I am pleased to address the House on Second Stage of the Health Insurance (Amendment) Bill 2013. As Senators will be aware, the Bill passed through all stages in the Dáil recently. The main objective of the Bill is to specify the amount of risk equalisation credits in respect of age, gender and level of cover that is payable to insurers from the risk equalisation fund from 1 March 2014 and to make consequential amendments to the Stamp Duty Consolidation Act 1999 to revise the stamp duty levy required to fund the risk equalisation credits for 2014. In addition, I am amending the amount of the hospital bed utilisation credit, HBUC, and some technical amendments to the Health Insurance Acts are also included. I will further discuss the requirement for risk equalisation credits within our system of health insurance and the rationale used in setting the level of risk equalisation credits to apply from 1 March 2014 in due course but first, I would like to speak briefly about ongoing reform in the health system where the focus is to deliver a single-tier health service in which access is based on need and not on ability to pay.
The maintenance of a healthy and functioning private health insurance market is an essential step to facilitate the transition to a market-based universal health insurance, UHI, system and the measures provided in the Bill before the House today are a crucial element towards ensuring this objective. The introduction of UHI is, of itself, a complex and major undertaking that requires careful planning and sequencing over a number of years and I welcome the significant progress which has been made in recent months as follows. In February 2012, I established an implementation group on universal health insurance to advise on the development of detailed and costed implementation proposals for UHI and the implementation of various elements of the reform programme. The implementation group has met on 11 occasions and has advised the Department in respect of its work on some of the core building blocks for UHI, including the introduction of a money follows the patient funding system. A money follows the patient policy document was published earlier this year and provides for a fairer and more transparent means of funding health care. Preparations for the roll out of money follows the patient are ongoing. These preparations include a shadow funding exercise which is under way and detailed plans for the commencement of phased implementation of the new system in January 2014, which are in the process of being finalised. In addition, intensive work is currently under way on the preparation of a white paper on UHI, which will provide more detail on the UHI model for Ireland with a view to publication as soon as possible. I have received a draft.
While work is under way in respect of the key building blocks that will pave the way for the introduction of UHI, it is equally important to keep focus on the maintenance of a functioning voluntary private health insurance market in the lead-in to UHI. The measures contained in this Bill are designed to ensure that the overall market is supported by keeping health insurance as affordable as possible for everyone in line with the key principle of community rating which underpins our health insurance system. Community rating, reflecting the principle of inter-generational solidarity, is a fundamental cornerstone of the Irish health insurance market. Under community rating, everybody is charged the same premium for a particular health insurance plan, irrespective of age, gender and the current or likely health status. The aim of risk equalisation is to distribute fairly some of the differences that arise in insurers' costs due to the differing health status of all their customers. Risk equalisation aims to make health insurance more affordable for older people by supporting community-rated premiums.
There are four commercial insurers operating in the private health insurance market. However, there is a clear disparity in the membership profile and thus the associated costs being incurred across the various commercial insurers. Risk equalisation creates a level playing field in the market and provides for risk equalisation credits based on age, gender and level of cover in respect of insured people aged 50 and over. Under the Health Insurance Acts, the Health Insurance Authority which is the statutory regulator of the industry, makes recommendations to the Minister annually on the applicable rates for the following year. Having considered the expert analysis provided and having consulted with the Minister for Finance, I then set the rates for risk equalisation credit and the Minister for Finance sets the rate of stamp duty required to fund those credits. The benefits of our system of community rating can best be seen as supporting the market as a whole and ensuring that through the provision of risk equalisation credits for older and less healthy customers, they can be helped and supported to purchase health insurance at an affordable price. I wish now to focus for a moment on the specific changes made to the risk equalisation credits and corresponding stamp duties that will apply from 1 March next year.
I am committed to progressively increasing the extent to which risk equalisation compensates for the costs of insuring older customers. The Health Insurance Authority has determined that when luxury benefits are excluded, the revised risk equalisation credits will compensate for 78% of the higher claims costs of people in their 70s, which is up from 75% this year, and for 86% of the higher claims costs of those in their 80s, which is up from 83% this year. Compared with 2013 rates, the revised risk equalisation credits for products providing advanced cover are increased. In 2013, the risk equalisation rates for non-advanced cover were set at 85% of those for advanced. This year, I am reducing that differential to 72.4% - this reflects the sharing of cost in respect of ageing but not sharing all of the costs of richer benefits provided under advanced plans.
A critical element of risk equalisation is to ensure that it promotes efficiency. In its assessment of the required support levels, the Health Insurance Authority compares data across the market.
