I welcome the Minister and his officials. I would like the Minister to outline the background to the Government motion. Members may then ask questions. They are reminded of the long-standing parliamentary practice that they should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.
Risk Equalisation Scheme.
Section 13 of the Health Insurance (Amendment) Act 2001 provides that where risk equalisation regulations are proposed to be made, a resolution approving of the regulations in draft form is required. Such a draft was laid before the Houses of the Oireachtas on 22 May and has been referred for the committee's consideration today.
Health insurance in Ireland operates on the basis of community rating, open enrolment and lifetime cover, features that have been enshrined in the provisions of the Health Insurance Act 1994, enacted in the context of protecting the common good. The application of fair and effective community rating in the health insurance market is dependent on a fair and proportionate sharing among insurers of risks in the entire insured community.
Providing risk equalisation arrangements is a necessary and proportionate measure in Ireland's community-rated health insurance market. It is a market developed on the basis of solidarity between successive generations. The need for risk equalisation, as an indispensable support to community rating going forward, has been exhaustively examined and upheld by independent authoritative analysis. Having had regard to independent analysis carried out, professional advice obtained, experience in other jurisdictions, I am satisfied risk equalisation is essential to maintain the operation of intergenerational solidarity, which is vital to community rating in private health insurance.
I underline that the issue is not new. Risk equalisation was provided for in the 1994 Health Insurance Act and detailed risk equalisation implementing rules were first adopted in 1996 and remained in place until 1999. What is new are proposed refinements of those implementing rules following independent evaluation of the necessity, proportionality and objective justification for risk equalisation and extensive consultations with all interested parties, including the European Commission.
The legal basis of risk equalisation has been the subject of considerable scrutiny at EU level. The outcome of the examination by the Commission's internal market services of this issue, carried out between 1993 and 1999, was a decision to the effect that Ireland is entitled, in principle, to avail of the provisions of Article 54 of Directive 92/49/EEC, allowing specific legal provisions to be adopted in the interests of the common good, subject to the specific measures passing the test of proportionality.
The committee will be aware that on 13 May this year, the Commission's competition services state aid division decided not to object to risk equalisation in the Irish health insurance market. It is therefore proposed to proceed with the introduction of a risk equalisation scheme. By definition, such a scheme is technical in its nature and there has been significant actuarial input into the formulae contained in the scheme. While the scheme is complex in parts, I emphasise that the overall framework provided by it has been carefully considered with a view to ensuring a necessary and proportionate adjustment mechanism.
It is important to point out that the implementation of the scheme presented for the committee's consideration today will not involve an immediate or automatic commencement of risk equalisation transfers between insurers. It will require in the first instance the provision by insurers of data returns to the Health Insurance Authority. The returns will be analysed and evaluated by the authority, which will make a recommendation to the Minister, on the basis of its objective assessment of the market, of whether financial transfers are warranted. No transfer payments will arise under the scheme unless there is evidence of emerging material differences in the risk profiles of insurers which would have the effect of undermining the stability of community rating or would unfairly or materially penalise an individual insurer as a result of risk selection.
I will now outline the arrangements for the triggering of any actual risk equalisation under the draft regulations. If the risk differentials between undertakings, expressed as a percentage of the value of the benefits provided by the market as a whole, are less than 2%, risk equalisation cannot be triggered; but the HIA can recommend that risk equalisation be triggered if the differentials are 2% or over but less than 10%. Risk equalisation cannot be triggered without such a recommendation however. The HIA must consult insurers before deciding on a recommendation, while the Minister must consult insurers before acting on a recommendation to commence transfers. The HIA discloses the level of risk differential if the differentials are 10% or more. Risk equalisation is then triggered by the Minister, subject to consultation with the HIA, on the best overall interests of consumers, and with insurers before a final determination can be made.
A requirement of the legislation reflected in the scheme is that in formulating a recommendation, the authority must take account of the overall best interests of health insurance consumers. Before finalising its recommendation to the Minister, the authority must disclose its proposed recommendation, and the reasons for such a recommendation, to insurance undertakings to give them the opportunity to make representations in relation thereto. The authority will have regard to any such representations in finally determining its recommendation to the Minister.
I commend this scheme to the committee as a balanced measure that is necessary to sustain the effective operation of the common good principles of our voluntary health insurance system. I thank many Deputies and Senators for theiroften stated support of risk equalisation, most recently in debates on the Health Insurance (Amendment) Act 2003.
