As Members will be aware from the debate on Second Stage, the main purpose of the Bill is to specify the amount of premium to be paid from the risk equalisation fund in respect of age, gender and level of cover from 1 April 2017 and to revise the stamp duty levels required to fund the proposed risk equalisation credits. The Bill makes two changes to the operation of the scheme. It sets a new benchmark for reasonable profit based on return on sales and also provides for a limit on the total amount of credits that can be provided for insurers under the scheme. This is to ensure it will only compensate for higher costs arising from the differences in risk between insurers. It clarifies when a health insurer may withdraw a product from the market and ensures consumers will be offered a replacement product with at least the same level of benefits.
Health Insurance (Amendment) Bill 2016: Committee Stage
I move amendment No. 1:
In page 5, between lines 14 and 15, to insert the following:
"(d) by the insertion of the following subsection after subsection (4), inserted by section 3 of the Health Insurance (Amendment) Act 2016:
"(5) The Minister, shall by 1 February 2017, direct the Health Insurance Authority to carry out a review of the impact of changing the specified rate set out in section 125A of the Stamp Duties Consolidation Act 1999 to a percentage of premium and the effect this would have on the affordability of lower costs plans within the market.".".
I referred to this matter in my Second Stage contribution in the Dáil and the Minister said he might examine it. Has there been any further elucidation on the merits of the proposal? The purpose is to try to ensure we can make health insurance affordable at the lower levels. Obviously, people are taking out premiums at the lower level because they simply cannot afford to move up a little. If there is a flat rate across all premiums, proportionately much more of the levy is being paid by those at the lower end. Is there some way of having a pro rata arrangement for lower-cost plans? In other words, the higher one's premium payment, the higher the contribution made in stamp duties.
I thank the Deputy for the amendment which I did consider following our discussion on Second Stage. Since there has been a lot of misinformation in the public commentary on the linkage between stamp duty and affordability, although not from the Deputy, there is a point worth making in this regard.
It must be recognised that any changes to the operation of the scheme which result in lower stamp duty on some policies do not necessarily increase affordability for individual consumers. For example, last year, my predecessor reduced the stamp duty on non-advanced plans by €38 from €240 to €202 and no insurer announced price reductions on such plans as a result of this measure. While some of the insurance companies and their communications people are putting out information about this, it is important that they reflect on the reality that when my predecessor reduced the stamp duty on non-advanced plans, the benefit was not passed on to a single consumer. That is an important point in terms of how this has been described.
I acknowledge what the Deputy is trying to do and he is making an important point. I will elaborate on a few facts about how we arrive at this point annually. Each year, the HIA holds discussions with insurers before it makes a recommendation to the Minister about the credits and stamp duty rates under the risk equalisation scheme. In both 2016 and 2015, one of the insurers indicated a preference for switching to a percentage-based stamp duty. This view has been taken into account by the authority but it still has not recommended changing from the current system of fixed amounts of stamp duty. The stamp duty applied under the scheme is on a fixed amount basis for a number of reasons, which relate to both the practical administration of the scheme and the key objective of the scheme, which is to share costs in a fair way across the market to support community rating. An important feature of our risk equalisation scheme is that the total amount collected in stamp duty from insurers equals the total amount of credits paid to them. If the stamp duty collected was higher than the credits paid, the scheme would be inflationary for the market at least in the short term, and if the stamp duty collected was lower, temporary funding would be required from the Exchequer, which would impact on Government current expenditure.
