I thank Senator Quinn for bringing forward the Health Insurance (Reform) Bill 2014 and I welcome the opportunity to participate in the debate on it.
Having noted what the Senator said about the Bill in this House and in a recent newspaper article, I am satisfied that all staff in the private health insurance unit maintain the highest standards of probity by conducting themselves with honesty, impartiality and integrity, as required under the Civil Service code of standards and behaviour. The code requires that particular care be taken to safeguard information concerning the commercial affairs of companies or organisations which have been submitted in connection with official business on condition or on the reasonable assumption that it would remain confidential.
Senior officials in this area also hold positions that are subject to section 18 of the Ethics in Public Office Acts 1995 and 2001. Information received from any insurer is used solely in the carrying out of official duties and is not made available outside of the Department unless required under law. As a commercial State body, the VHI has obligations to the Minister for Health under the code of practice for governance of State bodies. These obligations are monitored by the private health insurance unit of my Department which, among other things, is charged with overseeing the maintenance of a competitive and sustainable private health insurance market, management of ongoing market issues and appropriate liaison with and governance of relevant State bodies. I reject the assertion that there is preferential treatment of the VHI. That is a misunderstanding of the situation.
I will address risk equalisation during the course of my speech but suffice it to say that if any of the other companies had the same proportion of older people to their membership as the VHI, there would be no discussion of this subject. Risk equalisation is intended to address that. If we all subscribe to community rating, whereby customers pay the same premium for the same policy irrespective of their age, sex or disease status, we have to compensate companies which have a higher proportion of older and sicker people as opposed to those which have a much younger customer base. Nobody in this House is naive enough to believe that the market is not used by the insurers to chase the more profitable young people. All one has to do to confirm this is to examine the products provided by new entrants to the market and the percentage of young versus older people on their books. The story speaks for itself.
The Senator and I share the same objective for the private health insurance market, namely, to achieve a viable and sustainable system, affordable to all, which operates in the best interests of the public. I want to make sure that this happens, but I think that there are different ways of achieving the objective. The Bill before us proposes a number of changes to the regulatory infrastructure underpinning the private health insurance market. While I appreciate the intentions in bringing forward this Bill, any changes we make must be in the context of moving to universal health insurance. There have been many important and positive developments in the private health insurance market in recent times and legislation must take account of these.
The VHI's position has already advanced considerably towards authorisation by the Central Bank but the Bill does not take account of these developments. Similarly the Health Insurance Authority will be the engine for reform of the private health insurance market and to implement the provisions of this Bill would be entirely inconsistent with the new role that I see for the Health Insurance Authority under universal health insurance. It would be helpful to inform the House of the progress achieved to date in respect of sustaining the private health insurance market. In addition, I will set out the policy supports that I will introduce shortly, and the planned reforms in respect of private health insurance before addressing the three key proposals in the Bill.
I acknowledge Senator Quinn's concerns about the decline in the numbers insured in the private health insurance market since its peak in 2008. More than 250,000 people lost their jobs in the period since 2008 because of the financial decline of this country. In addition, 250,000 medical cards were issued and 250,000 people left the insurance market. They are not all the same 250,000 people but there is a relationship with the financial situation in which the country and the individuals who live here find themselves. The current private health insurance coverage stands at 44.2% of the population. I am keen to create the best possible environment within which more people will want to obtain and retain private health insurance cover that is affordable and competitive, and meets consumers' needs as we prepare to move to universal health insurance. I am taking a series of steps to support the private health insurance market. With all respect to Senator Quinn, I consider these initiatives, rather than those proposed in his Bill, are the most appropriate to promote a sustainable and competitive private health insurance market.
In June 2013, 1 appointed Mr. Pat McLoughlin, to work with insurers, the Health Insurance Authority and my Department to identify effective strategies for cost management in the market. Mr. McLoughlin's first report, which was published at the end of December 2013, made a number of important recommendations, including the introduction of lifetime community rating as a measure to encourage younger people to buy health insurance. Lifetime community rating is intended to encourage people to join health insurance schemes early and to retain their private health insurance cover. Late entry loadings will be applied to those who join later in life. There will, of course, be a grace period to allow people take out insurance without loadings and a strong communications campaign to give everyone adequate notice of the change.
