The primary purpose of this Bill is to amend and extend the Health Insurance Act, 1994, which provides the legislative basis for the regulation of the voluntary private health insurance market. It also makes certain provision, consistent with the existing VHI Acts, with respect to the powers of the Voluntary Health Insurance Board.
My Department is currently engaged in the preparation of a new health strategy which will be published later this year. Notwithstanding the renewed focus which the strategy will bring to public health services, at present private health insurance plays an important role in the provision of hospital services for a large proportion of our population. The purpose of this Bill is to provide a framework which maintains the established common good principles of our system and supports the further development of a competitive private health insurance market. The Bill implements improvements and innovations in the general regulatory framework outlined in the White Paper on Private Health Insurance published by the Government in September 1999. It has been framed so as to provide enhanced scope for competition in the market while at the same time strengthening the basis on which solidarity between generations operates through community rating. It is my belief that the provisions of the Bill we are now considering will facilitate achievement of these two goals which, it has to be acknowledged, are not easily reconciled.
While our private health insurance system was originally established to provide cover for a por tion of the population then without an entitlement to hospital services, it must be remembered that private health insurance here is availed of on a voluntary basis. The voluntary private health insurance system here has developed and thrived on the basis of community rating, open enrolment and lifetime cover, which provide extensive safeguards for individuals in the operation of health insurance. An estimated 45% of the population currently have private health insurance cover. By contrast, the risk-rated and generally unregulated system in the United Kingdom has been relatively static with only about 12% of the population currently covered.
The health insurance market was opened to competition through the Health Insurance Act, 1994, which was enacted in the interests of the common good. The Act provided significant safeguards for insured persons in the context of the opening of our health insurance market to competition in accordance with our European Union obligations for the completion of the Single Market. The 1994 Act requires health insurance undertakings to operate in accordance with community rating, open enrolment and lifetime cover. It also provides for minimum benefit for risk equalisation.
The Act provided for the registration of insurance undertakings which either made cover available to the public or on a basis restricted to a particular vocational or occupational group, referred to as "restricted membership undertakings". It also provided for the establishment of an independent regulatory body, the Health Insurance Authority, which I established on 1 February this year. The programme for Government specifically referred to the health insurance framework and led to the preparation of the first ever policy statement on private health insurance, the White Paper on Private Health Insurance, published in September 1999.
The White Paper described how the private health insurance system played a complementary role to the arrangements for the provision of health services to the public generally. In that context, it referred to advantages resulting from the mix of public-private practice established in the hospital system. Notwithstanding this, as stated in the White Paper, the Government's primary concern is to ensure equitable access to health services. This imperative is central to considerations in the preparation of the forthcoming health strategy and will be the primary determinant in all policies and actions arising from its implementation going forward.
I now turn to the principal provisions contained in the Bill. A key change provided for in the Bill relates to the definition of a health insurance contract. The principal changes from the existing definition are clarifications of the insurance cover comprehended by the definition, including employer arrangements and the removal from its scope of insurance plans which are solely con cerned with services such as dental and optician services which have not featured to a significant extent in insurers' products.
There is provision to support the financial stability of community rating by allowing insurers discretion to apply late entry premium loadings in specified circumstances where cover is being availed of for the first time at an older age or where there has been a significant break in cover. This is known as a "lifetime community rating". As a corollary to this measure, open enrolment provisions of the 1994 Act, which provide individuals with an entitlement to purchase health insurance, will be extended to persons of, or over, the age of 65 years.
The Bill includes revised arrangements in relation to risk equalisation, aimed at facilitating competition while providing a necessary safeguard for community rating against the threat of instability which would arise from the development of risk selection in the market. Under the proposed arrangements, the Health Insurance Authority will be given a significant role in relation to the commencement of risk equalisation and the level of transfer which would arise following any commencement. A special measure in the area of risk equalisation, aimed at supporting entry to the market, will give insurers coming in an option not to participate in risk equalisation arrangements for a period immediately following the commencement of health insurance business in this country.
