) stipulates that the board must comply with the direction of the Minister under the section and must, therefore, not proceed to implement the increase or increases in question. This is reasonable in view of the fact that we want to maintain a strong public-private mix among the 33 per cent of our population who are VHI subscribers. At present the Minister needs this control over increases in premiums.

I have no doubt that there will be increases in premiums and a Minister who does not intervene may be under political pressure to do so. If we adopted the approach proposed by Senator Finneran that the Minister would have a regulatory power as regards this section and that regulations would need to be placed before the Houses of the Oireachtas for debate, then the political side would be second guessing the commercial side. Members of the Seanad or the Dáil would be subject to pressure from constituents who are VHI subscribers and who do not want to pay an increase, although they may be putting the company at risk. We must strike a balance.

I am not in favour of this amendment because the provision in the section is very straightforward and we do not need to proceed by way of regulation, as the Senator suggested. Regardless of whether the Minister did or did not intervene, if a VHI increase was signalled, there would be no problem with this or the other House discussing the issue on a motion. However, I do not want to establish a situation where the sanction for a price increase, which is totally in the hands of the VHI at present, would not only move to the Minister but to the Houses of the Oireachtas and that the VHI could not increase premiums unless they were sanctioned by the Oireachtas. This would be very cumbersome and would put its competitive position at risk since this would only apply to the VHI and not to other companies. Because it would take more than 30 days, the VHI could be at a disadvantage in relation to its competitors.

If the VHI is further restructured, this section would need to be removed at a future date. I want to increase the board from five to 12 and to bring in marketing, accounting and actuarial people — a mix of commercial and business skills which need to be added to the board's existing skills. I will take the advice of the new board on how to proceed.

The report on the VHI to which Senator Honan referred on a number of occasions suggested that we should reorganise the VHI on the same basis as Telecom Éireann or An Post so that it would move towards independent semi-State commercial status where it would control its decisions. In the same way as charges in other sectors do not always need to be sanctioned by the Minister, once that restructuring takes place this provision would need to be reviewed.

The VHI may continue to be in dominant position in the market and one of my successors may decide they want to retain the power to control premium increases and that they would only occur with the permission of the Minister. However, if there was competition in the market at that stage, then it would be the control mechanism, and a company which was out of line would lose business. That is how I see things progressing in the future. This is an interim measure to strengthen the VHI's position as it approaches competition. I do not know the degree of competition in two years time, but there will be some.

I understand that in the future this section may need to be removed — I do not dispute that. I propose that the Minister take advice from the Houses of the Oireachtas as well as departmental officials. While I appreciate that Members would be under pressure to vote in a particular way, I have no doubt the Minister would be under the same pressure from his parliamentary party or partners in Government. I do not see that as an argument in this situation.

It is important that the Houses of the Oireachtas are involved. The Minister said that we would have the opportunity to discuss this in a motion, but why not do so by way of legislation? Since the Oireachtas must enact the legislation, why not enact legislation upon which its Members can ponder as the opportunity presents itself? The opportunity will be presented in the event of the Voluntary Health Insurance applying for an increase in premia. That would be a real opportunity for Members of the Oireachtas to look at the performance of the VHI, how it had adapted to the competitive market and how it had fared against its competitors. If it is the wisdom of the Houses that the VHI had not pursued its commercial objectives with the right schemes, Members of the Oireachtas would have the chance, if not to pass judgment, at least to prompt the VHI in a certain direction and, perhaps, give it food for thought.

(Limerick East): As a general principle it is an interference in the commercial decisions of a body such as the VHI for a Minister to have this power. I cannot argue in favour of the principle because politicians, generally, have a bad record of running commercial companies in the public sector. That is a given. Once the decision goes into the political domain, the decision is made on political grounds rather than commercial grounds.

The Senator might ask if that is the principle, why am I inserting this section in the Bill? There are two reasons. First, as the VHI changes, the Minister for Health as shareholder should have a role to ensure that the VHI is making decisions which secure its future. Second, the Minister as the political head of the Department has a role to ensure that the rights of consumers are protected, particularly when our policy is to continue to have a public/private mix in the health services and where one in three persons in the country is a VHI subscriber. I can justify that departure from the principle but not to the degree of making it a decision of the Houses of the Oireachtas. That would be too cumbersome and is too direct an intervention by the political sphere into the commercial decision making of a body such as the VHI. That is why I am reluctant to accept the amendment as drafted.

