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Dáil Éireann díospóireacht -
Tuesday, 27 Nov 2007

Vol. 642 No. 3

Voluntary Health Insurance (Amendment) Bill 2007 [Seanad]: Second Stage.

I move: "That the Bill be now read a Second Time."

This year, Voluntary Health Insurance, VHI, celebrates its 50th anniversary, having been established under the Voluntary Health Insurance Act 1957. This Bill provides for the most significant changes to the provisions governing VHI since the board was established 50 years ago. In the intervening period, there has been only one other substantial amending Act, the Voluntary Health Insurance (Amendment) Act 1996.

The main provision of that Act provided an enhanced commercial framework for the board providing health insurance cover to its members through provider agreements while maintaining the obligation on the board to provide such cover. It also provided for ministerial consent to premium increases determined by the board in the context of the board meeting its liabilities and providing for reserves as it saw fit.

The 1996 legislation was enacted in advance of the completion of the regulatory framework for health insurance that opened the market to competition, put in place by the passing of the Health Insurance Act regulations at the end of March 1996.

The development of the regulatory framework arose in the context of implementing the EU third non-life insurance directive which provided for the opening of the health insurance market to competition. It differed significantly from the first non-life directive dating from 1972. That directive specifically recognised the position of the VHI board and the common good role it had played as a monopoly provider of health insurance cover to people who did not have a statutory right to free hospital services and those encouraged to take out insurance despite having the right to free treatment. The 1972 directive specifically granted the board, with several similar health care providers in Europe, a derogation from meeting the prudential obligations to be met by most insurance undertakings.

While the third directive opened the market to competition, it did not remove the derogation granted under the first directive. Consequently, VHI has continued to operate as a statutory body, exempt from meeting the prudential requirements of the Financial Regulator. Notwithstanding this, the VHI board maintains significant levels of reserves, amounting to €292 million at the year ended 28 February 2007. While this is well above the minimum requirement of the European Union, it is approximately €140 million short of the level that established insurers with VHI's premium and claims experience would be required to maintain by the Financial Regulator.

VHI finds itself in the anomalous position of being both the market leader in the health insurance market and being an unauthorised insurer. The company's competitors consider this position confers a competitive advantage on it. Although the current statutory arrangements also impose several restrictions on VHI, the Government recognises the derogation cannot continue. It considers that it is in the best interests of the health insurance market and VHI that the company attains authorisation as an insurer in the shortest possible time and be subject to the same prudential regulation as other commercial insurers.

The proposed changes to the VHI Acts contained in the Bill are consistent with the policy set out in the 1999 White Paper on health insurance. It recognised the need to give full commercial freedom to VHI, placing its relationship with the Minister on a more appropriate footing and removing its exemption from meeting solvency requirements.

The Bill's provisions also reflect the general thrust of the recent recommendations of the Health Insurance Authority, the Competition Authority and the Harrington group on VHI, as set out in their reports on competition in the private health insurance market. The Bill addresses matters raised by other market stakeholders, including VHI's competitors. The European Commission has also taken an interest in developments in the market having regard to overseeing the operation of the insurance directives, complaints made to it by other market participants and the provisions of the treaty. The Commission has recently emphasised the need to address VHI's derogation as a matter of urgency.

The Bill's provisions are focused on providing VHI with a structure more appropriate to the competitive market in which it now operates and one that will oblige the board to pursue early authorisation. They also provide a statutory framework that will facilitate this process. Amendments during the Bill's passage in the Seanad were directed at providing the required structure.

Since its establishment the board's primary function has been to provide health insurance and that will continue to be the case as provided for under section 2 of the 1996 Act. The Bill's primary purpose is to oblige the board to achieve authorisation from the Financial Regulator as an insurer and to provide it with a structure that supports an application for authorisation. This involves giving commercial freedom on products and pricing to VHI. It will, under the parent Act and in accordance with the memorandum and articles of association of any relevant subsidiaries, be obliged to continue to provide health insurance. The Bill also provides for amending the definition of a health insurance contract in respect of cash plans.

Section 1 is a standard section providing for definitions relevant to the Bill. Section 2 provides that section 13 of the Assurance Companies Act 1909 and section 36 of the Insurance Act 1989 will not apply to VHI. These provisions are associated with the proposal in section 7 that is to allow the board of VHI to establish a subsidiary company for the specific purpose of carrying on its health insurance and health related insurance schemes. The intention is that the board will, on an appointed day, transfer all its health insurance business to the new subsidiary. This transfer will take place within the VHI group of companies. The transfer will not affect any of the rights or entitlements of existing VHI health insurance policyholders on the transfer day.

Section 13 of the Assurance Companies Act 1909 and section 36 of the Insurance Act 1989 are intended to protect the interests of policyholders in circumstances where one insurance company is taken over by another, or where one insurance company merges with another. As the transfer proposed in the Bill does not involve any external company, these provisions should not apply. The Bill, when enacted, will provide the statutory basis for the transfer of the health insurance business from the VHI board to the new subsidiary established for that purpose.

Section 3 amends section 2 of the Voluntary Health Insurance (Amendment) Act of 1996. Sections 3(a) and 3(b) remove the requirement to obtain ministerial consent to the board’s health insurance schemes. Section 3(c) provides for the board determining premium increases having regard to its obligations and outgoings.

A significant change to the 1996 Act is that the substitution proposed under section 3(c) also imposes an obligation on the board to attain a level of reserves that would facilitate securing authorisation and that this be achieved by the end of 2008. The Government decided in April that VHI should become an insurer authorised by the Financial Regulator by the end of 2008. The Government does not believe it is in the interests of either VHI or the health insurance market that its anomalous status as an unauthorised entity should continue for any longer than necessary. One primary purpose of this section is to oblige the VHI board to have regard to solvency requirements for authorisation and to focus on attaining this objective.

Section 3(d) sets out the means by which the board may accumulate the reserve required to secure authorisation from the Financial Regulator. The Government considers it appropriate that VHI should have the maximum flexibility in how it achieves the level of solvency required to satisfy the Financial Regulator. Regarding subparagraph (e) contained in the insertion in section 3(d), the provision of any capital by the State, either by way of loan or in return for shares, would only take place on an arm’s length commercial basis. The Government and the European Commission would have to be satisfied in advance that any such investment by the State did not constitute a state aid.

In April, the Government agreed the Departments of Finance and Health and Children should seek specialist advice on how VHI could be authorised by the end of 2008. The consultants are due to produce a report for the Departments by the end of this month. Following receipt and consideration of it, the Departments will provide a report to the Government before the end of December. The Government is determined VHI should be authorised by the end of 2008 and the measure provides accordingly. It is prudent to allow in section 5(b)(ii), having regard to legal advices received, a limited latitude to provide for a situation where it is not possible to achieve this objective by the specified date, but only where there are good and sufficient reasons.

