I move: "That the Bill be now read a Second Time."
I welcome this opportunity to address the House on Second Stage of the Health Insurance (Amendment) Bill 2014. The main purpose of this Bill is to specify the risk equalisation credits and corresponding stamp duty levies from 1 March 2015. In addition, the Bill will specify the allowable rate of the net premium payable for young adults and provide for the transfer of an insured person from a restricted membership undertaking to another registered undertaking without any additional initial waiting period. I will also make some technical amendments to the Health Insurance Acts 1994 to 2013.
I recently announced a series of measures to address the rising cost of premiums for private health insurance. This follows completion of the second phase of Pat McLoughlin's report on health insurance costs, which was developed with the assistance of private health insurers, the Health Insurance Authority and the Department of Health. Taken together, these measures aim to ensure that private health insurance is affordable to as many people as possible in a sustainable, competitive market. The continued improvements in the economy create a positive backdrop. Employment grew by 2.4% in 2013 and the Economic and Social Research Institute is now forecasting a 1.8% growth in employment in 2014 and 2.7% growth in 2015.
It is reasonable to expect that the introduction of lifetime community rating from 1 May 2015, combined with the improvements in employment, will result in the numbers insured either holding steady or increasing modestly over the next year. The improvement follows a sustained period of problems in the industry - serious growth in costs and falls in membership of health insurance plans. For example, coverage of health insurance fell from a peak of 50.9% of the population in 2008 to 44% in June 2014. Average claims costs per insured person rose by 12.6% from 2008 to 2012.
However, more recent data are a little more positive. There was a welcome fall of 2% in average claim costs in 2013 and a reduction in the rate of claims inflation. We will monitor data to assess whether this is part of a continuing downward trend or just a blip. In particular, I am pleased that the size of the market contracted less in the year to July 2014 than it did during the previous 12 months. The reduction has improved from a fall of 63,460 members in the year to mid-2013 to a reduction of 36,000 in the year to mid-2014. As Garret FitzGerald might have said, the rate of decrease is decreasing. In fact, in Q3 of 2014, we recorded a small increase in the number of people with health insurance for the first time in many years.
I recently announced a number of important measures for the health insurance market. These include lifetime community rating, reduced rates for young adults, a reduction in the levy for the Health Insurance Authority and no change in the stamp duty levy for the risk equalisation scheme. I will detail each of these measures in turn.
I am introducing lifetime community rating from 1 May 2015. Lifetime community rating is a modification of community rating to reflect the age at which a person first takes out health insurance. Its primary purpose is to encourage people to purchase health insurance at a younger age. This spreads the costs of older and less healthy people across the market, helping to support affordable premium levels for all. Those who take out private health insurance earlier in life and retain it will pay lower premiums compared to those choosing to join when they are older.
From 1 May 2015, there will be late entry loadings for those aged 35 years of age and over who purchase private health insurance for the first time or renew after a break in cover of more than 13 weeks. The loadings are set at 2% per year starting at age 35 up to a maximum loading of 70% at age 69 and over. There is a grace period until 30 April 2015 to allow as many people as possible to take out health insurance. During this period, no penalties will apply. Following expiry of the grace period, there will be credits for previous periods of health insurance cover and credits of up to three years for unemployment since 2008, to reflect the impact of the recent recession.
The Health Insurance Authority will run an extensive communications campaign to publicise this significant change to the health insurance market. It is important that the public has enough notice of its introduction and sufficient opportunity to take out health insurance before the introduction of loadings.
I have decided in this Bill to remove the single very large step-effect increase in premia rates that occurs for most young adults after their 21st birthday. For many, premiums can increase by 100% or more. The Bill provides for the introduction of a young adult rate of premium that is age-based rather than student-based and is designed to smooth out the rise in premia between the child rate and a full adult rate. Insurers will retain the discretion whether to provide young adult rates. Where an insurer chooses to provide young adult rates, it must provide the full range of rates within the specified bands. This policy change will also remove the requirement to be a dependant of a policyholder or a full-time student dependent on parents.
I have also looked closely at the levy payable by insurers under section 17 of the Health Insurance Act 1994. This levy funds the work of the Health Insurance Authority, the statutory regulator. Regulations made in 2010 set the rate at 0.12% of insurers' premium income. In its annual report for 2013, the HIA reported a surplus of €10 million. As a contribution towards lowering costs in the industry, I have decided to reduce the levy to a nominal rate of just 0.01% for two years, with savings to the industry of €2 million in both years. Thereafter, the levy will be set at 0.09%, still a reduction of 25% on current levels. The HIA is satisfied that this level of funding is appropriate to fund its ongoing operations and the rate of levy will be subject to periodic review by my Department. I signed the statutory instrument for this earlier this week.
The risk equalisation scheme is designed to protect community rating by making it easier for older people to afford private health insurance. I am committed to making the scheme as effective as possible in a way that promotes fair and open competition. This scheme is funded by stamp duties levied on health insurance policies and the money generated is used to pay risk equalisation credits to take account of the higher costs of older and sicker people.
In recent years, it has been necessary to increase significantly the stamp duty on all policies in order to fund the rising costs of an increasingly older and less healthy population of insured people. The increase last year on advanced products was €49 per adult and €15 per child. I am pleased that with the agreement of the Minister for Finance, there will be no increase in stamp duty rates for products providing advanced cover in 2015. The levy will remain unchanged at €399 per adult and €135 per child. In addition, there will be a reduction in the levy rate for products providing non-advanced cover. The levy for an adult will be reduced by €50, down from €290 to €240, and for a child, it will be reduced by €20, down from €100 to €80, achieving reductions of 17% and 20%, respectively.