Using market average data means that an insurer with higher than market average claim costs will continue to lose out to its competitors and will therefore have a strong incentive to reduce its costs towards, or even below, the market average. In setting the rates for 2014, the net claims cost ceiling has been reduced from 140% to 133%. Before allowing for the impact of the scheme, the claims costs of older lives are considerably higher than the claims costs of younger lives. This gives insurers an incentive to target younger healthier people and push up prices for older people. We see this through advertisements focusing on young people and a proliferation of products in the market where the products with benefits appealing to older people, such as 100% orthopaedic cover, are far more expensive than those appealing to younger people.
The risk equalisation scheme is self-funding, in other words, the cost of credits is met by the stamp duties raised. In effect, the price of a health insurance premium payable by older individuals is discounted by the appropriate credit for their age, meaning that they actually pay the same price for the same product as a younger, healthier member. This is in keeping with my overall commitment to community rating in the first instance and to progressively increase the extent to which risk equalisation compensates for the costs of insuring older customers. Otherwise, health insurance would become prohibitively expensive for older customers, the majority of whom would be forced to leave the market at a time in their lives when they are likely to benefit from having it the most.
The stamp duty applicable for advanced plans is increased by €49, from €350 to €399 per adult, and from €120 to €135 per child to fund the targeting of support where it is needed most, namely, older and more vulnerable patients who would otherwise not be able to afford private health insurance. The availability of cheaper entry level products, in respect of which there is no increase in stamp duty, may encourage more young people into the market and others to remain in the market. Therefore, from the perspective of the market as a whole, this measure is intended to encourage sustainability.
The latest figures from the Health Insurance Authority show that just over 2 million people, or 44.6% of the population, have private health insurance. This figure has fallen over the last five years from a peak of 50.9% of the population in 2008. These figures underline the need for cost containment by insurers so that people can afford health insurance but they also demonstrate the importance for consumers of shopping around to get the best value for the coverage that they choose. I have urged insurers to do everything possible to keep down the cost of health insurance so that it is affordable for as many people as possible. I have also consistently raised the issue of costs with insurers and am determined to address costs in the sector in the interests of consumers.
Last July, I appointed an independent chairperson, Mr. Pat McLoughlin, to work with health insurers, my Department and the Health Insurance Authority to identify ways of achieving cost reductions in the private health insurance market. Mr. McLoughlin has just submitted his report under phase 1 of the review process and the contents are being examined by me and health insurers. The second phase of this review will commence immediately and will report within three months.
A range of lower cost plans is available from all four health insurers. It is quite possible for consumers to find the same level of cover in the market for a cheaper price. It is important to explore the full range of products now available on the market to avoid missing out on potential cost savings. I strongly advise consumers to research the market and check the options that are available to provide the same level of cover at a competitive rate. The HIA provides information to consumers regarding their rights and on health insurance plans and benefits. The HIA plays an important role for customers both in ensuring that they have accurate information and in enforcing the implementation of the law protecting consumers in relation to health insurance. The HIA's website, hia.ie, has a useful plan comparison tool to assist in finding suitable and competitive health insurance plans.
In terms of policy development it is valuable to set out a basic roadmap for risk equalisation for the next three years. In this context, I am committed to the following: at a minimum maintaining the current level of effectiveness by age group as measured against market average claim costs; adjusting the hospital bed utilisation credit as a proxy indicator of health status pending the introduction of a more refined measure, while ensuring that the rate never creates an incentive for unnecessary hospital stays; introducing a more refined measure of health status, such as through the use of diagnostic related groups; and incrementally increasing effectiveness over the period from 2014 to 2016 with a view to further increasing effectiveness to 85% for those over 70 years and 90% in respect of customers aged over 80 years. In line with existing legislation and other requirements, my policy aims are subject to the following critical requirements: annual expert current market analysis by the HIA; scheme rules relating to over-compensation as agreed under EU state aid approval; and a final decision on applicable risk equalisation rates, set by me in consultation with the Minister for Finance, in line with the governing legislation. The measures I am now introducing will continue to protect community rated health insurance, which is a vital part of our health system as we move to universal health insurance.
I now wish to outline the main provisions of the Health Insurance (Amendment) Bill 2013. Section 1 defines the Principal Act as the Health Insurance Act 1994. Section 2 amends the definition of "net premium" in section 2(1) of the Principal Act. Section 8 of the Finance (No 2) Bill 2013 introduces new ceilings on medical insurance premiums that will qualify for tax relief at €1,000 per adult and €500 per child. This has implications for the manner in which community rating is applied under the Health Insurance Acts. This amendment clarifies that community rating applies to the gross premium less any risk equalisation credits and excludes any applicable tax relief.