The introduction of lifetime community rating will provide a mechanism to discourage people from only taking out private health insurance as they get older by allowing commercial insurers to charge higher premiums to late entrants to the market and thus provide an incentive for people to take out private health insurance at a younger age. This is important because the health insurance market requires a sizeable cohort of younger members, who are generally healthier, to offset the high cost of older and less healthy members. This is critical to the sustainability of our system of community-rated health insurance. Many of those who are growing and require additional care are the very people who supported those who went before them when they were younger. Officials from my Department, in consultation with the Health Insurance Authority and the health insurers, have been working to finalise regulations to provide for lifetime community rating. I intend to sign the regulations to make this a reality shortly. I also wish to help to address the substantial reduction in market penetration rates among those between the ages of 20 and 25 by providing for sliding discounts for all young adults up to age 24 years. I propose to introduce phasing-in of full adult rates to smoothen the dramatic price increase currently experienced when student rates no longer apply, usually after the age of 21 years at present.
I propose that this measure will be introduced in legislation later this year, for implementation in 2015.
In addition to the measures I have outlined, I have consistently emphasised the need for much greater cost control in the private health insurance industry so that premiums are affordable for as many people as possible. I have urged all the private health insurers to do everything possible to keep down the cost of private health insurance. I am determined to address costs in this sector in the interest of consumers and I have made it clear to insurers that I believe significant savings can still be made, the effect of which can be to minimise the need for premium increases.
In addition to the introduction of lifetime community rating, significant progress has also been made on the implementation of the other recommendations in Mr. McLoughlin's phase 1 costs review report. For example, the HSE and insurers are now working together to implement a number of the report's recommendations on claims processing, and admission and discharge issues.
As regards fraud, waste and abuse, the private health insurers have agreed to use existing anti-fraud and confidential hotline structures under the auspices of Insurance Ireland to facilitate combating fraud in the private health insurance market.
As a shareholder, I have seen the letter from the VHI to my Department's Secretary General. I know that the VHI is engaged in post-market surveillance. When people have left hospital, they get a phone call which they find useful because it is nice to know that one's insurer is interested in how one got on. They can also check whether the tests they have been billed for have actually been done. The particular recommendations on case-based charging will be incorporated into the work already under way by my Department under the money follows the patient system.
Senator Barrett alluded to the need for clinical audits, which astonishingly we never had before. Such audits can check whether or not the tests were necessary in the first place. In addition, there will be more robust auditing both of doctors and hospitals, as well as benchmarking what we pay. We are still paying several hundred euro for procedures that used to take two hours, but now only take 20 minutes. In this respect, much work has to be done this year and the renegotiation of many of these consultant contracts will take place around this time.
Work on phase 2 of Mr. McLoughlin's report, which will deal further with the factors driving costs in health insurance, is progressing well. This second phase report is expected to be finalised and published in the coming weeks.
Under universal health insurance, UHI, competing health insurers will form the backbone of the new purchaser-provider split. Insurers will be the commissioners of a wide range of primary care services, acute hospital services and acute mental health care. I recognise that in advance of UHI, we need an affordable, competitive market that meets consumers' needs. I want to create the best possible environment within which more people will want to take out, and keep, health insurance cover.
Community-rated health insurance systems across the world use risk equalisation as a mechanism to distribute fairly some of the differences that arise in insurers' costs due to the differing health status of all their customers. I alluded to this at the beginning of my speech. I am committed to making further improvements to the risk equalisation scheme as a mechanism to support community rating in the private health insurance market. In January 2013, I introduced a permanent risk equalisation scheme which takes greater account of the extra cost of treating older and sicker patients, compared with younger and healthy lives. The scheme encourages insurers to focus on product innovation, efficiency and customer service. Subject to expert advice and in line with existing legislation and other requirements, I am committed to the following: maintaining the current level of effectiveness and, where possible, over the period of 2014-16, increasing the effectiveness of the scheme to 85% for those in their 70s and to 90% for those over 80 years of age; adjusting the hospital bed utilisation credit as a proxy for health status; and introducing a more refined health status measure through the use of diagnosis-related groups on a phased basis between 2016 and 2018. A robust risk equalisation scheme is also required as a foundation stone to delivering services under universal health Insurance. The House will appreciate that the progress I have outlined, together with the proposed reforms, are in line with the Government's commitment to maintaining a viable and sustainable private health insurance market.
I will now address each of the Bill's three key proposals. The Bill proposes to transfer responsibility for the VHI to the Minister for Public Expenditure and Reform. As Minister for Health, I have responsibility under the Health Insurance Acts for maintaining the stability of the health insurance market. The Government recognises that the maintenance of a healthy and functioning voluntary private health insurance market is an essential step to facilitate the transition to a market-based universal health insurance system, under the remit of the Minister for Health.
The VHI and the other open market insurers will play a key role in the delivery of services in a multi-payer UHI model. In my view, therefore, transferring responsibility for the VHI to any other Minister would not be appropriate. In addition, I would remind the House that the VHI, as a commercial body, recently announced that it does not expect to require Exchequer funding to achieve authorisation. In these welcome circumstances it is unclear what role is envisaged for the Minister for Public Expenditure and Reform. I commend the VHI and its new management for the great progress they have made. When we came into government, we were looking at a bill in excess of €250 million for Government to put into the VHI in order to make sure it was authorised.