Section 4 provides for functions of the board. Section 4(a) replicates section 14 of the Health Insurance (Amendment) Act 2001 as regards activities in which the board may engage. That section is being deleted under No. 4 of the schedule of enactments being repealed. It also provides for the board having a services company to provide staffing and other services to the board and its subsidiaries.

Section 4(b) provides for the board engaging in new activities. However, the qualification on authorisation is to ensure VHI does not extend the scope of its functions beyond those it already engages in until after authorisation is secured. The Government’s view is that VHI should not expand into new areas of activity such as pensions or life insurance until after authorisation.

Section 5 provides for the board forming, establishing or acquiring subsidiaries to perform any one or more of its existing functions other than health insurance. It is a requirement, where authorisation as an insurer is being sought, for the applicant to be a stand-alone entity, engaged only in activities relating directly to the insurance business.

Sections 6 to 13, inclusive, provide for the transfer of the health insurance activities of the current VHI board to a subsidiary company to be established for this purpose. Section 6 consists of a provision to enable the Minister to set a date for the transfer to take place. Section 7 provides for the transfer of the health insurance business and health-related insurance schemes to the subsidiary to be established for that purpose. This statutory provision is required for the transfer because the VHI board, as a State body rather than a conventional commercial insurance company, is not covered by the insurance Acts which would otherwise apply. This section is linked to section 2. The rights of members and staff are not affected in this instance. The process of securing High Court approval for the transfer is long and complex and not without risk, as it would allow parties which might claim to have an interest in the transfer to intervene. If this were to happen, it could seriously threaten the objective of having VHI authorised by the end of 2008.

Sections 8 to 11, inclusive, are standard provisions governing the process of transferring business. Section 12 allows the Minister to appoint a day on which staff will be transferred from the VHI board to the services company subsidiary to be established for the purpose of employing the staff of the group and its subsidiaries.

Section 13 sets out the conditions under which the existing staff of the VHI board will be transferred to the new services subsidiary or any other subsidiary established by the board. Although it is intended to transfer all staff to the services subsidiary, the section gives the board a degree of flexibility in having the power to transfer staff to another subsidiary if it so decides. The section also provides statutory protection for the terms and conditions of employment of existing VHI staff.

Section 14 will allow the board to form, establish or acquire subsidiaries to undertake activities outlined in section 4(b) once authorisation has been achieved. To the extent that any of these companies require to be regulated by the Financial Regulator, they too will be subject to such regulation. In summary, sections 5 to 14 will enable VHI put in place a holding company structure which is a necessary step towards attaining authorisation for its health insurance business.

Section 15 provides that the board is to submit reports every six months on its share of the health insurance market. Section 16 covers the borrowing powers of the board and its subsidiaries. This section allows the board or a subsidiary to raise or borrow money for the purpose of performing its functions. It specifies a limit on borrowings to apply to VHI and its subsidiaries. In order to allow the board scope to meet the prudential requirements of the Financial Regulator, the limit does not include any additional borrowings which may be used for the purposes of attaining authorisation.

Section 17 provides for the repealing of the enactments specified in the Schedule attached to the Bill. Section 18 provides for the short title, collective citation and commencement. This is a standard provision which allows the Minister determine the appropriate times for commencement of the various sections and also the repeals set out in the Schedule.

The Schedule provides for repeals relating to four existing legislative provisions, the first of which refers to section 18 of the Voluntary Health Insurance Act 1957 which provided for borrowing by the board in very limited circumstances relating only to current expenditure. In the context of introducing the broad borrowing provisions contained in section 16 of this Bill, the current provision needs to be repealed.

The second enactment to be repealed is an exemption for cash plan providers contained in the health insurance Acts. Typically, cash plan payments are made directly to the insured person, provide limited cover for out-of-pocket expenses and do not extend to indemnity cover. The definition of a health insurance contract includes an exemption from the definition for the products of two cash plan providers. The exemption was provided on the basis that they were limited to offering community-rated cash plans with a limited focus on hospital services. It is necessary to put all existing and potential cash plan operators on an equal footing.

The change proposed will limit regulation to the minimum necessary to protect the community-rated indemnity market. It will enable cash plan providers to design their products so as to be exempt from the regulatory framework under section 2(a) of the health insurance Acts or to be subject to only limited regulation. This would include an exemption from the requirement to meet minimum benefit levels and to participate in risk equalisation where offering contracts covering GP services, outpatient services and the supply of drugs. We will keep under review the question of whether cash plans should be subject to the requirements imposed on indemnity-based health insurance.

The third repeal is of section 3 of the Voluntary Health Insurance (Amendment) Act 1996, a section that obliges the VHI board to notify any proposed increases of health insurance premia to the Minister and gives the Minister the power to direct the board not to implement increases. Freedom on pricing is an essential requirement for an insurer which is subject to prudential regulation by the Financial Regulator. Decisions on products and pricing are appropriate to the board which is best placed to make these decisions.

The fourth repeal covers section 14 of the Health Insurance (Amendment) Act 2001, which section gave VHI the powers to engage in certain health related activities. It is being repealed as those functions are now encompassed by section 4(a) of this Bill, with related provisions on the establishment of subsidiaries under section 5.

VHI is a major provider of health care for a significant proportion of the population. We must ensure it is obliged to meet the appropriate regulatory requirements. All of the many reports commissioned on the health insurance market since the introduction of the third non-life directive have supported the course we are pursuing. The provisions of the Bill will have a positive effect on the management and staff of VHI, be good for its consumers and the development of the health insurance market. The European Commission has been kept informed of the evolution of the Bill and taken a keen interest in the development of the health insurance market.

I congratulate VHI and its staff on the manner in which it fulfilled its functions for the 50 years since it was established in 1957. I commend the Bill to the House.

I wish to share my time with Deputy Mitchell.

On behalf of Fine Gael, I welcome the opportunity to discuss the Bill and its implications for VHI and the health insurance market. Fine Gael realises the importance of market driven consumer focused competition in the private health insurance market. While the health insurance market has been open to competition since 1994, there are only three players and the cost of health insurance has risen exponentially. Despite the cost associated with private health insurance, 62% of the population have signed up for cover. This may reflect the reality that people have lost faith in the public health service, a matter that will be debated at length later this evening during the discussion of the Labour Party Private Members' motion of no confidence in the Minister for Health and Children.

There is a crisis in services for the diagnosis of breast cancer; there is MRSA, waiting lists and many more issues which have caused the public to lose faith in the health service. VHI celebrates its 50th anniversary this year with a share of 75% of the health insurance market, approximately 1.6 million members and a profit in excess of €70 million.