I have a number of questions. I am not sure that I have expressed unqualified support for the scheme.
I thanked many Deputies and Senators who have supported it.
That is fair enough. I did not oppose the passing of the Bill mentioned by the Minister, but it is no secret that I have some instinctive reservations about risk equalisation. My instinct tells me that it is anti-competitive and bizarre that new entrants have to compensate existing firms that are protected and that dominate the market. I compare this concept to the construction of a new block of apartments, inhabited entirely by young people with particular buying habits and demands, in a small town in which there is a Tesco supermarket. Under the system being advocated by the Minister, a small local shop opening to serve the apartment block would have to pay Tesco until a level playing pitch was in place. The concept in such a case is identical to that in the system being introduced, which seems intuitively anti-competitive. This system has to be approached with enormous caution. Somebody should at least mention the concerns and the pitfalls.
The risk equalisation system is usually justified by saying the different risk profile for new entrants means it needs to be introduced if there is to be fair competition and a level playing field. It seems that such a statement is an oxymoron. The purpose of competition, which I assume we are trying to encourage, is to provide benefits to the consumer. The underlying concept which informs competition is that individual firms and consumers can improve the playing pitch. I have also heard people justify the risk equalisation system by arguing that all the experts say it is necessary if we want to maintain community rating. I suppose this argument is valid to some extent, but the truth is that not all experts say it is necessary. I accept that a great deal of them say it is necessary, but some of them have expressed——
We must move on, as many members wish to ask questions. This is a question and answer session.
I am entitled to make a few points and ask a few questions. I do not normally abuse the Chair.
I know that, but I have to remind the Deputy that we have to finish by 2.45 p.m. I ask her to restrict her contribution to asking questions, if possible.
Several experts have expressed reservations about the risk equalisation system. There has been actuarial analysis, but has the impact on the market of the introduction of risk equalisation ever been analysed? It is sometimes argued that the introduction of risk equalisation will bring certainty to the market and might encourage new entrants, but it can be argued that the elimination of risk equalisation would possibly have a more positive effect, by encouraging new entrants. Is the Minister aware of possible new entrants who are interested in joining the market? More importantly, if there are no interested parties and there are never any, will we reassess the reintroduction of risk equalisation? Such a reassessment may be necessary to determine whether risk equalisation is preventing new entrants from joining the Irish market, an issue critical to the future of the health service.
There is some competition following the arrival into the market of the second entrant some years ago. We do not have true competition however as the second entrant needs only to track the VHI in terms of price and performance. Such a system does not represent competition. We are doing a grave disservice to the health service if we do not ensure there is competition. There will be a worse scenario if the second firm in the market is driven out or decides to leave. What would be the Minister's reaction in such circumstances? Would he continue to persist with the system of risk equalisation?
How far and how rigidly the scheme is enforced is critical. I understand it is quite possible that a payment transfer could result in a marginally profitable firm being forced into a loss-making situation. What would be the implications if that were to happen? What would be the Minister's reaction in such circumstances? Would he pursue the risk equalisation scheme, citing the calculations that justify it, even if the ultimate result were the loss of all competition? Would he pursue the scheme in such circumstances?
One of the features of the draft regulations under discussion is the specification of certain details that need to be taken into account such as age and gender. I can understand the inclusion of these details as they are quantifiable and impact on risk profiles. Another parameter may be considered however according to a document I have read that states authoritative opinion appears to suggest that a parameter based on the health status of a particular population may be necessary to achieve effective risk differentiation. While health status is not easily measured, this third factor may be based on prior utilisation of hospital services measured by hospital bed utilisation. The introduction of such parameters causes me to become quite uneasy about this issue. I do not trust "authoritative opinion" as I do not know whose opinion is considered to be authoritative, or what it means.
I am sure the Minister will agree that the use of hospital bed utilisation to measure anything in the current circumstances is entirely arbitrary. Will the use of a trolley be included? Will the use of a bed for a day procedure be taken into consideration? Does this system take account of geographical differences? It is much easier for those living outside Dublin to get a bed for certain procedures than it is for those living in Dublin. Does a day in a cottage hospital in County Donegal have the same status as a day spent in a neuro-surgical theatre in Beaumont Hospital? The truth is that one cannot reasonably quantify health status. I ask the Minister to look at this again.