However, I agree with many of the Senator's arguments. I have no doubt that if there is a serious increase in VHI premia next year and if I do not prevent it, I will be in one or both Houses to explain both myself and the VHI on foot of a motion put down by one of the Members.

Acting Chairman

Is the amendment being pressed?

I appreciate the Minister's statement that the entire section might have to be removed in a few years' time. I am prepared to withdraw the amendment.

Amendment, by leave, withdrawn.
Section 3 agreed to.

Acting Chairman

Amendment No. 5 is consequential on amendment No. 4 and both amendments may be discussed together.

I move amendment No. 4:

In page 6, subsection (2), line 11, to delete "2" and substitute "4".

The constitution of the board of the VHI, which is being increased from five members to 12, is a matter best left to the Minister's discretion and it should not be addressed specifically in the legislation. It also appears strange that the only restriction on board representation should apply to health service providers.

At present, there are two health service providers on the board. The Minister said earlier that the VHI is in the business of providing health insurance. However, the VHI is the primary source of funding for private health service providers so limiting the numbers to two out of 12 is inappropriate. Health care providers are operating at the coalface in the delivery of these services. They are in a unique position and they have relevant experience and input in the system. The Minister, in limiting their representation on the board of the VHI, is not adequately reflecting the importance of the expertise and practical knowledge they can bring to the board.

I agree with the Minister that the skills base of the board must be widened. People with actuarial, financial and marketing skills are necessary for the board. However, it is strange that it will not be at this or any future Minister's discretion to decide how many of each category should be on the board. The Blood Transfusion Service Board did not have much medical expertise and we saw the problem that arose with that board and the hepatitis C scandal. When that board was criticised by both the Hederman-O'Brien report and the Bain report, which was carried out by consultants called in to investigate the report, the Minister reacted by appointing Professor Shaun McCann and other medical personnel to the board. That board suffered because of its lack of health service providers or medical experts and the Minister addressed this quite properly by appointing those experts. Now there are two health service providers — two doctors — on the board and recently a medical director was appointed. That, it is generally acknowledged, has transformed the board as well as the appointment of a new chief executive officer.

Limiting the number of health service providers to two on a board which has been increased to 12 members is not right. That discretion should be left to the Minister and he or she should decide the appropriate number. It is not necessary to state it in the legislation. My amendment seeks to increase the number to four, although I would be happy to leave the number of health service providers to be appointed to the board to the Minister's discretion. We are making a mistake in the legislation as drafted. I hope we have learned lessons from the past and particularly from the experience of the Blood Transfusion Service Board.

I understand why the Minister is anxious to increase the number on the board from five to 12. The board of the VHI must be commercial and compete with other commercial bodies. The board must have members with actuarial, financial and marketing experience. It is important that the board be strengthened and that is one of the purposes of the Bill.

I wish to speak about the health boards with which we are all familiar. These boards consist of people who represent the different professions — nurses, doctors, dentists, psychiatrists, etc. They are there in a representative capacity; they are elected to serve on the boards by their groups. I doubt that the Minister wishes the health service providers on the VHI board to represent their professions but to use their expertise to make the VHI more competitive and competent. For that reason I oppose Senator Honan's amendment.

The Minister on Second Stage paid tribute to the two health service providers on the board of the VHI because they always put the VHI before their own interests.

Naturally my professional hackles were raised when I saw this as I thought it was getting rid of the medical profession. Then I saw that it was removing more people. "Health service provider" is a broad term and, while I am sure the Minister is right in extending the size of the board and seeking experts with marketing and actuarial skills, health insurance is not quite the same as other forms of insurance. It would be a good idea if there was no limit on the number of people who were on the board. After all, the effects of the schemes may not be fully recognised by those working outside the health service; by this I mean people who are working in administration within the health service as well as people who are providing hands-on medical care.

I am sorry the Minister has tied himself to just two persons who are health service providers because under the definition of the term "health service provider" in the Bill, a large number of people will be excluded. I agree with Senator Doyle that it is incorrect to appoint people to the board whose aim is to represent their own interest groups. On the other hand, it could be very useful to appoint individuals with practical experience who could state what would be the effects of mandatory day care or encouraging doctors to prescribe generic drugs.

I am sorry the Minister has limited his choice in view of the fact that the definition of it is so broad. If this had involved the medical profession alone, I could have understood his action. The Minister has paid tribute to the people already serving on the board and the appointment of a medical director represents a great improvement.