A number of sections provide for the making of regulations by the Minister in relation to the detailed arrangements for implementation of the provisions concerned. The Bill provides that such regulations, other than a limited number of primarily routine measures, shall be submitted to the Oireachtas in draft form and will require approval by each House before they can be made. Regulations subject to this process will include those relating to risk equalisation. The Bill, therefore, provides for the Houses of the Oireachtas to have further, more detailed oversight of the measures to be taken in the regulation of the private health insurance market.
Section 1 is a standard provision which defines the principal Act as being the Health Insurance Act, 1994. Section 2 substitutes the key definition of "health insurance contract" contained in section 2(1) of the principal Act. The amended definition provides that the focus of the legislation shall be on health insurance contracts which have, to any extent, the purpose of providing indemnity against the cost of hospital in-patient, day-patient services and relevant health services which are defined in section 3.
To reflect the actual market situation and basic differences required in product financing and structure, the definition provides that the term ‘health insurance contract' does not apply to arrangements which provide cover against the cost of long-term nursing care. Similarly, certain contracts currently offered in respect of health episodes, which provide cash benefits rather than indemnity cover, are exempted from the definition. There is also an exemption in respect of international health insurance plans written in this country where the vast majority of the persons being covered under each policy are residing in other countries.
Section 3 provides for a number of limited changes to definitions contained in the principal Act. These are mainly of a technical nature. There is, however, a new definition of ‘day patient service' which takes account of the large extent of procedures which are performed in hospitals on a daily basis and in respect of which health insurers pay benefits. The section also contains a definition of ‘relevant health services' which provides that out-patient services, general medical practitioner services and services consisting of the supply of drugs or medical preparations are comprehended by the definition of a health insurance contract.
If self-insurance on the part of employers was to develop, it would have the effect of damaging community rating by removing a predominantly young and healthy population from the general risk pool. This would threaten the solidarity between generations which underpins community rating. In this connection section 4 inserts a new provision which elaborates the type of arrangements which are deemed to constitute health insurance contracts. It provides that an employer who pays, or undertakes to pay, the fees or charges incurred by employees in respect of hospital in-patient services will be defined as a provider of health insurance and will be subject to the legislation. Self-insurance by large employers is a significant feature of arrangements in the United States.
Recognising the existence of a limited number of long-standing public service employment-related arrangements, an exemption to this provision will apply in the case of specific arrangements entered into by a Minister of the Government. Such established arrangements relate, for example, to some Defence Forces personnel. The effect of the exemption will be to enable these arrangements to continue as before outside the ambit of the health insurance legislation. A further exemption is provided for in respect of ‘excess' amounts, which are part of contracts currently offered in the market, where employers may meet such excesses incurred by their employees in connection with an episode of care or treatment. This amount is being limited to £100. It would not be my intention to facilitate any significant expansion of this exemption going forward as it could have the potential to impact negatively on the solidarity between generations which underpins community rating.
Section 5 substitutes section 7 of the 1994 Act which provides for the community rating of health insurance premiums. It maintains all the essentials of community rating provided for under the 1994 Act. In addition to maintaining the existing protections for consumers in relation to the setting of premiums on a community-rated basis, it prohibits the varying on the grounds of age, sex or sexual orientation of amounts payable by insurers in respect of the treatment and care of insured persons. The consumers' interests are thereby safeguarded both at the premium and benefits end of the insurance transaction. The section retains the provision requiring insurers to operate significantly reduced premium costs in respect of children. It provides for the scope of discretion by insurers to reduce premiums for dependent persons who are receiving full-time education to be increased from under the age of 21 to under the age of 23.
Section 6 inserts a new section which supports community rating by giving an incentive for individuals to take out health insurance at a young age and by ensuring that those who join late also contribute appropriately to community rating. It does so in the context of strengthening and making more robust the system of community rating. I believe this is a fairer system of community rating than the current one because it will reward those who take out private health insurance when young, it will provide for an appropriate contribution by those who enter health insurance later in life when the prospect of claiming benefits is higher and it is consistent with the general principle of community rating because a 70 year old person who originally joined the system at age 25 will pay the same premium as a new entrant aged 25. Under the section, insurers will have the power to apply late entry premium loadings only in the circumstances specified and subject to arrangements which the Minister will provide for in regulations. This form of premium regime is known as ‘lifetime community rating'. Persons already insured will not be liable to late entry loadings when renewing their cover.