The Deputy has exceeded the allocated 15 minutes.
It is not possible to make calculations like this. It is simply immeasurable. One cannot measure health status and then apply that unreliable data to calculate a charge on new entrants.
Can we come back to the Deputy on this issue?
Yes. I have further questions to ask.
I want to give other members a chance. Deputy Mitchell has already exceeded her 15 minutes.
I appreciate that.
I welcome this measure. Risk equalisation is vital where one has community rating, open enrolment and lifetime cover. I have no problem with the provision of risk equalisation which is about preventing cherry-picking. Clearly, the European Union considers that it is only proper to have safeguards to protect people taking out health insurance. It is a rather different procedure from a person going to a supermarket to buy a bag of apples. However, I am concerned at the length of time it is taking. It is nine years since it was first proposed. Will the Minister assure us that this time it is for real, that it is third time lucky?
I am also curious about the risk factors. I raised this before when we were debating the legislation. I do not believe it is sufficient to include age and gender in terms of trying to work out risk factors. The idea of health status is a good one, but I am not too sure how one would define it or apply it.
Article 4 provides for restricted membership undertakings. Will the Minister clarify that there is no danger that an insurer could reproduce itself as a kind of multi-headed insurer with different restricted membership arrangements to avoid risk equalisation? I would like an answer.
I have another query about the authority. This statutory instrument provides for a fund but there is no requirement on the authority to pay out the money to an insurer. There is a requirement on one insurer to bring in the money in order to pass it on to the other insurer. I can envisage a difficulty where one insurer is in deep financial trouble and is entitled to get money under this scheme, but its competitor who owes the money may try to hold off paying in order to try to tip the insurer which is in trouble over the edge. Payment could be withheld and the only penalty imposed is that the interest would build up. I may be wrong about this as it is somewhat technical. Can the authority not solve the problem by handing over the money? How can such a scenario be prevented?
Establishing risk equalisation will not of itself do much to attract other insurers into this country. The issue of the future of the VHI is a major one. Will the Minister tell us his policy in respect of it?
I have three brief questions that follow on from where Deputy McManus left off. What is the strategic future of the VHI? We need to get an idea of the Minister's plans on that front. The question of competition is vital. We need to be informed as to the sustainability of the organisation in terms of an 18% increase last year and if it is to get 4% from its competitor.
Will the Minister indicate how he perceives more competition will be attracted into the market? What does he see as the potential effect which risk equalisation might have in making this a less attractive place from the point of view of competitiveness?
A number of issues have been raised. In response to Deputy Mitchell on the issue of the measure being potentially anti-competitive, one could argue that the absence of a risk equalisation scheme, in itself, could develop and generate anti-competitive practices. It would certainly leave it open to insurers with low risk members to make uneconomic deals, for example, with service providers in order to gain competitive advantage. There is very little incentive for insurers with low risk members to achieve greater efficiencies or contribute to serving the wider community of insured persons.
What about the consumer?
Risk equalisation would not come into force if a company was only marginally profitable. By definition it could not come into force.
That is not true.
It could not.
What the Minister says is not true.
Not unless it is very inefficient, because by definition there is up to a 10% material difference between the two. I gave the bands earlier. When one gets close to 10%, there is a difference of between €60 million to €65 million, in terms of the risk profile. It is not just down to my reading of it. All those watching it believe——
There are calculations.
——given the bands we have created, which are proportionate, there would have to be significant variations and material differences in the risk profiles. Clearly, such a variation would not manifest itself in a company which would have low risk profiles, in being just marginally profitable.
There are calculations whereby the differentials due to changes in risk profile are such that they require equalisation payments, but nevertheless the firm is otherwise only marginally more profitable.
I cannot envisage such a scenario.
There are such situations and we have to be aware of this if we continue to apply the scheme.
I do not agree. The Deputy asked a question about independent advice. An independent advisory body was established in 1997.
Deputy McManus made a valid point in terms of the length of this process which dates back to 1994. This has been fought all the way. The independent advisory group reported in 1998. There was an economist on the group and the Society of Actuaries made its comments also. An independent examination of the arrangements for risk equalisation was undertaken. The group found that it was a necessary support for community rating in the Irish market. It found that risk equalisation was essential to underpin community rating. That was included in the Harvey report, called after the then chairperson.