(Limerick East): If we go back to the establishment of the health boards by the late Erskine Childers when he was Minister for Health, great store was placed in the fact that, as well as county councillors who would not be aware of the finer points of medicine——

Some might.

(Limerick East):——many people with medical qualifications would be appointed to the boards — representatives of consultants, general practitioners, pharmacists, etc. It was envisaged that the introduction of such expertise would reform the health services and offset the “hill-billy” attitudes of my colleagues who rose to prominence through the county council system.

In practice, these eminent people bring quite an amount of professional expertise to some debates. When the chips are down, however, they effectively act as trade union leaders representing a particular interest group. Their organisations may have better titles, but they effectively act as shop stewards on the health boards, looking after vested interests. I hope I have not offended anyone. However, I have not stated anything in public which was not previously imparted to these people in private.

The Minister has a right to do so.

(Limerick East): They are very fine people but they do not bring a breadth of experience to the health boards which raises overall standards. When it comes to protecting the public interest, I would put my money on the councillors.

I do not want a situation to develop in the VHI where I or anyone else is subject to continuous lobbying to make it a representative board. If I do not have such control and, say, the IMO or the Irish Hospital Consultants Association seeks equal representation — and the IMO has a number of competitors who will also seek representation — someone might then ask for a nurse to serve on the board. There are four nursing organisations and if I appointed a representative from the Irish Nurses Organisation, SIPTU would seek equal representation. I would then be asked why a chief executive officer from one of the health boards could not be appointed. The health boards have great experience and they purchase many services from the VHI. I have already been approached with regard to representation on behalf of the staff of the VHI who feel that their interests should be protected at board level.

It is my intention to introduce new expertise to a company which will be obliged to trade commercially and face much competition in the future. To provide in law that two of the people on the board be health service providers is a good control mechanism. This will be the intention of future Ministers.

Members are familiar with the system and will be aware that I have received many representations from colleagues in Government parties and friends in other parties. I have been given the CVs of some excellent people with cover notes attached to state that the individuals in question would be exceptional in discharging their functions on a suitable State board. I do not doubt that these people are very capable. If there is an open door policy, however, a process of lobbying will begin and we will not get the type of board envisaged for the VHI. The number of people serving on the board must be limited to 12 for the same reason. If it is at the Minister's discretion to appoint 15 people rather than 12, the momentum of the lobbying system will drive towards the higher number. I do not believe that this would be right either.

The present members of the board include its chairman, Mr. Noel Hanlon, with whom Members will be familiar. Mr. Hanlon is also chairman of Aer Rianta. The two medical consultants on the board are Mr. Michael O'Keeffe, the brother of Deputy Ned O'Keeffe, and Mr. John Keane. The remaining members are Ms Susan Kelly, a tax lawyer, the daughter of a late former Member of the Houses, and Maureen Lynott, a former VHI executive, who brings to the board her experience of working in the organisation. There are a range of useful skills in place at present. However, I would want to add to them by not duplicating existing skills so that the board will be more commercially oriented in dealing with the issues discussed in the context of earlier amendments to, and sections of, the Bill.

Perish the thought that Senator Finneran or I would ever act as trade union representatives or shop stewards in these debates. I assure the Minister that we do not. My anxiety relates to the fact that some of our expertise might be excluded by the Minister providing for two health care providers when the definition of that term is so broad. I accept that the Minister has been badly stung in the past by representations from colleagues. I am glad the membership of the board has been increased. However, I am dismayed that the Minister is imposing an exclusion on that large group. At first I thought only the medical profession would be affected but now I see that the scope is much broader and I am sorry about that, but obvioulsy the Minister had his own troubles with regard to this in the past.

It would be preferable if the constitution of the membership of the board was left to the Minister's discretion. I sought provision for four health service providers because the Bill only provides for the appointment of two. This is the only group subject to such a limit. I am not asking that the membership of the board be increased to 15; I merely request that the Minister retain discretion to appoint whomever he wishes within the specified membership of 12 and is not restricted to limiting the number of health service providers to two. That is my preferred option and is the subject of the amendment. As Senator Henry stated, this does not involve medics but all health care providers.

The VHI's business is to provide insurance. If that business was limited to providing insurance, the Department of Enterprise and Employment would be responsible for its regulation. It is not, however, simply an insurance business, it is a health insurance business. At present, the VHI is the only health insurance company operating in the State and provides services to 1.3 million people. The expertise of health service providers is very relevant to the working of the board.