Subsection (1), on foot of actuarial advice, clarifies that the measure applies to those aged 35 and over. The actuarial advice which I received is that people who join the system before their mid-30s already make a significant contribution to the solidarity of the system.
Subsection (4) provides that the circumstances in which a premium loading may be applied include the case where a person was not previously insured by a registered undertaking, had a lapse in cover of greater than 12 months duration or was availing of a higher level of cover. Another circumstance set out in the subsection relates to members of restricted membership undertakings who decide to remain outside the wider community-rated pool by choosing not to participate in risk equalisation arrangements.
Subsection (6) provides that the amount of the premium loading shall be determined in accordance with the regulations. In framing and implementing these regulations, careful regard will be had to ensuring that the maximum permitted loadings are appropriate and do not represent an unfair burden on late entrants. Subsection (7) provides that the regulations may specify different methods or percentages in determining premium loadings, depending on the circumstances set out in subsection (4). It also provides that credit be given for previous periods of community-rated insurance cover held.
Section 7 arises from section 6 of the Bill. Given the intention to enable insurers to apply late entry loadings, the section provides for the disclosure of information relevant to the operation of such loadings between insurers. The information concerned will relate to the extent and duration of an individual's insurance cover and can only be sought for the purpose of operating late entry premium loadings. The provision of information will not extend to claims or medical records. The section provides for the Minister to prescribe the arrangements for such disclosure between insurers.
Section 8 substitutes section 8 of the 1994 Act which concerns access to health insurance cover on an open enrolment basis. A significant change is provided for in relation to facilitating the provision of cover to persons aged 65 and over who had not previously taken out community-rated insurance. Heretofore, insurers were not obliged to sell cover to persons aged 65 and over who were not already enrolled with another insurer. The section maintains the original provisions relating to the capacity of insurers to impose waiting periods, the operation of which is subject to regulations made by the Minister.
Subsection (3) provides for the Minister to prescribe waiting periods for eligibility for cover under a health insurance contract. Open enrolment regulations were made pursuant to the 1994 Act, and these prescribe maximum permitted waiting periods for payment of benefits in certain circumstances, including where a person joins for the first time and where a person has a pre-existing medical condition. Subsection (5) maintains the existing statutory arrangements which protect individuals from having to re-serve waiting periods on changing insurers, where no significant lapse in cover has occurred.
Subsection (6) provides that the protection for individuals against re-serving waiting periods on transferring between insurers shall not apply in the case of members of restricted membership undertakings which have decided not to participate in risk equalisation. An exception to this measure will apply where the person transferring is under 23 years of age. This will safeguard the position of dependants of members of such restricted membership undertakings, who, under their rules, can no longer be covered on attaining a certain age.
Section 9 substitutes section 12 of the 1994 Act which provides for risk equalisation arrangements between insurers. The main changes from the provisions made under the 1994 Act are as follows; restricted membership undertakings to have an option in regard to participation in risk equalisation; the Health Insurance Authority to have a key role in determining the timing of the commencement of risk equalisation in the overall best interests of consumers; arrangements for the making of representations to the authority or the Minister in relation to the commencement of risk equalisation; and new entrants to the market to have the option of availing of a three year exemption from risk equalisation transfers between insurance undertakings.
Subsection (1) provides for the Minister to prescribe a scheme of risk equalisation, which will set out the details relating to the conditions for its commencement and the terms of its operation. Subsection (2) addresses the undertakings to which any risk equalisation scheme will apply. It also provides for the established restricted membership undertakings to exercise a "once off" choice to be permanently excluded from risk equalisation.
Subsection (3) maintains original provisions relating to arrangements for the making of statutory returns by insurers to the authority. It is the data contained in these returns which will be among the elements central to consideration of the commencement of risk equalisation, on the basis of which the magnitude of any transfers will be determined.
Subsection (4) provides for arrangements relating to the making of payments to the authority by insurance undertakings and the making of payments by the authority to undertakings, by reference to matters to be specified in the scheme. It also provides that the Minister shall determine the day when such arrangements are to have effect. In this regard, the scheme shall require the authority to evaluate and analyse the returns made to it, prepare and furnish reports to the Minister and recommend, where conditions specified in the scheme are fulfilled, whether the Minister ought, or ought not, exercise the power to determine that risk equalisation payments should commence.