Deputy Mitchell raised the possibility of an insurer pulling out of the market. Representations have been made in recent years suggesting that if this is introduced, certain companies will pull out of the market. However, the Oireachtas cannot be held to ransom. We have to take independent and objective assessment of these situations as best we can. We have to take on board the representations made by people on all sides of the argument.
This scheme is certainly more refined than the earlier ones proposed. One could argue that it is a far more proportionate and balanced measure now than it might have been. Companies will have to make their own decisions. The Oireachtas will decide on the matter one way or another. If this is approved, it becomes law. It is then a matter for the Health Insurance Authority to implement the law. One cannot have a situation where I whisper to the authority, which may be what the Deputy is suggesting. I do not know what is being said in terms of whether it will be rigorously enforced. The scheme is quite clear in terms of what the authority has to do and, subsequently, what the Minister of the day will have to do when a recommendation comes back to him or her from the authority. That is the position. It is then a matter for the market to respond.
I accept what the Minister is saying.
In terms of competition, a matter raised by Deputy O'Malley, we do not have any evidence of a new entrant. Some interest was expressed over a year and a half ago. People will speculate about the impact of the events of 11 September 2001 and so on, in regard to potential American investment. At the time it was argued that risk equalisation was an important factor to have in place to facilitate competition. Different sources have different perspectives on this. Once it is in place, it will create stability.
I accept what the Minister said about not allowing a firm to hold the Oireachtas to ransom. What if there is no further competition in three or four years time? Will we re-examine this?
It is always open to the Oireachtas and the Minister of the day to revisit any measure. This legislation is open to amendment if someone wants to do so in due course. Any legislation is open to that if the Government or the Oireachtas changes its mind.
On the age and gender issue and health status, we know there is strong evidence that the relative health of distinct groups within the population cannot be explained solely by reference to the age and gender profiles of the respective groups. Apart from age and gender, health status can also be affected by such factors as employment status, income level, educational background and location, that is, where one lives. There is no readily available and universally adopted measure of these factors. Notwithstanding this, the inclusion of a health status measure is potentially important. Therefore, a proxy measure has been included based on the relative utilisation of hospital services. As a result, the cell claim value is the sum of all in-patient and day patient days underlying claims settled during that period.
The use of this measure carries with it the risk that efficiencies gained by insurers through, for example, claim management or early intervention will be shared. The scheme builds in considerable safeguards to protect against this. They include 50% being the maximum extent to which market bed night experience can be substituted for insurers' own experience, the risk factors being limited to age and gender at the outset and the utilisation measure only being introduced if stringent criteria are met. These include a requirement that the authority has observed material differences in claims experience within age and gender cells and, having analysed these, concluded that they are wholly or substantially attributable to variations in health status rather than variations in efficiency levels.
The article also covers the situation where an insurer discovers an error in a previous return. That is a minor issue. Many safeguards are built into the health status measure and the assessment of same and it rests with the authority to make the assessment based on stringent criteria.
Deputy McManus made a fair comment regarding the length of time. This dates back a number of years. We decided to go back to the European Commission before we published a draft scheme. One of the companies involved lodged a complaint with it. We decided that, rather than introduce the risk equalisation scheme and have the Commission deem it improper, we decided to go to the Commission, and the decision was taken by the competition directorate not to object. That was communicated to us in May and we subsequently laid the regulations before the House. They will come into effect on 1 July on condition that the Oireachtas passes them.
Was a copy of the European Commission decision made available?
Yes.
We did not get it.
It was published.
There was an article in the Irish Medical Times that stated the Department had refused to release it and that anyone who wanted it should get it from the European Commission. As the Minister was called to account, it is up to him to make the decision available.
One of the parties was a complainant.
Yes, but the Minister was held to account.
No, we were not held to account.
The Minister was asked to explain that the measure was not anti-competitive.
We went the proactive way.
All Deputy Mitchell seeks is a copy of the decision.
We will get it for her. My understanding is that the Commission will place the decision on its website.
The answer to Deputy McManus's question on restrictive membership is "no". Any new restrictive membership organisation would be subject to risk equalisation. In terms of one insurer who owes money and withholds payment, section 12A(4) as inserted by section 9 of the Health Insurance (Amendment) Act 2001 states:
A payment due by a registered undertaking to the Authority under a scheme may be recovered by the Authority from the undertaking as a simple contract debt in any court of competent jurisdiction.