The board of the Blood Transfusion Service did not have relevant medical expertise at its disposal, and we are aware of the scandal and difficulties that developed in that case. Such difficulties were addressed by appointing people with medical expertise to that board. I am not seeking the appointment of two doctors to the board. However, it should be left to the Minister's discretion to appoint to the board the number of health service providers he believes are necessary.

I do not want any category to enjoy a particular numerical representation on the board. It would not be right to appoint four doctors to the board. Appointments should be at the Minister's discretion and should not be limited by legislation. There is no provision in the Bill which states that only two actuaries or marketing experts should serve on the board. Effectively, there could be ten marketing experts on the board and only two health service providers. It is unlikely that this will happen but the Bill does not restrict representation from any group except that of health service providers. This is wrong.

We are trying to second guess what will happen with regard to the reconstituted board of the VHI. To date, the VHI has enjoyed a monopoly. The issue of whether the board had to seriously consider the organisation's position did not arise, except when it incurred debts. Apart from that, they had to continue to provide a service and keep their heads above water. This will go under new legislation required by EU competition law.

As a member of a health board in the past I have often seen situations arise between budgets where the most laudable proposals and schemes have received the support of everybody, including medics, councillors, Deputies and some ex Ministers. Unfortunately, it is a different story when it comes to belling the cat; everybody protects their own patch. Health boards have become a geographical rat race, with people protecting services in their own county to the exclusion of other counties. This was the case in my county in the past and we have since borne the brunt of its consequences.

We must give the VHI a free hand to a great extent, otherwise it will not survive. Reference was made to the danger it is in and concern was expressed that it may not survive increased competition when other financial institutions from the UK, Europe and elsewhere will enter the Irish market with innovative schemes. They may have far more dry cash and be in a position to take better risks than the VHI, leaving it to deal with schemes in a burdensome part of the market. This could lead to its collapse. We do not want this to happen and I am prepared to give the VHI every chance. Good financial decisions and marketing will be the hallmarks if the VHI is to survive in this new market.

The kind of expertise to which Senator Henry referred is very important. Health care provider expertise must be included and while it is available in the insurance market, it is not available in the health care sector. Given this, there must be a balance and we must know what is happening on a national basis. Private health insurance must cover the medical situations to be dealt with; otherwise it is pointless to have health insurance if it does not respond to medical requirements.

We must not lose sight of the fact that we have public health care and private health care running in parallel. Both are trying to achieve the same goal, which is care for those who are ill. One must make a profit or break even to do this, the other is backed up by the taxpayer. In view of this, good financial management and marketing will be the hallmark of the VHI if it is to survive. There is much merit in the views expressed by Senator Honan and Senator Henry and I do not agree with the view that those who speak with a background in health do so in a sectional way.

(Limerick East): With regard to the membership of the board of the VHI in the future, given that there are only five members whose names I have put on the record, I should not let the occasion pass without paying tribute to the work they have done. They have acted well in a difficult situation. They have not acted in a representational way or in a way that represents any specific interest, rather they have acted in the interests of the VHI and have brought a mix of skills to bear on this. I indicated the professions of those involved and Senators will note the skills that are being utilised.

The expertise of service providers are relevant to the working of the VHI. However, if the wider commercial mandate of the VHI is considered, its primary role is that of an insurance company. I wish to see a mix of skills, such as marketing, sales, banking, insurance, accounting, actuarial, because it would benefit the VHI if they were brought on board. Consumers' interests must also be represented. There is room for the man or woman on the street who would introduce to the board the expertise of those who have to write the cheques to ensure that families are covered for insurance.

I am not acting in a manner which reflects on service providers or those involved in the medical profession etc. However, I wish to confine it because, for example, it is not a parallel argument to question why there was not a provision stipulating that there could only be two accountants. I did not make such a provision because I am not going to be lobbied by accountancy people to do so. However, I have no doubt that I will be lobbied on behalf of medical personnel and individual providers.

The pressure on the Minister of the day will be to put more and more service providers on the board. This is why I am putting a limit to it in the section. With the best will in the world, especially in coalition Government when partners must be accommodated in addition to one's own party, one could end up with a large group of very interesting people; but will all of them bringing the same mix of skills to the deliberations of the board? I want it to be wider, and it is the only agenda I am following.