Recent years have seen substantial changes for VHI with it widening its business to include other commercial activities such as travel insurance, Swiftcare clinics and dental clinics. Now it has the possibility to move into other insurance sectors such as pensions and financial services. While the Minister claims to be an advocate of fair competition she has allowed VHI to engage in these wider activities for some time while simultaneously enjoying the derogation from solvency granted to it under the first non-life directive of 1972.

It was not until a former Government Minister, EU Commissioner, Charlie McCreevy, blew the whistle on the preferential and advantageous treatment the Government has allowed VHI that it took steps to make this a fairer health insurance market. The Government was left with no choice but to address the unfair advantage afforded to VHI.

In the past ten years this Government should have enhanced, assisted and encouraged competition within the health insurance market. Instead VHI has been facilitated in maintaining its dominant position and has continued to operate as market leader. The consequence of this is that there are only three providers in the market and the customer has seen the cost of health insurance subscriptions rocket. This Bill allows the Minister for Health and Children, Deputy Harney, the opportunity to address the anti-competitive anomalies which VHI has enjoyed for some time. I hope these changes will see a fairer health insurance market which will encourage and facilitate the entry of new players resulting in a better outcome for the consumer.

Under the terms of the Bill VHI continues, to some extent, to report to the Minister. The current position of conflict, whereby the Minister acts as regulator of health insurance through the Health Insurance Authority, owner of the largest health insurer in the country and supplier of the largest part of health insurance products through public hospital facilities, is not resolved. A number of the current problems in the market are directly traceable to this relationship with the Minister and it seems that this favourable relationship will continue until the end of 2008 when VHI becomes authorised by the Financial Regulator.

The Government published the VHI Bill in May 2007 and it is supposed to be a stepping stone towards achieving, facilitating and strengthening competition in the health insurance market. While I fully support competition in the market I do not believe the current context of this Bill will achieve it. The Bill aims to regulate existing commercial activities while giving VHI further commercial freedoms in the future. While the Bill requires VHI's future commercial activities to become subject to regulation by the end of 2008, it allows existing commercial activities outside its core health insurance business, such as travel insurance, Swiftcare clinics and dental clinics to continue unregulated until that time.

This exemption has allowed VHI to have a significant competitive advantage over other health insurance providers and has strengthened its position, while making it more difficult for new entrants to penetrate the market. In the interests of a fair, equitable and competitive health insurance market it is vital that VHI be required to achieve solvency levels for its core business, in addition to existing and future wider activities.

This Bill also raises questions about the level of reserve VHI must meet. I understand the Financial Regulator has set the solvency reserve at 40%, but the EU average is just 25%. Can the Minister confirm whether the Financial Regulator is considering amending the level of solvency health insurers are expected to reach? If so, are the Department of Health and Children and the health insurers involved in this process? If VHI is expected to reach a solvency level of 40% of its premium income by the end of 2008 it will have to raise €140 million by the end of next year. VHI already has a reserve of 28% which could be applied without any financial impact on customers. If VHI is expected to raise this amount, does the Minister agree it is likely the cost will be passed on to the costumer, who as already seen VHI premiums raise exponentially in recent years? VHI customers have seen subscription rates rise by 25% in the past two years. Perhaps the House should examine this issue with a view to benchmarking the health insurance level of reserve to that of other EU countries, which require a reserve of 25%.

The Bill proposes that VHI be permitted to borrow moneys in order to finance its solvency. Under the third non-life directive insurance companies are permitted to borrow funds for the purpose of meeting solvency requirements, subject to highly restrictive conditions on the extent and terms of such borrowings. It does not appear that these conditions will apply to VHI and this will lower the cost of capital for VHI giving it a further competitive advantage over its insurance rivals. Perhaps the Minister could clarify whether these preferential conditions will apply to VHI.

The new Bill allows VHI to have subsidiaries but it is not clear how these will interact with the VHI. Under normal insurance regulation in Ireland insurance undertakings are not permitted to have subsidiaries as they may have a financial impact on the parent company. A group structure of companies is generally formed whereby a parent holding company would have a number of subsidiaries, one of which would be the insurance undertaking. This parent holding company would need to be approved by the Financial Regulator as would each subsidiary that is formed. Under the current legislation it is not clear what the relationship is between the subsidiaries and VHI. If these subsidiaries face financial difficulties does the Minister expect that they will be capitalised by VHI or will they have the capability to borrow money in their own right?

The Bill does not indicate whether these subsidiaries will be for-profit companies or if they will only be required to break even. Will these companies return any profits they make to the Government or will they be used to subsidise the core health insurance business to help maintain premiums at a lower level?

VHI will potentially receive substantial risk equalisation payments. How will this money flow throughout the business and will it be used to finance subsidiary businesses? If these subsidiaries are not profitable, particularly in the initial years, will money be transferred directly from the VHI health insurance business to assist them? I am sure the Minster will agree it is important that VHI and associate subsidiary companies do not have any further competitive advantages and that every effort is made to ensure that health insurers operate and compete on a level playing field.

The Bill does not specify whether subsidiary companies will be permitted to cross-sell and tie their products to health insurance products. Customers who wish to retain VHI travel insurance are not currently allowed to change health insurance provider. The Competition Authority, the Health Insurance Authority and the Barrington report have recommended that VHI cease its policy of cancelling members' travel insurance policies should they choose to switch health insurance provider but to date VHI has refused to implement this change. Why would VHI jeopardise its 35% share of the travel insurance market if it did not have to?

In the interest of consumer-focused and market-driven competition, it is crucial that the relationship between VHI and subsidiaries is clear and that anti-competitive anomalies are removed. To allow VHI to expand its commercial business could potentially tie in customers, which would only serve to strengthen the company's dominant position and distort competition. This provision should be the same for all insurance companies that provide alternative services. Does the Minster intend to address this anomaly through the legislation?

To date, six co-location facilities have been approved by the HSE, with a further two locations awaiting approval. This is intended to introduce 1,000 new private beds into the system. Under the Minister's co-location plan, the main source of revenue of the new hospitals will be health insurance premia. Considering that VHI holds 75% of the health insurance market, a contract with VHI will be of critical importance to the co-located hospitals. Without coverage from VHI, it is unlikely that a co-located hospital could operate in the market.

VHI's publicly stated policy is that there is no need for any further private beds. Its annual report states:

The single biggest challenge facing private health care in Ireland is the unprecedented increase in private hospital capacity which has been encouraged by generous tax relief for such investment. VHI Healthcare has questioned the wisdom of such tax incentives particularly since there does not appear to be any significant demand from the public sector to use these new facilities. The cost of financing the new capacity will place huge pressure on our objective to provide our members with quality health care at affordable prices.