The subsection will enable the statutory scheme to provide that, up to a certain specified level of material instability in the risk profiles of insurers, the Minister may only authorise the commencement of risk equalisation transfers between insurers on foot of a recommendation to that effect from the authority. Beyond the specified level, the Minister shall authorise such commencement unless there are good reasons for not doing so. The subsection provides that the authority and the Minister are obliged to have regard to the best overall interests of health insurance consumers in the exercise of their respective duties.
Under subsection (5) the authority, in making a recommendation on whether or not risk equal isation ought to be commenced, shall inform each undertaking of its proposed recommendation. Each undertaking will be entitled to make representations concerning the recommendation, and the authority must take account of such representations before deciding the recommendation to be included in its report to the Minister under the scheme.
Under subsection (6) a scheme shall require the Minister to inform registered undertakings of a proposed determination to commence risk equalisation arrangements. Undertakings will be entitled to make representations in relation to why such a determination ought not be made by the Minister and he/she shall take such representations into account before finally deciding whether to make the determination which would commence the process of risk equalisation payments between insurers.
Subsection (7) requires registered undertakings, when requested, to provide information or details to the authority relating to returns they have made. It also provides that the Minister is entitled to specify the form of, and particulars to be included in, reports being made by the authority concerning its periodic evaluation and analysis of returns from insurers.
Subsection (8) provides that registered undertakings which have made representations, to the authority or the Minister, relating to commencement of risk equalisation shall, when requested, provide information or documentation in support of their representations within a specified time. Subsection (9) maintains the provision relating to the establishment and maintenance of a risk equalisation fund into which insurers would make payments to the authority and from which the authority would make payments to insurers. It also maintains provisions concerning the keeping of accounts relating to this fund by the authority.
Subsection (10) defines a health insurance consumer and insured risks as referred to in the section. It specifies that the best overall interests of consumers includes the need to maintain the application of community rating across the market, as opposed to within the risk pool of individual insurers. It provides that conditions to be set out under a scheme requiring the authority to make a recommendation in relation to commencement of risk equalisation can differ from conditions under which the Minister shall commence risk equalisation. It also provides that these conditions can be expressed by reference to the amounts which would arise for payment, in accordance with the terms of a scheme, on account of the nature and distribution of insured risks among the undertakings. The effect of this subsection is to allow for a scheme to specify different trigger points based on the level of market instability evident from the differing risk profiles of competing insurers, as derived from the analysis of their respective returns to the authority.
The capacity to set different triggers will enable a scheme to contain a significant degree of discretion within which the commencement of risk equalisation can only occur on foot of a recommendation to that effect from the authority. In the absence of any recommendation from the authority to commence risk equalisation, the development of a higher level of instability will require the Minister to authorise the commencement of risk equalisation unless it appears to him or her that good reasons exist for not doing so.
Section 9 also inserts a new section 12A in the 1994 Act. This new section enables the authority to disclose aggregate information derived from statutory returns made to it by insurers, but provides that such data related to individual insurers may be disclosed only where necessary for the functions of the authority or the Minister.
I wish to address briefly the need for risk equalisation in a health insurance system such as that which operates in this country and the arrangements envisaged. Our private health insurance system operates under the widely accepted principles of community rating, open enrolment and lifetime cover. Generally, this means that insurers must accept all comers, irrespective of their age or health status, and charge them a standard premium for a given level of cover. The system is built on the trust and confidence of consumers in the effective operation of community rating going forward. This is manifested in their willingness to pay into community rating when younger and healthier on the basis that when they are older and ill they will be supported by the same cross-community solidarity on the part of all subscribers.
Under this system, there is a serious danger that the market could be destabilised if significant variations emerge in risk profiles of competing insurers. For example, if some insurers, by accident of design, end up with a younger/healthier population they will be able to charge a lower premium or take a higher profit. The other side of the coin is that premiums will rise inevitably for those consumers who happen to be with an insurer which covers a higher proportion of less healthy individuals.