With regard to the parallel with the health boards, Senators who have served on such boards will fully understand me here. It is not always true that the expert is the best person in situations such as this, because there is a wider, democratic function also.

Amendment, by leave, withdrawn.
Amendment No. 5 not moved.
Section 4 agreed to.
Sections 5 and 6 agreed to.

I move amendment No. 6:

In page 7, before section 7, to insert a new section as follows:

"7. — (1) Not later than the 31st day of March, 1996, there shall be established by the Government, on the request of the Minister, a body to become known as the Voluntary Health Insurance Users' Commission and which is in this Act referred to as ‘the Commission'.

(2) The Commission shall consist of a chairman and not less than seven other members who shall be appointed by the Government.

(3) When appointing a member of the Commission, the Government shall fix his/her term of office which shall not exceed five years and, subject to subsections (7) and (8) of this section, he/she shall hold office on such terms and conditions (other than terms or conditions relating to remuneration or the payment of allowances) as are determined by the Government at the time of appointment.

(4) A member of the Commission may at any time resign office by letter addressed to the Government and the resignation shall take effect as on and from the date of receipt of the letter by the Government.

(5) A member of the Commission whose term of office expires by the effluxion of time shall be eligible for re-appointment.

(6) There shall be paid by the Board to members of the Commission such remuneration (if any) and allowances (if any) as the Board, with the consent of the Minister, from time to time determines.

(7) A member of the Commission may be removed from office by the Government for stated reasons, if, and only if, resolutions are passed by each House of the Oireachtas calling for his/her removal.

(8) Where a member of the Commission is nominated as a member of Seanad Éireann or for election to either House of the Oireachtas, he/she shall, upon accepting such nomination, cease to be a member of the Commission.

(9) (a) A person who is for the time being entitled under the Standing Orders of either House of the Oireachtas to sit therein shall, while so entitled, be disqualified from becoming a member of the Commission.

(b) A member of the Board of the VHI or an officer or servant of the Board shall be disqualified from becoming or being a member of the Commission.

(10) The quorum for a meeting of the Commission shall be four or such higher number as the Commission may, if it thinks fit, from time to time, by resolution determine.

(11) Subject to the provisions of this Act, the Commission shall regulate its procedure and business.

(12) The Commission may investigate and decide complaints made by subscribers of the Voluntary Health Insurance about services, operations or customer relations. The Commission may also investigate matters in relation to existing and proposed health insurance schemes and health-related insurance schemes.

(13) A complaint described in subsection (12) of this section may be made to the Commission by any VHI subscriber in writing.

(14) When the Commission proposes to investigate a complaint made under this section, the Commission shall afford the Board an opportunity to comment on the complaint.

(15) As soon as may be after they decide on a complaint made under this section, the Commission shall send to the person making the complaint and to the Board a statement in writing of their decision on the complaint.

(16) When the Board receives a statement of a decision from the Commission in relation to a complaint, the Board shall, not later than fourteen days after its receipt, inform the Commission in writing whether or not the Commission's decision is accepted by the Board.

(17) The consideration by the Commission of a complaint made to it under this section shall be carried out in private.

(18) Unless it considers it inappropriate, the Commission shall, as soon as may be, publish particulars of its decisions on a complaint in such manner as it considers suitable and where it considers that the publication should be by the Board, or should include publication by the Board, the particulars shall be published by the Board in such manner as shall be agreed between the Commission and the Board.

(19) This section shall not apply to a complaint which, in the opinion of the Commission is frivolous or vexatious.

(20) As soon as may be after the end of each year, the Commission shall make to the Minister a report of its activities during that year. It shall also make interim reports on general matters in relation to existing and proposed health insurance schemes and health-related insurance schemes.".

It is very important that there be an independent body to deal with complaints that may arise from the public. This is the intention of the amendment. The body will be known as the Voluntary Health Insurance Users' Commission. It will provide an essential service to subscribers, allowing them to take complaints to an independent body. The VHI has moved towards a complaints structure, but it is not independent; it is an in-house structure and is not in a position to take matters to a conclusion.

At present the only opportunity available to a VHI subscriber to bring finality to a complaint is to take legal proceedings. There should not be an onus on a subscriber to a company which is 100 per cent owned by the Minister to take legal proceedings to establish whether a complaint made against that company is right or wrong. There is a great wish among the public and subscribers to the VHI that a users' commission should be in place to deal in an independent fashion with complaints made by people who feel aggrieved and that they have a case to make. It is not asking too much of the Minister to establish such a structure in a company fully owned by him. We have a responsibility to subscribers to the VHI.