I am glad that at least one of the four insurers has already confirmed that it will pass on this reduction. These changes will apply from 1 March 2015 and follow the formal advice of the Health Insurance Authority, HIA. The effectiveness of the risk equalisation scheme, RES, is measured by the extent to which it compensates for the higher costs of older customers. The overall changes to the RES in 2015 improve its effectiveness for older age groups. In fact, most people over the age of 70 hold products providing for "advanced cover".
In this category, the revised rates will compensate for 81% of the higher claims costs for those over 70 and 88% of higher claims costs for those aged over 80. These changes are in line with the risk equalisation policy statement announced by my predecessor, the Minister, Deputy Reilly, in November 2013, which set a target of increasing effectiveness to 85% for those over 70 years and 90% for customers aged over 80 years by 2016. This target is subject to the advice of the HIA, the requirement not to over-compensate any insurer and to Government budgetary decisions each year.
This year, the Department and the HIA commenced work on a more refined health status measure using diagnosis related groups, DRGs, to enhance the risk equalisation scheme by improving support for less healthy people of all ages. The HIA carried out an analysis of international regimes and submitted a report to me on incorporating DRGs into the risk equalisation scheme. I will use this report to inform the changes that will be proposed from 2016 onwards.
I am determined to address the issues contributing to increased costs in the health insurance sector. In 2012, the Consultative Forum on Health Insurance was established to generate ideas to address the issue of health insurance costs. In June 2013, Mr. Pat McLoughlin was appointed as independent chairperson of the forum. The measures I have outlined here today are closely aligned to the recommendations of Mr. McLoughlin's two-phase report on private health insurance costs. The first report was published in December 2013 and the second was published last week. Mr. McLoughlin recommends a scheme of lifetime community rating and discounted rates for young adults. Both measures are before the House today.
I have also accepted the recommendations relating to the implementation of a case-based charging system using DRGs for private patients in public hospitals under the money follows the patient or activity-based funding model. I have also accepted the establishment of a steering group to build on the reforms under way in the area of the prevention of chronic disease. This will focus on the provision of an integrated model of care for patients with chronic conditions.
Other recommendations being implemented include an increased focus by private health insurers on combatting fraud in the private health insurance market and the establishment of a working group with the HSE and the health insurers on the recommendations relating to claims processing. Mr. McLoughlin's independent reports make several important recommendations under the headings of controlling costs, care settings and resources, age structure, clinical audit and utilisation management, private psychiatry, fraud waste and abuse, chronic disease management, claims processing, and admission and discharge processes. I have instructed the Department to pursue these, in conjunction with the private health insurers and the HSE, as appropriate. These measures, combined with the recent decision by my colleague, the Minister for Finance, not to decrease tax relief on health insurance premia and the freezing of hospital bed charges, all aim to support a competitive health insurance industry. From now on I want to place the consumer's needs at the centre of decision making and policy formulation.
I will now outline the specific sections of the Bill. Section 1 defines the principal Act as the Health Insurance Act 1994. Section 2 amends section 7(5)(b)(i) of the principal Act. The proposed amendment will provide for a sliding scale of young adult rates for health insurance premiums up to and including age 25 and will remove the requirement to be in full-time education or to be dependent on the policy holder. A new subsection 5A provides that where a health insurer proposes to offer young adult rates it shall offer the full range of rates within the specified bands. Insurers will retain the discretion whether to provide young adult rates, although it will be possible in future legislation to make this mandatory.
Section 3 amends section 7A of the principal Act. The regulations to provide for lifetime community rating take effect on 1 May 2015. From 1 May 2015 there will be late entry loadings for those aged 35 and over who purchase private health insurance for the first time, and are renewing after a break in cover of more than 13 weeks. This amendment clarifies that the obligation on insurers to impose lifetime community rating loadings as provided for by regulations is mandatory, by replacing "may" with "shall" and by clarifying in subsection 3 that the obligation to require the payment of late entry loadings is subject to the regulations signed into law on 7 July 2014.
Section 4 amends subsections 8(3) and 8(5) and deletes subsection 8(6) of the principal Act. The additional provisions proposed in 8(3) and amendment of 8(5) are made to clarify that people transferring from one health insurance policy to another health insurance policy are not required to serve additional waiting periods other than those applying to an upgrade in cover. Section 8(5) is also amended to provide for the transfer of served waiting times for people transferring from restricted membership undertakings to open market insurers, without the application of any additional initial waiting period. Subsection 8(6) is consequently deleted.
Section 5 amends section 1 Ic of the principal Act to provide for 1 March 2015 as the effective date for revised risk equalisation credits to be payable from the fund. Section 6 amends Schedule 3 of the principal Act to provide for the revised amount payable from the risk equalisation fund for the hospital bed utilisation credit. This will cover health insurance contracts renewed or taken out from 1 March 2015. Section 7 replaces table 2 in Schedule 4 to the principal Act with effect from 1 March 2015 whereby the applicable risk equalisation credits payable from the risk equalisation fund for certain classes of insured persons are revised. Section 8 amends section 125A of the Stamp Duties Act 1999 to specify the applicable stamp duty rates for the periods 1 January to 28 February 2015 and 1 March 2015 onwards. Section 9 provides for the Short Title, collective citation and construction of the Bill. I commend the Bill to the House.