Section 3 amends section 6A of the Principal Act. This amendment includes a technical amendment to correct a reference; a consequential amendment to the definition of "hospital bed utilisation credit" from 1 January 2014 to reflect the enactment of section 55 of the Health Act 1970, whereby private patients will incur a hospital charge in respect of an overnight stay in a public bed; a consequential amendment to the definition of "relevant amount"; and deletion of the definition of "reasonable profit" at section 6A(2), a replacement definition for which is provided for in section 5.
Section 4 amends section 7AB of the Principal Act. For consistency, the timeframe by which a registered undertaking planning to vary benefits payable under a type of health insurance contract is required to notify the HIA is extended from 1 January to 1 March. This measure is in line with section 6.
Section 5 amends section 7F of the Principal Act. First, section 7F(1) is amended to provide an additional period of one month to 1 May for registered undertakings to fulfil the requirement to maintain and furnish information returns, including a statement of profit and loss and balance sheet to the Health Insurance Authority. This has the practical benefit of providing insurers with an additional month to finalise their preparations and is in line with the timeframes for similar returns under Central Bank requirements. In other words, they do not have to perform the same function twice, one month after the other.
Under section 7F(4) of the Act, an overcompensated registered undertaking is required to make a payment to the risk equalisation fund if it has made more than reasonable profit. The HIA carries out the overcompensation test on a three year rolling basis as provided for in the legislation. This amendment specifies that the HIA will take what would constitute reasonable profit for a registered undertaking in respect of its relevant health insurance business as a return on equity not exceeding 12% per annum on a rolling three year basis using approved accounting standards and having regard to the European Union framework for state aid in the form of public service compensation. A registered undertaking is not deemed to have made a profit in excess of reasonable profit if its return on equity exceeds 12% per annum in respect of that business for part of the three year period but not for all of that period. Further, it defines "relevant health insurance business in the State" as "all of the undertakings health insurance business in the State" and treats return on equity in the case of a registered undertaking or former registered undertaking established otherwise than under the Companies Act as the equivalent, using approved accounting standards, of a return on equity of a registered undertaking which is a company established under those Acts.
Section 6 amends section 7H of the principal Act. Registered undertakings provide premium information to policy holders in the renewal notice or statement issued. This amendment provides that the renewal notice clearly shows, in addition to the gross premium before risk equalisation credits and after any credits that may apply, the premium payable by the insured member net of tax relief at source following recent changes to the limit of relievable amount of premium available under the Taxes Consolidation Act introduced in the Finance Bill.
Section 7 amends section 11C of the principal Act to provide for 1 March 2014 as the effective date for revised risk equalisation credits to be payable from the fund. Section 8 amends section 11E of the principal Act. This amendment provides that where the HIA is satisfied that a "changed existing contract" is now a contract which it classifies as now providing non-advanced cover, it will make regulations accordingly. Where the HIA is satisfied that a "changed existing contract" now provides advanced cover, the HIA will amend the relevant specification. In addition, provision is made for the HIA to review any evaluation and analysis of sample types of contracts and where an error occurred in the classification of a product, the HIA will amend regulations and the register of health insurance contracts accordingly.
Section 9 amends the reference on Schedule 2 to the principal Act. This is a consequential technical amendment to change the reference on the schedule to section 7F from section 6A. Section 10 amends Schedule 3 to the principal Act to provide that the revised amount payable from the risk equalisation fund, REF, in respect of the hospital bed utilisation credit will decrease to €60 in respect of health insurance contracts renewed or entered into from 1 March 2014 and confirms that the specified rate for the hospital bed utilisation credit for contracts entered into after 31 March 2013 remains at the higher rate of €75.
Section 11 replaces table 2 in Schedule 4 to the principal Act. With effect from 1 March 2014 the applicable risk equalisation credits payable from the REF in respect of certain classes of insured persons are revised. Section 12 amends section 125A of the Stamp Duties Act 1999. This amendment specifies the accounting periods as "3 consecutive months beginning 1 January, 1 April, 1 July or 1 October." It defines the due date for returns to the Revenue Commissioners as the 21st day of the second month after the end of an accounting period. It then specifies the applicable stamp duty rates for 1 January to 28 February 2014 and 1 March 2014 onwards. Finally, it deletes subsection (2A) in each place. Section 13 provides for the short title, collective citation and construction of the Bill.
I thank the Senators for their attention and I commend this Bill to the House.