This new (private hospital) capacity far exceeds what is required on the private side and there is no evidence of any significant transfer of public demand into these facilities. VHI has consistently argued against this tax relief scheme.

It is likely that insurance rates set out for assessment of co-location hospitals will be far in excess of the current rates paid. The new rates will undoubtedly drive the cost of health insurance upward, thus making it unaffordable. The small number of competitors in the health insurance market and the dominance of VHI make the operators of the new co-location hospitals dependent on the company. No co-located hospital could survive without coverage from VHI and the level of its profitability will be dependent on the level of cover VHI will supply to it.

If there were more health insurers and a more evenly distributed market, this dependence on VHI would diminish and competition would be encouraged. This would lead to lower premia, less dependence on one player, greater bargaining power for customers and enhanced stability within the market. To date, however, fair competition has not been facilitated in this market. It is essential that the changes in the Bill support, encourage and facilitate fair competition. Perhaps the Minister of State will outline the Minister's plans for the future of VHI. Does she intend to break up the company or bring forward legislation to reduce its market share?

Why is psychotherapy, which is now recognised as of great importance in the treatment of mental illness, not covered by VHI? Everybody accepts it is absolutely necessary that there be an increase in psychotherapy services to facilitate a multidisciplinary delivery of mental health treatment. The Irish College of Psychiatrists is strongly supportive of such an approach. Why are patients limited to six months' treatment in a psychiatric hospital but there is no limit for general hospital patients? VHI is discriminating against patients with psychiatric illnesses.

A report last week from the Health Information and Quality Authority, HIQA, outlined conditions in hospitals throughout the State. Why were psychiatric hospitals not assessed as part of this review? When I raised this issue with the Minister in last week's meeting of the Joint Committee on Health and Children, she responded that psychiatric hospitals are not under the remit of the HSE. That is no excuse. HIQA itself is not under the umbrella of the HSE and there is no reason that it should not examine psychiatric hospitals simply because they come under the remit of the Mental Health Commission.

I welcome the Bill, as far as it goes and as late as it is. There has been significant pressure from a variety of sources to bring the Bill to the House, as alluded to by the Minister of State. The greatest pressure came from the rightful contention of the nascent competitors in the market that VHI had an unfair advantage in not being required to hold the same level of reserves as was required of other insurance companies. Nor did it come within the ambit of the Financial Regulator. The Government was further pressurised to take action when the European Commission ruled that the derogation granted to VHI was no longer sustainable. There were also recommendations in the Barrington report and from the Health Insurance Authority and Competition Authority that the status quo was entirely unfair.

Whatever the provenance of the legislation, the fundamental issue it must address is that of competition in the health insurance market. That is the underlying objective of the legislation. The introduction of competition in public services is the key unresolved issue in our society. The absence of competition in this case, as in others, is resulting in poorer service, less choice and higher prices.

It seems, notwithstanding many amendments on Committee Stage in the Seanad, that the solvency issue is addressed in the Bill. I welcome the provision whereby it will come under the ambit of the Financial Regulator. However, we would be mistaken in expecting this Bill to create a level playing field in which there is a prospect of flourishing competition in the health insurance market. The legislation does not even begin to address the issue of the market dominance enjoyed by VHI. Almost 80% of the market belongs to VHI and for years it has been a protected and sheltered monopoly. The State, meanwhile, has been a supportive backer and an undemanding shareholder.

The elephant in the room in this debate is the introduction of risk equalisation, which is totally anti-competitive in the context of this background. It defies logic to suggest that it is somehow in the public interest to require new market entrants to pay huge sums of money to a monopolistic incumbent of some 50 years standing. I fully support community rating as the only fair pricing system for health insurance. Furthermore, I support risk equalisation where it is warranted. However, for as long as VHI holds a position of dominance in the market, which affords it such a huge advantage, there should be no question of other insurers being asked to subsidise it.

I have concerns too about additional powers being given to VHI against this background of dominance. For example, the power to expand its financial services is something with which, in normal circumstances, I would have no difficulty. This would be good if we could ensure it was competing fairly with others in the same market. If we are in a position where risk equalisation could lead — as it very nearly did — to all competitors being driven out of the field, I have a problem with additional powers being given to VHI. In these circumstances, the additional freedom to trade in insurance and introduce other financial services, set up subsidiaries, raise capital and become a private health provider as well as insurer is not the kind of power we should be giving to a monopoly, whether in the public or private sector.

I am concerned about the significant latitude being given to expand into the service provision area. In effect, VHI may now become a major health-care provider, as well as being a major health-care insurer. That could be a benefit but we should be very careful about introducing such a possibility when VHI could retain a monopoly. The Competition Authority must be very wary and careful about this in being a watchdog on our behalf. There should be no question of tying insurance customers to the service provision offered by VHI if it, for example, provided hospital care, which may be in mind down the road.

We must examine the relationship between the insurance and service provision businesses to ensure there is no cross-subsidisation that would militate against competitors in either market. It may be that this could be a benefit in leading to a reduction in prices because of vertical integration between the provider of insurance and the provider of a service but it is not a good idea when the provider has a monopoly. We should be very careful about this.

I am also concerned about removing current restrictions to safeguard the consumer, those buying insurance, particularly with regard to the Government's power to approve a price increase when VHI wished to do so. We all know cases when the insurer looked for a 15% rise and was granted 10%, or it sought 10% and was granted 5%. That at least gave some protection to the consumer but it has now been taken away and it is up to VHI to decide on prices. I am completely in favour of this in a competitive market, as one must have commercial freedom to set a price. If a monopolist or dominant player is controlling 80% of the market, it is not a good idea. We should be very careful about this.

Many other issues should be addressed in the Bill. For example, it has been heavily recommended that lifetime community rating be introduced. The Bill falls down completely on the really important decisions about the provision and direction of health care and the structure it will take. These decisions have not been made, yet we are giving free rein to a monopoly insurer for private health care. We do not know if there will be a future for private health care or private health care insurance, who will be insured or where insured patients will be treated.

We were told two or three years ago that there would be new consultant contracts for public-only care. We were also told that all private beds in public hospitals would go. We were then told that only some of the contracts would be public-only care and that we would have co-located hospitals. There is complete chaos and a lack of direction in these matters.

My colleague from the Labour Party, Deputy Jan O'Sullivan, and I attended a meeting in Buswell's Hotel today with various interest groups representing older people. They expressed grievous concerns about the introduction of yet another model of health care, with people paying within a completely different structure. There is no coherence, logic, direction or consistency in what is happening in the provision of health care.