Risk equalisation is the mechanism which will counteract the very real potential for destabilisation to occur in a competitive insurance system operating to the principles of community rating and open enrolment. Risk equalisation simply aims to equalise differences in health insurers costs that arise due to significant variations in their risk profiles. The need for risk equalisation in a private health insurance system such as ours is supported by a wide range of national and international expert opinion and experience.
The purpose of section 9 of the Bill is to enable implementation of significant changes in the arrangements for risk equalisation as originally envisaged under the 1994 Act with a view to addressing concerns about its commencement and impact. The characteristics of the arrangements relating to the commencement of risk equalisation will involve major discretion on the part of the independent Health Insurance Authority. Risk equalisation will commence only where material distortion has emerged in the risk profiles of insurers. The authority is required to be satisfied to recommend commencement of risk equalisation in the best interests of health insurance consumers and it must facilitate competition. There will be no recourse to an unnecessary commencement of risk equalisation. Furthermore, there is no question of full equalisation of claims experience as the authority will have significant scope in determining the basis for the calculation of any transfers under a scheme and insurers will retain their own unit claims cost efficiency.
Under successive Ministers, my Department has liaised with the relevant EU Commission services regarding plans to regulate private health insurance. The Department widely publicised and explained its plans to regulate and protect community rating in the competitive market. Whether health systems are voluntary or compulsory, the incentives for and consequences of risk selection are significant and need to be addressed. This may be represented as an imagined rather than a real threat. Risk selection in the absence of effective risk equalisation has contributed to instability in other systems, most recently in the case of a German insurer.
Arguments about the inequity of one insurer paying funds to another are not valid as payments under risk equalisation constitute transfers from young and healthy to the old and unhealthy who are part of the same community of risk under our system. Such payments represent a redistribution of excess profits arising from better risks and they support the normal operation of community rating. The sole purpose of risk equalisation transfers is the maintenance of effective community rating across the insured population as a whole.
Section 10 allows insurers entering the market to avail of an exemption from risk equalisation, lasting three years from the date of the commencement of health insurance business. The entry of additional insurers to the market has the potential to yield benefits to consumers in terms of competition, insured benefits available and price. To achieve such enhanced competition, it is necessary to give practical recognition to the fact that a new entrant to the health insurance sector faces initial marketing, development and operational costs if it is to compete with the two major insurers and establish itself with a reasonable prospect of sustainability.
Section 11 obliges the Health Insurance Authority to make specific annual reports in the event of risk equalisation being commenced. The envisaged reports would evaluate the operation of the risk equalisation scheme with respect to its effects on the interests of health insurance consumers. The section provides that reports are to be laid before the Oireachtas. The authority is required under the principal Act to produce annual reports in relation to its activities.
Section 12 requires the Minister and the Health Insurance Authority to treat health insurance undertakings equally in similar circumstances. The section is formulated to ensure the Minister or authority may discharge their respective responsibilities to deal with differences between the circumstances of undertakings which require different treatment under the Act.
Section 13 deals with a number of miscellaneous consequential amendments. It also provides that the Minister, before making regulations, must present them in draft form to the Oireachtas to obtain the approval of each House. Pending the introduction of legislation changing the status of VHI, section 14 will allow VHI to engage in new areas of business as a principal or agent. Given VHI's current status, it is appropriate that new schemes should be subject to ministerial approval and to regulatory or other conditions as the Minister deems appropriate.
The Government is committed to changing the corporate status of VHI to that of a State-owned limited company, as set out in the White Paper. Preparatory work in that regard includes obtaining corporate finance and legal advice, which is currently in hand.
Section 15 is a standard provision which gives the short title and collective citation and provides for the commencement date or dates to be appointed by ministerial order as considered appropriate.
As I noted at the outset, reconciling the protection of common good elements of the voluntary private health insurance system with giving full rein to the forces of competition is a challenge. I am satisfied the provisions in this Bill represent a balanced, transparent and fair approach towards achieving that objective. I thank the House for its tolerance of a lengthy and comprehensive account of this complex Bill. I felt it was important to make a thorough statement on this Stage and I commend the Bill to the House.