I am not in any way taking from the VHI's position. I have subscribed to it for most of my adult life and so has my family. I availed of its services on only one occasion when I was treated for an eye infection on an out patient basis. Some people do not have to make claims to the VHI for hospital treatment; this is their luck. Everybody believes, as I do, that people's health is to a great extent their wealth. There should be a proper independent structure to deal with cases where the VHI is not prepared to cover, in full or in part, people's medical bills.

My amendment is practical and necessary. It affords the Minister the opportunity to say to the VHI that although he has no complaint against it and does not believe it has acted in bad faith in the past or has let him down, he believes that in the interests of the public and subscribers there should be a proper structure in place. If he responds positively to my proposal to establish such a body, he will gain great public credit. There are complaints procedures in other commercial State bodies. The Broadcasting Complaints Commission investigates complaints against RTE and the Garda Complaints Board investigates complaints against the Garda Síochána. This amendment is a golden opportunity for the Minister to ensure members of the public are protected by an independent users' commission which would give them independent evaluation of any claims in dispute between them and the Voluntary Health Insurance Board.

(Limerick East): Senator Finneran has proposed that the Bill provide for the establishment of a statutory body to be known as the VHI Users' Commission. Under the amendment the commission is intended to investigate and decide on subscribers' complaints about services, operations and customer relations. It is also proposed that the commission could investigate matters which are not specified relating to existing or proposed insurance schemes of the board. The amendment does not provide that the VHI board must accept the findings or recommendations of the commission.

The amendment envisages a Government appointed commission of not less than eight persons. It provides for any payments of remuneration and expenses to members of the commission to be charged on the VHI but it makes no provision for the assignment of officers and servants to enable the body to perform its functions. Therefore a critical question which arises for answer is: who will provide the funds to establish and run such a body? Subsection (1) of the amendment prescribes that the commission shall be appointed by the Government. This would appear to comprehend an obligation on the Government to provide staff and other resources to comply with the provision under law. The text of the amendment should deal specifically with this matter. Accordingly, I consider it to be incomplete.

There may be procedural reasons for this because it is not possible to have an amendment accepted in the Seanad if it proposes a charge on the Revenue. The necessary financial underpinning is probably not included in the amendment because it would have been ruled out of order if the Senator has proceeded on that basis. If I understand it correctly, this amendment is not complete and there is a financial consideration which the Senator cannot put on the table because of the procedures of the House.

The 1994 report of the insurance ombudsman stated that the operational cost of her office and the insurance ombudsman's council amounted to £190,000 in that year. This gives an idea of the cost which could be involved in the running of an independent complaints body. The initial outlay would involve additional start up costs associated with equipment, accommodation, publications and so on.

The imposition of a further charge on the VHI would not be sustainable in view of the steps it has already taken to resource the operation of a members' advisory council and because it already subscribes to the insurance ombudsman scheme. Furthermore, the Health Insurance Act, 1994, provides that if and when market circumstances warrant, the establishment of a health insurance authority to operate a scheme of risk equalisation in support of the system of community rating will be financed by a levy on registered insurance undertakings. Therefore, the VHI will be subject to the levy.

To put this kind of independent complaints procedure in place would cost a great deal of money and it would not be fair to ask the taxpayer to pick up the bill for this. If we were to go along that road, it would be appropriate for the charge to be met by the VHI. However, it is already contributing to the insurance ombudsman scheme by way of levy and it has set up a members' advisory council which has cost implications. I foresee the establishment of a health insurance authority to carry out the functions I indicated and this will involve another charge on the VHI. It would be too onerous to put another complaints procedure in place for which the VHI should pick up the bills.

The insurance ombudsman scheme is in place and the holder of the office acts independently and is an excellent arbiter. The VHI is part of this scheme. The terms of reference of the insurance ombudsman provide that she receives references in relation to complaints, disputes, claims made in connection with or arising out of policies or insurance effected or proposed to be effected with members of the scheme. Approximately 50 insurance companies participate in the scheme. VHI members are on an equal footing with the generality of insured persons as regards access to independent redress for their grievances.