Part 3 of the Bill deals with the regulatory status of the VHI. I am pleased to note that the VHI submitted its application for authorisation to the Central Bank on 16 May. A consultation period with the bank is now under way. Subject to authorisation, which is of course a decision for the Central Bank, the VHI will be subject to the very same regulatory and solvency requirements as any other health insurer.
In addressing VHI's regulatory status to the satisfaction of the EU Commission, officials from my Department, Ireland's Permanent Representation to the EU and VHI officials have held regular and positive meetings with Commission officials. The latest meeting was held on 20 May 2014. The Commission was pleased that the VHl's application had been submitted and I am confident that the deadline for addressing the regulatory status of the VHI by 31 December 2014 will be met. It therefore does not seem to make sense that the Senator would want me to wait until 2015.
The VHI has recently announced positive annual results for 2013 with €65 million in profit after tax. The Senator has already outlined that fact. This is an improvement of €10.7 million over the corresponding period last year, when reported profits were €54.3 million. It represents a marked improvement on the figures for 2011 of €7. 4 million. This is a positive indication of the future sustainability of the Irish private health insurance market.
Additionally, I welcome the fact that VHI has negotiated a further reinsurance deal for a four-year period from 2014 to 2017, inclusive. The VHI believes it can achieve the solvency levels required by the Central Bank for authorisation without the need for capital from the Exchequer and a consequential State aid application to the EU Commission. The improved profit level reported recently for 2013, the new reinsurance deal and a reported fall in claims costs of 2.1% for 2013 will, I believe, strengthen the VHI case for authorisation by the Central Bank of Ireland.
It is a great vote of confidence in the VHI that an investor of the stature of Warren Buffet's company would invest in it, as well as being a great vote of confidence in Ireland.
The section of the Bill regarding the VHI meeting solvency requirements by the end of 2015 is unnecessary as I have already set an earlier target date of 31 December 2014 by regulation, which is achievable.
Part 4 of the Bill proposes the dissolution of the Health Insurance Authority and a transfer of its functions to the Central Bank of Ireland. The Central Bank is the Financial Regulator and, as such, it regulates matters governing the prudential and solvency requirements for financial markets, including the health insurance market.
The Health Insurance Authority is the independent regulator for the health insurance market and performs a range of specialist functions as set out in the Health Insurance Acts. These functions include monitoring the market, advising the Minister for Health, operating the risk equalisation fund, provision of consumer information and maintenance of registers.
In the White Paper on UHI, the Government proposes that the Health Insurance Authority will have substantially increased responsibilities and powers which will include a range of important measures. For example, under UHI the State will make a financial support payment for those on low incomes. The Health Insurance Authority will have a key role in recommending the efficient market rate. The authority will ensure compliance by insurers with the UHI standard plan. It will play a critical role in regard to cost controls of the insurance market. It will be responsible for managing a public complaints process for the health insurance market. The HIA will manage the insolvency fund to be established to ensure that costs associated with insurer insolvency could be met.
Another thing it will be empowered to do will be to determine the number of policies available on the market. As Minister for Health and as a doctor, I believe that 256 different policies from one insurer is set to confuse the customers and not to aid them. It needs to be much tighter. I would defer to what the Health Insurance Authority believes is a reasonable number of policies to have in the market. In my view, therefore, it would be very inappropriate to abolish the Health Insurance Authority given its considerable expertise in the health insurance area and the expanded role proposed for it under universal health insurance. It would make no sense to abolish the authority and transfer its powers to the Central Bank of Ireland at a time when we will need a strong presence, dedicated to regulating the private health insurance market effectively.
I have consistently indicated the importance of maintaining a sustainable private health insurance market and I have detailed the significant progress made in this regard. Taken together, the market reforms I have outlined to the House will help to ensure private health insurance remains affordable in the lead-up to universal health insurance. The Government will continue to work intensively to ensure a well-functioning insurance system and it will encourage the VHI, as its sole shareholder and as the biggest payer, to ensure it drives down costs, reduces and eliminates fraud and waste, and tackles the issue of clinical audit in a robust fashion to ensure patients are not subjected to unnecessary tests and that the taxpayer, through its subsidies to the VHI and other insurers, is not burdened with additional costs either.
I thank the Senator for his contribution and acknowledge the considerable work involved in preparing this Bill. However, I do not believe the Bill's proposals are appropriate or necessary given the work already completed and the planned reforms I have outlined to the House.