"That the Bill now be read a Second Time."
The Government has decided today that emergency legislation should be introduced in the House today to amend the Health Insurance Acts. This urgent measure is required to support our system of community rating that ensures health insurance is affordable for older and sicker people. It closes any potential abuse of the three-year exemption from risk equalisation payments.
Deputies will be familiar with the regulatory framework which underpins the operation of the private health insurance market in Ireland. The key elements of this framework have been supported by successive Governments. These are community rating, open enrolment and minimum benefits. The adoption of this approach to regulating the market has been part of the reason the level of private health insurance coverage in Ireland is unique in Europe. Approximately 52% of the population has health insurance cover.
There are many reasons why people choose to buy health insurance cover. Many people in Ireland choose to do so because it is affordable. Even more importantly, it remains affordable throughout people's working lives and into retirement. We all know we are more likely to need expensive medical treatment later in our lives rather than earlier. In most countries and as part of a risk rated insurance market, health insurance premiums increase as people get older and as a reflection of the higher risk of claims related to ageing.
In Ireland the policy of community rating means health insurers cannot discriminate against older customers and must offer their various plans to subscribers at the same cost regardless of age or medical history. I believe this is a fair and equitable approach. Apart from keeping health insurance affordable, it is a practical demonstration of intergenerational solidarity whereby the younger and healthier section of the population pays more than would be needed in a risk-rated market but who themselves benefit in later life when they might be expected to pay prohibitive premiums if their higher risk were to be reflected in the price paid.
It is generally accepted that a community rated market cannot operate as intended if insurers in the market have markedly different risk profiles. Some mechanism is required to balance the risks and spread them across the market so the different insurers can offer community rated products. For this reason all community rated markets also have a risk equalisation mechanism of some nature to balance the risks.
New entrants to the market typically tend to attract younger subscribers with a lower than average risk of claiming under their policies. There is plenty of evidence to suggest that existing older health insurance subscribers are reluctant to switch their business to new entrants.
To counteract this phenomenon the Health Insurance Acts have allowed new entrants to the market to avail of a three year exemption from the obligation to make risk equalisation payments that might otherwise be levied on them as a result of their having a more favourable risk profile. The exemption was intended to give new entrants the opportunity to establish themselves and to build a market share. It was clearly the intention of the Oireachtas when the measure was enacted that this exemption should be confined to new entrants coming into the market seeking to build market share from zero by organic growth.
It was recognised that the exemption could be open to abuse by an existing insurer reincorporating itself or establishing an associated company and seeking to secure a second three year exemption by claiming to be a new entrant. Section 12B of the Principal Act — inserted by section 10 of the Act of 2001 — was amended in 2003 to prevent such a move.
However, the amended legislation did not encompass the situation which emerged with the announcement on 31 January by the Quinn Group that it had reached an arrangement with BUPA for a takeover of the latter's Irish operations. This development followed BUPA's announcement on 14 December that it was withdrawing from the Irish market following the dismissal of its High Court challenge to the risk equalisation scheme.
I want to emphasise that the Government and I welcome the Quinn Group's interest in entering this market. It has built a strong reputation and a successful business in the reformed motor insurance market and has been a positive influence on the level of competition in that market. I have not seen the legal agreement between the Quinn Group and BUPA for the transfer of the BUPA Ireland business to the Quinn Group. However, the Attorney General has advised that the potential exists for an incumbent or a non-incumbent to avail of the three year exemption by particular corporate transactions, in essence, acquiring or restructuring the business of an existing player in the market.
In the Government's view the securing of the exemption in this way would constitute a frustration of the intention of the Oireachtas when it passed this measure into law. The Government has been advised that this loophole should be closed as a matter of urgency.
The Government has decided, based on legal advice, that the most effective means of achieving this is to remove the exemption for new entrants in its entirety. The removal will become effective immediately when the Bill now before the House is signed by the President. It will not affect the exemption which VIVAS presently has and which expires in October 2007. Clearly, it does not prejudice the ability of the Government to form policy for the market or the Oireachtas to pass further legislation at any time. On the other hand, not to close the exemption now would have constrained policy development in a significant way.
Section 1 of the Bill contains standard provisions dealing with definitions. Section 2 provides that under existing legislation risk equalisation payments apply to existing undertakings. However, it is considered prudent to put beyond doubt, that should an undertaking no longer be on the Health Insurance Authority Register of Undertakings, it should be liable for risk equalisation payments in respect of contracts written when it was a registered undertaking.
Section 3 is a technical amendment which follows on from section 2. Section 4 repeals the limited three year exemption from risk equalisation for new entrants to the market with immediate effect. The purpose of the exemption was to promote competition in the market by allowing new entrants a period of time during which market share can be built up before risk equalisation payments fall due to be paid. However, the exemption has the potential to be exploited by a company which acquires an existing undertaking or associated company to avoid making risk equalisation payments.
The Government believes it is therefore necessary to enact legislation to prevent such abuse. Section 5 provides for the usual Short Title and collective citation. I have repeatedly restated the Government's commitment to maintaining community rating in this market and to promoting greater competition.
I also want to ensure that the regulatory framework does not place unnecessary obstacles in the way of companies seeking to enter the market and allows them earn a reasonable return on capital. For that reason I have appointed a market review group chaired by Mr. Colm Barrington to examine whether, having regard to all aspects of the current market here and the need to maintain community rating, it is possible for current and prospective participants in the health insurance market to earn a rate of return on capital employed which would be regarded as adequate for the insurance industry.
When I receive the Barrington report at the end of March I expect to bring it, along with the reports of the Competition Authority and the Health Insurance Authority, together with my recommendations, to the Government in April for a decision. I commend the Bill to the House.