The insurance ombudsman is able to assist by conciliating between injured persons and the insurance undertaking and by adjudicating on matters in dispute. It is particularly noteworthy that the undertakings who are members of the scheme have agreed to be bound by the insurance ombudsman's decision. The policy holder is free to accept or reject the decision and can take legal proceedings if not satisfied. The insurance ombudsman publishes an annual report which ensures that there is transparency, which is a necessary element of such a system. Accordingly, there is already in existence an effective agency which has the qualities of professionalism, independence and transparency for dealing with the grievances of the VHI members as these relate to the application of the terms and conditions of their policies.

Under the VHI rules, which are made available to all policyholders, it provides that any difference of opinion between the board and a subscriber may be referred to arbitration in accordance with Irish law. This provides a further avenue through which the settlement of disputes can be pursued.

Conscious of what had been said in debates in the Oireachtas about the need to protect the subscribers' position, the VHI has set up a members' advisory council. This is an important body. It held its inaugural meeting on 19 January under the chairmanship of Mr. Finbarr Flood of the Labour Court and it has 12 ordinary members drawn from different backgrounds. The VHI is not represented on the council. The council's terms of reference are to review all communications between the VHI and its members, including product terms, and to suggest ways in which they can be improved; to propose codes of good practice in relation to all aspects of the VHI's business, including the standards of service required for hospitals and doctors; and to review such other aspects of the VHI's operations as are considered appropriate from time to time. It is envisaged by the board that the terms of reference will be reviewed by the council in the light of experience. Accordingly, the council has been given a wide remit with provision to further define its terms of reference and this is welcome.

There are three mechanisms in place at present. The first is the insurance ombudsman, who is an "ombuds-woman" at present, who is doing a good job. There are 50 insurance companies which come within the scheme and it provides one avenue of redress for the VHI members. The second is that under the rules of the VHI there is an arbitration system in accordance with Irish law which can be triggered if a subscriber is dissatisfied with a bill, for example. The third is the members' advisory council. In January this year the advisory council held its first meeting. We should wait to see how it operates. I believe it will be good. However, I do not think it would be proper to put in place an independent complaints procedure when, in effect, the advisory council only held its first meeting in January. It is untried but I put confidence in it because of those involved.

I do not propose to accept the Senator's amendment. Perhaps before the end of my term as Minister for Health I will return to the House on this issue. Indeed, one of my successors may return to the wider issue of the VHI's future structure. If the measures which have been put in place prove inadequate there may be merit in taking the course suggested by Senator Finneran.

I am in favour of supports for the VHI subscribers, although I do not agree with a commission. The previous section, which broadens the membership of the board and takes on members from a wider background, is vitally important. I was delighted to hear the Minister make a comparison with the structure in the health boards. Great work can be done, but people who have a broader perspective must be involved.

At present if a person goes to hospital and is seeing a consultant privately they must opt for private hospital care. Many people who do not have a large income believe they would not have hospital cover for the bed or the consultant unless they have VHI cover. Many people subscribe to the VHI for this reason. It is important that the structure of the VHI is broadened and representative, and that is provided for adequately in the Bill.

The spirit of Senator Finneran's amendment is right in that it is important for consumers that an overview is taken of the VHI insurance scheme. The Minister makes a strong case in saying that the medical advisory group has only just been set up, the insurance ombudsman is a recent innovation and it would be worthwhile to let some time pass to see how they operate before we decide to set up a commission which could be quite expensive.

The Minister has put forward arguments to counteract the intention of my amendment. Public opinion is that the VHI acts as judge and jury and this state of affairs will become more pronounced when it has to operate in a commercial, competitive environment and has to watch every penny. Cases that might not at present be disputed by the VHI may be disputed in future because the VHI will be bound by national and EU law to operate in a competitive market. There will be far more complaints in the new circumstances.

It is imperative that we have a users' commission. The VHI's move to set up the in-house advisory council was designed to counteract the public's feeling that there should be a users' commission. It is a pre-emptive strike on the part of the VHI. The insurance ombudsman is not as powerful a mechanism as the Minister might have us believe. There are VHI subscribers who are not aware of the possibility of taking a case to the insurance ombudsman.

The Minister is right that my amendment had to be tailored in order to be moved because there would be financial considerations involved. The amendment would not have gone further than the Clerk's office had it not been tailored because it would have been adjudged to impose a charge on the Exchequer.