Nobody knows how health care will be structured in the future and to give free rein to VHI, leaving the genie out of the bottle, is at this stage premature. Until major decisions about the structure of health care are made and clear direction is given to everybody trying to deliver the service, we will see the continuation of the chaos we have witnessed so far.

I do not wish to appear to be against VHI. I am probably one of its longest-serving members, although I am showing my age in saying this. I was a very small child when VHI was set up.

I have been a member most of my life and children and family have also been members. I intend to stay with it. However, I am in favour of competition and the customers of VHI deserve the kind of service they can get in a competitive environment, as do other competitors. It is in all our interests to ensure we do everything to create a level playing pitch. We should not let the genie out of the bottle and find ourselves regretting it.

This is a complicated issue, as we are dealing with VHI in transition after 50 years in existence. We should congratulate the body on that length of service. An EU directive exempted the company from rules governing coverage in the market, with many other similar types of health insurance system in Europe, but we are now moving to a point where the European non-life insurance directive must be implemented. In effect, VHI is moving from a relatively protected and limited status to competition in the broader market.

Much of what is in front of us raises many questions, rather than providing answers. As with previous speakers from Fine Gael, I have a number of questions on the legislation. We have had competition since 1994 but in some ways it is very limited. It is in the context of protecting consumers through community rating and the vagaries of risk equalisation. The Labour Party strongly supports the concept of community rating but the devil is in the detail of how risk equalisation is implemented.

VHI has a very large corner of the market, which is probably inevitable because it has been in existence for so long and has a very large cohort of loyal customers. By and large, it has given very good service to its customers. The broader question to be asked by the Labour Party is whether we should stay within the system in place, an unequal and somewhat contradictory one.

Some 50% of the population is covered by Voluntary Health Insurance while at the same time having a right of access to public hospital beds. The other percentage of the population, in effect, has less equitable access, as the services for which we pay through Voluntary Health Insurance are not available to them.

The system is complicated and, in the context of the move to greater privatisation of the system with co-located hospitals and so on, it has become even more complicated. Adding further to this complication is the transitional phase at which we are looking up to the end of 2008, when VHI must have €140 million in place to comply with the same solvency rules as its competitors. In the meantime, the insurer's competitors have relatively small percentages of the market. I understand VHI has approximately 75% of the market; Quinn Healthcare, 20% and VIVAS, 5%. One wonders why many other larger companies which provide insurance in other countries with a health insurance system are not entering the Irish insurance market. We must live with our competitive market and therefore must work out a system which would have more players in the market. However, I do not support reducing protection for sectors of society that, by their nature, place more demands on the health services, such as the elderly and people with disabilities. It is vital we protect the interests of those sectors and do not encourage insurers to discourage them from becoming customers. We must, therefore, ensure the balance is maintained and that level of protection remains. These figures are worked out mathematically in accordance with statistics, percentages and volumes of use. I am not expert enough to say whether the risk equalisation balances should be changed. I do not know and in many of these matters we must rely on levels of expertise of those who deal with these issues all the time.

I am not sure of the position on the issue going through the courts, to which the Minister referred. Could the Minister clarify it? I am confused about what the Minister said about section 3(d), that the Government considers it appropriate that VHI have the maximum flexibility on how it achieves the level of solvency required to satisfy the Financial Regulator. He said if the State was assisting, “the Government and the European Commission would have to be satisfied in advance that any such investment by the State did not constitute state aid”. I assume VHI will have to come up with this €140 million by the end of 2008. I am unsure what the parameters are on achieving that. VHI members would like to know if that will increase premiums. I do not know if there are clear answers to the questions I pose.

The Minister says the Government should seek specialist advice on how the VHI could be authorised by the end of 2008 and that the consultants are due to produce a report for the Departments of Finance and Health and Children by the end of this month. They will then determine the provisions that will be required to comply with the authorisation by the end of 2008. The legislation is going through before those reports. Why was that information not in place before we dealt with the legislation?

I have some questions on whether it is intended to break up VHI. Again, there are more questions than answers around this possibility. What kind of subsidiaries might there be and what are the parameters for their operation? Would they be free to make profits, as Deputy Neville asked? There is much vagueness around this issue. The public will be as confused as I am on the intention of this legislation. It is pre-emptive to present this Bill without having the answers to so many of those questions. I support Deputy Neville's comments on psychotherapy and other services that are not covered. As Deputy Mitchell said, we attended a meeting with the representative groups of a number of organisations that look after the interests of the elderly where strong views were expressed, particularly on nursing homes and the fact that a large percentage of people's incomes and estates would be required for them to have nursing home care. They raised the question of ageism and equity. One must ask why certain categories of people and care are not generally included in health insurance, not specifically VHI.

I have a problem with the fact that HIQA does not cover private facilities so people who pay large amounts of money to health insurance companies do not get the same level of protection on the facilities they use as patients in public hospitals. While we rightly debate the plan to centralise the excellence required for cancer services in the public system, private organisations can supply cancer services in facilities that are not subject to HIQA's standardisation procedures, the general principle of numbers of patients, throughput and the other issues debated around public facilities. This divide must be addressed. All patients are entitled to the highest quality standards, whether public or private, and in this case private patients must be protected rather than public.

In other areas public patients must be protected. The Labour Party has serious concerns on the move towards greater purchasing of health services from private facilities, particularly the co-location of private hospitals on the grounds of public hospitals. We all have significant questions on how that will operate, how the rare experts in specialist areas will be allocated. There might be only one expert in a particular field located in a certain area. Such people should be available to private and public patients and we should not have to decide between the two groups.

We object to the idea that patients who come in to an accident and emergency department in a public hospital will be diverted to one hospital or the other depending on whether they are private or public. We are concerned about how the public hospitals will be funded when the 1,000 new private beds are open in the co-located private hospitals. Money that would previously have gone to the public hospital system from the VHI and other health insurers will go to the private hospital, which will already benefit from substantial tax relief funded by the taxpayer.

There are serious questions for the public service and patients. I do not know if anybody has done a study on the costs of this transfer, the costs foregone in the public hospital and those associated with private provision. We are entering unknown territory with these co-located hospitals. We have no detailed idea how they will operate. However some of the deals, including the one in my constituency, were signed in the last few days. The Labour Party vigorously opposed these co-located hospitals before the general election and will continue to do whatever we can to ensure there is an equitable system open to all. We do not support the concept of co-location. We are going through a transition phase from what was a monopoly health insurance company coming into competition with other health insurance companies and about to be broadened out to an even more competitive environment by the end of 2008. We seem to be moving in the direction of more of the population having private health insurance. As that happens we will have more of a two-tier health system. For the private system to work, inevitably the public system will need to get worse. There will be an incentive for those being paid through the private system to ensure enough of the population go in that direction. Already it is very high in Ireland.