The scheme is also based on fixed amounts of stamp duty with reduced rates for those with non-advanced products and for children. Taking into account market trends each year, the HIA is able to accurately predict the total cost of credits and the stamp duty rates required to fund them. Switching to stamp duties as a percentage of premium would pose a number of difficulties for the operation of the scheme. Insurers regularly increase and decrease the prices of their products and, therefore, there is no price control in the market. The health insurance Acts permit them to vary the premiums of health insurance plans once they provide at least 30 days notice to the HIA. With a percentage-based stamp duty, it would be more difficult to ensure the total amount of credits paid matched the total amount of stamp duty collected. The authority has calculated that the percentage-based stamp duty required to fund the credits proposed from 1 April 2017 would be 29% of the premium. This would mean that the stamp duty would be higher than €444, which is the proposed fixed amount for all advanced policies costing more than €1,531 and the stamp duty would be lower for all policies costing less than that. In the case of non-advanced policies, the percentage-based stamp duty would be higher for policies costing in excess of €765 and lower for policies under that price. However, changing from a fixed amount of stamp duty to a percentage-based stamp duty would affect the overall financial impact of the scheme. The authority must take into account the net impact of both stamp duty and credits when considering the support required for groups of people under the scheme. Older people, in general, require more support under the scheme because they have higher claims costs. That is at the core of the scheme. However, older people on average pay more for health insurance and, therefore, the authority's recommendation in respect of credits would have to take this into account. There could be an unintended consequence for older people were we to move on that.
I accept the bona fides of what the Deputy is trying to do. If it was useful for committee members to be briefed by the HIA and to further explore its views, I would be open to asking the authority to do any further body of work that the committee or individual members feel should be done. It might be useful to further explore this but there is no benefit to legislating for this. I have available to me the opportunity to ask the authority to conduct a review if members feel that is necessary. It would be worth further engaging with the HIA in this respect.
I thank the Minister for his detailed reply. In view of his explanation as to why he cannot accept it, I withdraw the amendment.
This is a fundamental shift in the principle underpinning health insurance in terms of risk equalisation and intergenerational solidarity. The Schedule outlines the amounts applicable after 1 April 2017. There is an issue if we consistently reward insurers to ensure they do not cherry-pick. Has there been any policy discussion about the issue of rewarding insurers that take on high risk types? The Minister referred to chronic illness. There is little in the current set-up that incentivises or even encourages insurers to take on these cohorts. If we continue to use age as the means of assessing how money is paid from the Central Fund, there might be a logic to examining this issue. A broader policy decision would be required and it would not come under this legislation. Has there been any discussion anywhere about looking beyond age cohorts to other categories to encourage insurers to take on people on the basis of illness?
This question is important, valid and timely because, currently, the scheme targets credits to people based on age. It makes it easier for a private health insurance company to make the decision to take on a 70 year old rather than a 30 year old. That is at the core of the scheme but we need to get to a better place in terms of refining where we want credits to go and make sure we are directing them to the appropriate places. We are looking at refining parts of the scheme in respect of health status. I will update the committee as that progresses.
My thinking is similar to Deputy Kelleher's in the sense that I have always been worried about a number of issues in respect of health insurance premia. When I was a young person - I know it was a while ago but I can still remember that far back - we were charged a fee because we were allegedly supplementing older people. The age profile of the population has changed since then. Many more young people have come into the country in the meantime, some of whom emigrated and returned. They are being told they are paying a higher premium because insurers have to look after men and women in my age group. I have tabled countless parliamentary questions but I have never been able to find out exactly where the money goes in terms of the comparison between the public and private sectors. I have never been able to get that information to my satisfaction. I have been suspicious over the years and I have never been able to find out to what extent the credit applied for the pain and suffering my peers and I experienced as a result of paying more to carry the older age groups in terms of risk equalisation when I was aged 25 or 30. I do not know what the purpose of that was but the current younger generations are allegedly paying a similar surcharge for the same reason. The briefing suggested by the Minister might be useful. We might get some information that ordinarily would not be available.
I would very much welcome the opportunity for the committee to engage with the HIA.
As I said to Deputy Kelleher, the function available to me to ask the HIA to review and report on various issues is a mechanism I am happy to use in collaboration with this committee. As members know, we brought in lifetime community rating to ensure there would be an incentive and reason for people to sign up at a younger age and to have balance in the market.
The risk equalisation scheme is targeted at helping the older cohort but that requires making sure one continues to bring younger people into the market also. The Deputy's suggestion is good in that it would be very useful to engage with the HIA.
I thank the Minister and his officials for attending today. I thank the members for attending a third committee meeting today.