Implicit in the amendment is the opportunity for the VHI to partially finance a users' commission. I do not see anything wrong with that. Why would the VHI not want to subscribe to a body which would act on behalf of its members? There should be a statutory body to independently assess complaints by members of the VHI. This would give people an opportunity to voice their complaints. The VHI would have to check each claim carefully and it would be loathe to make payments. The only adequate protection its subscribers can have is a users commission with statutory powers to independently evaluate claims. Over one million members pay £1,000 a year for health insurance and they should have the protection of an independent evaluation.

This commission would not cost a lot of money. It would be a good idea, because the VHI would not take chances on refusing payments and therefore there would be few complaints before it. This commission is essential for the 1.3 million people who are members of the VHI. We have a duty to ensure that a company which is owned by the State has a proper statutory structure to deal with complaints. I urge the Minister to accept this amendment because there is a need for such a commission.

(Limerick East): There is merit in Senator Finneran's arguments. If the VHI users' advisory council was not in place, I would introduce similar amendments. I agree with the Senator that it was put in place after consultation between the VHI and the Department of Health and in response to anxieties expressed by subscribers. However, I do not think it was a pre-emptive strike. The situation was evaluated and the consensus was that the problem would be best met by this type of council. The VHI is not represented on the board of 12 people, which is chaired by Mr. Finbar Flood, who has significant conciliation experience from his role at the Labour Court. It only met for the first time in January this year, so we should wait to see how it works — I believe it will work. There would be unjustifiable duplication which would cost money if we proceeded along the lines suggested by Senator Finneran.

I appreciate the Minister's reply, but we need to do more in this regard. I will press the amendment.

Amendment put.
The Committee divided: Tá, 17; Nil, 24.

  • Byrne, Seán.
  • Daly, Brendan.
  • Dardis, John.
  • Fahey, Frank.
  • Farrell, Willie.
  • Finneran, Michael.
  • Fitzgerald, Tom.
  • Honan, Cathy.
  • Kiely, Dan.
  • Kiely, Rory.
  • Lydon, Don.
  • McGennis, Marian.
  • McGowan, Paddy.
  • O'Brien, Francis.
  • Quinn, Feargal.
  • Roche, Dick.
  • Wright, G.V.


  • Belton, Louis J.
  • Burke, Paddy.
  • Calnan, Michael.
  • Cashin, Bill.
  • Cosgrave, Liam.
  • Cotter, Bill.
  • Cregan, Denis (Dino).
  • D'Arcy, Michael.
  • Doyle, Joe.
  • Enright, Thomas W.
  • Farrelly, John V.
  • Gallagher, Ann.
  • Hayes, Brian.
  • Henry, Mary.
  • Kelly, Mary.
  • Magner, Pat.
  • Manning, Maurice.
  • Neville, Daniel.
  • O'Sullivan, Jan.
  • O'Toole, Joe.
  • Reynolds, Gerry.
  • Sherlock, Joe.
  • Taylor-Quinn, Madeleine.
  • Townsend, Jim.
Tellers: Tá, Senators Fitzgerald and Finneran; Níl, Senators Cosgrave and Magner.
Amendment declared lost.
Sections 7 to 12, inclusive, agreed to.
Title agreed to.
Bill reported without amendment and received for final consideration.
Question proposed: "That the Bill do now pass."

Limerick East): I thank all those Members who contributed so constructively to the debate.

I thank the Minister for the way he has responded. We did not agree on everything but we appreciate that the Bill is necessary and a good day's work has been completed.

I hope what the Minister has put in the Bill works satisfactorily for the VHI. As I said, not only am I a subscriber and a consumer of the company, I also derive the main part of my income from it, so it is important to me that everything in the Bill works well. I am sure the VHI was quite happy when I was elected to this House; it helped the company's financial situation in that I now spend two-thirds of my time here rather than spending all my time drawing money down from it.

I thank the Minister for introducing the Bill and I support what Senator Henry and Senator Finneran said. We all realise the importance of the VHI, particularly now that it faces competition. We must maintain a viable private health care service and at present the VHI is the only insurance company providing such care. It serves 1.3 million people, a significant sector. Unfortunately, the Minister did not agree with all of our points but we accept some of his explanations. We wish the VHI well in facing competition and hope it will continue to provide services for its members at a reasonable cost.

I thank the Minister for bringing the Bill before the House. The VHI plays an important part in Irish life and I wish it every success in the future. I also thank my colleagues for participating in the speedy passage of the Bill.

Question put and agreed to.
Sitting suspended at 1.25 p.m. and resumed at 2.30 p.m.