That is part of the context in which the Labour Party proposed the concept of universal health insurance in 2001 and presented it as the central core of our public health policy in the 2002 general election. At that time is did not get much credence and was rubbished by Fianna Fáil. It was implied that we were doing all sorts of things that we were not doing. In the current climate there is more support for the concept. Two weeks ago the Irish Nurses Organisation stated it supported the idea of universal health insurance. It has been supported by a number of senior medical and surgical clinicians. The general public is beginning to ask why it cannot have a system that is fair and equal as operates in so many other countries. Since I became health spokesperson I have tried to read myself into my brief and in doing so I have tried to understand how universal health insurance is implemented in a number of other countries in Europe and beyond. I believe that is the only way for this country to go.

I hope the provisions in this legislation are temporary and will fit into a broader concept of universal health insurance, whereby those with the ability to pay will pay their full insurance costs, as do 53% of the population now. Those who are not able to pay should have it paid by the State and those in the middle would have a sliding scale of payments. That would be the most appropriate and fairest direction for the Irish health system. More people now want to know more about the concept as a way of coming to terms with the extraordinary problems with the health system, which we will be debating in tonight's motion of no confidence in the Minister for Health and Children.

We intend to enlarge the dialogue on universal health insurance. We intend to raise the matter in every way we can. We intend to encourage people who are thinkers about the health system — those who work in the health system and, more important, people who need to use the health system — to consider the possibility of universal health insurance. There are different ways to implement it. It is done in different ways in different countries. Essentially it is based on the concept of excellence and equity. It also has the capacity to raise standards in the delivery of health services and to ensure the best possible use of the available money.

Many things that happen in health do not encourage the best possible use of money. Fixed amounts are paid for certain things, including bed-nights, different procedures etc. There is no great encouragement for patients to avail of the appropriate care at the appropriate time. Many other parts of the system do not encourage the best possible use of the existing expertise and capacity. Everybody in the House would like to see considerably more use of community services. While agreeing with it, it still has not happened in any meaningful way. Many people who are in acute hospitals should not be there and would be more appropriately cared for in the community. In the context of the meeting we attended at lunchtime, many people being forced to go into private nursing homes would be much better off in their own community if the full support services existed in their community.

We need to have a debate about all the structures in the health service including how certain patients are insured and others are not insured leading to services being provided in different ways to different patients. There is direct competition at times between public and private lists, which is appalling as was highlighted above anything else in the past year by the death of Susie Long. In commemorating Susie Long we need to listen to her voice which clearly said that she believed in one system of health care that was universally available to all on the basis of need. She actually refused to have private health insurance because she believed in such equity of access. While I do not know whether she could afford it, she clearly said that she did not believe in it because she felt there should be equity of access.

We believe we need to reach that point. Obviously we are not there yet. Even if we were in government next week, it would take some time to implement it. It is certainly where we would like to get to. I hope we will have vigorous and informed debate on the issue.

The Bill represents a transition; it raises more questions than it answers. There is considerable confusion about what will happen up to the end of 2008 in order to bring VHI under regulation and away from its current position as a somewhat protected organisation. I look forward to the response of the Minister of State to those questions. I am pleased to have had the opportunity to contribute to the debate. As we move on to the other Stages of the Bill I hope we will be able to get clearer responses. I am conscious that as a former Minister for Health, the Leas-Cheann Comhairle knows as much about this matter as anybody else in the room. I look forward to the rest of the debate on the Bill.

I am pleased to contribute to the debate this evening. The Bill provides for the most significant changes to the provisions governing Voluntary Health Insurance since VHI was established 50 years ago in 1957. In the intervening period there has been only one other significant amending Act, the Voluntary Health Insurance (Amendment) Act 1996.

A very good Act it was too.

VHI finds itself in the anomalous position of being both the market leader in the health insurance market and being an unauthorised insurer. The company's competitors consider that this position confers a competitive advantage on it. Although the present statutory arrangements also prescribe a number of significant disadvantages for VHI, the Government recognises that the derogation cannot continue. It considers that it is in the best interests of the health insurance market and VHI that the company attain authorisation as an insurer in the shortest possible timeframe and be subject to the same prudential regulation as other commercial insurers operating in the market.

The provisions of the Bill reflect the general thrust of the recent recommendations of the Health Insurance Authority, the Competition Authority and the Barrington group regarding VHI, as set out in their reports on competition in the private health insurance market. They also address matters raised by other market stakeholders, including VHI's competitors. The Bill will be good for the development of the health insurance market and, ultimately, for consumers.

The European Commission has also taken an interest in developments in the market having regard to overseeing the operation of the insurance directives, complaints made to it by other market participants and the provisions of the treaty. The Commission has emphasised the need to address the VHI's derogation as soon as is feasible. The provisions of the Bill are very much focused on providing VHI with a structure that is more appropriate to the competitive market in which it now operates and one that will oblige the board to pursue early authorisation and provide a statutory framework that will facilitate this process. The provisions of the Bill are focused on giving VHI a structure that is more appropriate to the competitive market in which it operates. The new structure will oblige the board to pursue early authorisation and provide a statutory framework to facilitate that process. Since its establishment, the primary function of the board has been to provide health insurance — that will continue to be the case.

The main purpose of the Bill is to oblige the board to achieve authorisation from the Financial Regulator as an insurer and to give it a structure that will support an application for such authorisation. This involves giving VHI the freedom to take commercial decisions about products and pricing. It will be obliged, under the parent Act and in accordance with the memorandum and articles of association of any relevant subsidiaries, to continue to provide health insurance for the population. The Bill also provides for the definition of a "health insurance contract" in respect of cash plans to be amended. If an insurance undertaking is to be authorised, the Financial Regulator will have to be satisfied that the organisation has full independence in designing its products and setting their prices. We agree that it is no longer appropriate in a competitive market for the Minister to have any involvement in such commercial decisions.

As VHI is a major provider of health care for a significant proportion of the population, we must ensure it is obliged to meet the appropriate regulatory requirements. The provisions of this legislation will have a positive effect on the management and staff of VHI, benefit VHI's consumers and facilitate the development of the health insurance market. The European Commission has been kept informed of the evolution of the Bill through its Internal Market directorate which is responsible for insurance directives. It has taken a keen interest in the development of the Irish health insurance market.

I welcome this detailed and technical Bill. VHI, which is a part of the lives of most of us, is 50 years old and has served us well. The Bill needed to be introduced to bring VHI's level of reserves in line with its competitors. VHI needs to have a certain level of reserves before it can be authorised as an insurer. Its high reserves — some €292 million — are above the minimum EU requirement. However, the company falls short — by €140 million — of the level of reserves of established insurers with premium and claim experience. It falls a long way short of what is required by the Financial Regulator.

This legislation will put in place a structure that will give VHI commercial freedom on products and pricing. I am pleased that the Bill provides that the board of VHI may raise or borrow money without any cost to the Exchequer. While there is no limit on the borrowings VHI may raise for the purpose of attaining authorisation, there is a limit on borrowings for the day-to-day running of the company or new products it may offer. Such borrowings may not exceed 10% of the previous year's charges. The board which is best placed to make decisions on products and pricing has sole responsibility for such decisions. Consumers can be assured their interests will be protected, regardless of the rate of change in the market.

VHI has provided health insurance for 50 years. It has given good and loyal service to its customers. The Government is determined that VHI should be an authorised insurer by 2008. The Bill will have a positive effect. It will allow VHI to continue to provide health insurance in Ireland, in the best interests of the health insurance market and consumers alike. I commend this legislation to the House.

I welcome the opportunity to contribute to this debate.

I find it extraordinary that VHI, the market leader in the health insurance market, is an unauthorised insurer. I accept that the Bill before the House seeks to address this issue.

Approximately half of the people have private health insurance, mainly to cover hospital care. Such care is a right that should be delivered to all patients free of charge. That 50% of the population feels the need to pay for private health insurance constitutes a vote of no confidence in the way the public health service is run by the Government.

Members should be aware that they are considering the privatisation of VHI in the context of this Bill — the legislation will lead to the eventual privatisation of the company. After privatisation has taken place, premiums will increase according to market conditions or in line with what VHI wishes to charge its customers.

The former Minister for Health and Children, Deputy Martin, decided in 2001, a year before a general election, not to allow VHI to increase its premiums. Two price increases took place after the 2002 general election, however, which indicates to me that there may be some merit in removing political interference from VHI.

Members should consider some of the problems associated with VHI. Nobody who attends hospital and pays VHI premiums has any idea what he or she pays for, as customers do not receive itemised bills. We do not know what we are paying for as customers of VHI, Quinn Healthcare or VIVAS Health. If the Minister wishes to ensure consumers are not abused as a consequence of the monopoly position of the providers in this market, we must ensure patients are charged in a transparent manner. Therefore, we must consider the possibility of itemised hospital bills.

While I favour competition — much of what the Minister is doing in the Bill will probably prove good in the long term — nothing beneficial will arise from this legislation if we continue to allow VHI to charge its customers in a secretive manner. We need to change the way hospitals and VHI work together if we are to help those patients who are customers of VHI. The Minister is not assisting patients in that respect.

There is no need for large reserves to be held by an insurance company which deals exclusively with health. It is not in the same position as a company dealing with life assurance or accident insurance. There is no possibility of a major calamity that would require a health insurance company to use such large reserves. There is no need for such a large reserve.

I welcome VHI's heavy involvement in the SwiftCare clinics which have been successful. I do not doubt that VHI will get involved in other aspects of health care provision. Therefore, the Minister is privatising and compromising services such as general practice, emergency care and pharmacy care. There has been no clear debate in the House on whether people want to follow this model. It failed when it was followed in Australia a number of years ago — the service to patients became worse, the cost to consumers increased and it did not work out as expected. The quality of care got worse.

We should have a proper debate in the House before we allow a vast company like VHI which will have a significant monopoly in the market to privatise many aspects of health care, apart from private health insurance. The Minister should consider stopping or limiting the process or ensuring greater transparency. The mere privatisation of VHI will create an unholy mess for consumers if we are not careful and do not look at other aspects of this issue.

Fine Gael values VHI and the service it has provided. It established VHI on 1 October 1957 to deliver that service. I appreciate that this amending Bill has been introduced partially in response to a threat of legal action issued by the EU Internal Market and Services Commissioner, Mr. Charlie McCreevy.

It is important to note that many players in this field have become concerned about the lack of policy discussion on the future of the health insurance market. The State has invested significantly in VHI, not only in terms of tax forgone by means of tax reliefs but also in terms of a mechanism about which the Minister has spoken at length — the subsidisation of private care in public hospitals. All citizens who pay VHI subscriptions are grateful for those tax reliefs. While the Minister for Health and Children remains the biggest shareholder, important questions arise for citizens in any discussion of VHI's future. In many ways, the citizens' primary relationship to VHI has pertained to the cost of premiums which for any family constitutes a major expense in the course of a year. What exactly are citizens buying? Most believed that through membership of VHI they were buying fast access to health care, as well as a choice of consultant but which we know is not the case.

This amending Bill will provide retrospective cover for VHI for actions in which it engaged that may have been outside its perceived function. These include the SwiftCare clinics and the provision of travel insurance, to give two examples. The explanatory and financial memorandum to the Bill states its object is to oblige VHI's board to attain the level of reserves necessary to achieve authorisation as an insurer and to provide it with a structure that gives commercial freedom on pricing to the company. It is evident that this is essential. I presume this will give more freedom to VHI to involve itself in other activities outside those in which it has traditionally engaged. Does the Minister believe it should engage in such activities?

For example, the Bill allows for VHI to establish a subsidiary company to provide pensions. This constitutes a major change to its role. What would be the State's liability in this regard? Would such companies be completely separate? For example, if such a company encountered difficulties in the provision of pension or financial services, would there be an ongoing liability for the State? Is such commercial freedom not undermined by VHI's ongoing obligation to continue to do the Minister's bidding? The Minister should clarify this issue. It may be that such companies will be completely separate. The Bill is unclear in this regard. Members are being asked to make a very important decision regarding VHI's future. Answers to my questions would be helpful.

The proposals in the Bill will give additional flexibility to VHI, which is to be welcomed. However, I am concerned about the 50% increase in VHI premia in the past five years, which is not fair to consumers. We must ensure insurance companies cannot cherry-pick members. A facility must be established to ensure risk equalisation payments are made. We must ensure every citizen will have access to health care and, if he or she so wishes, private health insurance at reasonable cost. To this end, the Minister must do everything possible to encourage competition.

We have had evidence of privatisation working in some sectors but not in others. Our role must be to ensure genuine competition and consumer choice. We must also encourage other companies to enter the health insurance market. It is interesting that consumers have a wide choice of insurers in the field of general insurance, whether vehicle, home or property insurance, whereas the number of health insurance companies is very limited. Our political ambition must be to ensure a range of health insurance providers is available to consumers.

With regard to the provision in section 3 removing the requirement that VHI obtain ministerial consent for increases in premia, while I accept the Minister's point that the VHI board is probably best placed to make the final decision on increasing premia, the provision is akin to washing one's hands of the political responsibility for price increases. Given that VHI is still a State company for which the Government is ultimately responsible, repealing this provision sends the wrong signal. Either the Government is in charge of VHI or it is not and price increases, charges and levies go to the core of its responsibilities in this area.

I welcome the legislation as it helps to rebalance the position in favour of smaller companies. This is a positive development because more competition is needed in the health insurance market, an issue which the House will debate again.

The Bill raises questions about the level of reserve VHI must meet. I understand the Financial Regulator has set the solvency reserve at40%, but the EU average is just 25%. Can the Minister confirm whether the Financial Regulator is considering amending the level of solvency health insurers are expected to reach? If so, are the Department of Health and Children and health insurers involved in this process? If VHI is expected to reach a solvency level of 40% of its premium income by the end of 2008, will this have an impact on the cost of health insurance premiums? VHI customers have already seen subscription rates rise by 25% in the past two years, which is ridiculous. I suggest the House should re-examine this issue with a view to benchmarking the health insurance level of reserve against the requirement in other EU countries which require a reserve of 25%.

The Bill allows VHI to have subsidiary companies but it is not clear how these will interact with VHI. The Bill does not indicate whether these subsidiary companies will be for-profit companies or if they will only be required to break even. Will they have to make a return to Government on any profits they make or will the profits be used to subsidise the core health insurance business to help maintain premiums at a lower level? Should they face financial difficulties, does the Minister expect they will be capitalised by VHI or will they have the capability to borrow money in their own right? If they are not profitable, particularly in the initial years following establishment, will money be transferred directly from the VHI health insurance business to assist them? It is important that VHI and associate subsidiary companies operate and compete on a level playing field.

I would be grateful if the Minister of State answered those questions.

I am pleased to have the opportunity to speak on this Bill and listen to the contributions of speakers. Health has been a big issue in recent weeks. Health insurance and people's concerns about health care are very important issues. This Second Stage debate provides an opportunity for Members to express what in many cases are strong views.

VHI was founded some time ago and could be regarded as a success story. However, competition is good for all organisations. I note the takeover of BUPA Ireland by the Quinn Group and the arrival into the market of Vivas Health. BUPA Ireland employed a large number of staff in Fermoy. There was outrage when it left the town and the health care business but I am glad the Quinn Group took it over and maintained the competition. The chief executive officer of Vivas Health is Mr. Oliver Tattan who is from my part of the world. He is a man who should be listened to and holds strong views. He has much to contribute to the area of health insurance. Those three companies are involved in the health insurance market. I hope this will mean increased competition for the benefit of ordinary consumers, those who pay their weekly, monthly or yearly subscriptions to these companies. It is important the consumer receives a return for his or her subscription payment.

The two-tier health system is of major concern. The case of Susie Long provided an insight into what was really happening in this regard. Those with private health insurance cover who have attended private hospitals are very satisfied with the waiting time for treatment and the service they receive. As a society which wants to be fair to everybody, we have a duty to provide health care, whether through a system of health insurance or some other system available to people across the State on an equal basis. This is most important.

Other significant issues include minimum cover for inpatients, day care treatment, maternity benefit, and convalescent and psychiatric treatment, all crucial aspects of health care. People often purchase private health care insurance in order to get cover for serious illness, as they feel they cannot rely on our two-tier health system. It is absolutely imperative that any changes we make to our health insurance system do not impact negatively on any of these vital areas. That is most important from the point of view of consumers who are dependent on health care.

People are extremely vulnerable when in need of health care. It is important that they are allowed to get adequate health cover in order to not add to their woes when they are sick. It is vitally important that we ensure healthy and vibrant competition in the health insurance industry. Many expressed their concerns to me when BUPA decided to leave the health insurance market. They felt they had got value for money from it and feared they would not get the same deal from another company. Competition is the lifeblood of trade. The acquisition of BUPA by the Quinn Group allowed this important competition to continue and we must ensure this remains the case.

There has been a lack of debate about how the private health insurance market operates and what should be its future direction. Let us remember what happened in Shannon Airport re Aer Lingus and how it forgot the people of the region. In making changes to VHI, we should ensure the company looks after its customers better than Aer Lingus looked after the people who helped keep it going over many years. It may be a wild comparison but it is a fact that Aer Lingus turned its back on the people of the Shannon region who supported it. The Minister should give a clear guarantee in passing this legislation that customers, many of whom pay a substantial amount of hard earned money to VHI, will be looked after.

Audiology appointments in south Tipperary take over two and a half years, unless a patient pays for private treatment. This is unacceptable and we cannot allow such a situation to continue. We should not tolerate such waiting lists for health care. VHI reserves its right to be bulked up but the European Union will not stand over the current situation. If things go wrong for VHI, patients will have no recourse. Policyholders must be given a guarantee and be protected in every way possible. Other countries such as Canada manage private health insurance in a different way and the system there appears to run efficiently. We should investigate these systems before we rush into emergency legislation to alter how VHI operates.

I am concerned about many other aspects of VHI and health care in general, but the consumer is the most important person in all of this. I seek an assurance from the Minister that he or she will be looked after in the legislation.

Under the 1972 directive, VHI, with other insurers, was granted a derogation from meeting the prudential obligations to be met by most insurance undertakings. VHI has continued to operate as a statutory body and is exempt from the prudential requirements of the Financial Regulator, an independent prudential regulator having responsibility for all authorised insurers.

As of 28 February this year the board of VHI maintains a significant level of reserves amounting to over €292 million. That amount is well above the minimum requirement of the European Union. It is approximately €147 million short of the level that established insurers with VHI premiums and claims experience could be required to maintain by the Financial Regulator. The proposed changes to the VHI Acts contained in the Bill are consistent with the policy set out in the White Paper on health insurance published in 1999. It is proposed to give full commercial freedom to VHI and place its relationship with the Minister on a more appropriate footing, and to remove its exemption from meeting solvency requirements.

The European Commission has also taken an interest in developments in the market, having regard to overseeing the operation of the insurance directives, complaints made to it by other market participants and the provisions of the treaty. It recently emphasised the need to address VHI's derogation as a matter of urgency. I welcome the Government's decision in April, having regard to the developments in the overall marketplace, that in the best interest of the health insurance market and VHI, the company should attain authorisation as an insurer in the shortest possible timeframe, if possible by the end of 2008, and that it be subject to the same prudential regulation as other commercial insurers.

I also welcome the fact that the main provisions in the Bill are aimed at providing VHI with a structure that would be acceptable to the Financial Regulator when the application for authorisation is made. It is only right and proper that VHI would conform to this, with all other insurers. This involves giving commercial freedom on products and pricing to VHI and also the capacity to establish stand-alone subsidiaries. VHI should not be constrained any more than any other insurance company.

The substitution proposed under section 3(c) is a significant change to section 2 of the 1996 VHI Act.

Debate adjourned.
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