It is a case of going to the court in the eventuality of someone withholding payment.
I remind Deputies McManus and O'Malley that the policy on the future of the VHI is not up for discussion today.
It is now, especially when the Minister's colleague is as curious as I am.
We are all filled with curiosity.
That little nest egg is not being opened today.
There is a commitment to the commercial independence of the VHI as a first step. We envisage further legislation granting more commercial independence to the organisation. Whether the VHI is sold is a matter that must first be considered by Government. If the circumstances were right, the Government might be disposed to doing so. On the other hand, it would have to give a great deal of consideration to it. We have taken advice on it. As a result of risk equalisation, it is not an issue that has been brought to Government nor have we prepared a memorandum to do so. Obviously, it is a matter to which we will give careful consideration. Health insurance is a fundamental issue and we would have to give it due consideration before taking such a momentous step.
I am sure the Minister will be pleased to hear that I give unqualified support to this. The position is similar to where supermarkets such as Wal-Mart set up outside towns. This is fine for those who are young, have cars and can go there, but it is not much good to a person when he or she is older and cannot go to the out of town stores by car and the small department store in town has closed because of lack of business.
I am concerned about the way the sums of money are to be calculated. They appear to lead health insurers to encourage people to take out the most expensive schemes. There is a reference to cell definitions and cell equalised benefits, which will be divided by the cell claim values. I am always anxious about people taking out high cost insurance which is really for the hotel benefits. I am a plan A person. Is the Minister sure this measure will not have this effect on health insurers? Human nature being what it is, I think people would like to obtain as much money as possible.
It can only be equalised up to plan B level.
Community rating is the basis of the health insurance market. Risk equalisation is an indispensable support for community rating. The Minister has clearly laid out the basis on which it will work. It is a fair system and will allow the market to develop. It will also make it clear to new entrants what the market will be like in future. If new entrants are examining the Irish market, they will now come forward. The Minister deserves our congratulations on bringing forward these regulations.
I wish to ask some questions on how the system will work and the practicalities of seeking the information from hospitals. Will the cost of the public hospital levy be included in insurance claim costs for equalisation purposes? How does the Minister propose to ensure only claims for dedicated private beds are used for equalisation? Often when private care is requested, it is not given. How will the Minister ensure that, if a patient requested private care, he or she received it?
I welcome risk equalisation, which is fundamentally fair. However, it seems an Irish solution to an Irish problem, which is not a real solution at all. The danger is that there will be a huge increase in premiums, which will reduce the number who can afford to pay them. That may cement a two tier system. What is the Government doing to ensure premiums will not escalate? There are over 20 private health care schemes in Australia. Has that model been looked at? Is it successful?
I welcome risk equalisation as there is an equality about it which I wish were contagious in the rest of the health service. Once it commences, is there a mechanism in place for ongoing review? Legislation could be changed down the line but what is the ongoing monitoring arrangement if any tweaking is needed?
My question was about developing competition, which was not answered.
I answered Senator Henry's question. Deputy Devins was clear and logical in his contribution on the virtues of risk equalisation schemes. As he is a practitioner in the field, I am reassured by his confidence in the scheme.
Totally objective.
It is a genuinely independent perspective.
Regarding Deputy Neville's point, it is only actual claims expenditure incurred which is at issue. Those are the only matters that will be considered. The Deputy is probably branching into wider issues pertaining to private beds in public hospitals. The consultants' common contract sets out clear yardsticks against which these issues in terms of bed utilisation should be measured. We are anxious to maintain the 80-20 split, with 80% for public patients and 20% for private patients. There is some evidence that that split has not always been adhered to, particularly with high admissions to accident and emergency departments. The issue is one on which we are working constantly with the health boards to ensure adherence to the consultants' contract. That was decided some years ago and can only be changed by a new contract. All this flows from the Hanly report in terms of a medical manpower issue.
To a certain extent, the public sector has been subsidising the cost of private beds in public hospitals. On the one hand, people complain about VHI or BUPA levels and health insurance premiums going up. In recent years I have attempted to reduce the level of subsidisation progressively and succeeded in doing so. This has been a factor in the increases in premiums by 2% or 3% last time out. When I increase private health charges, it reduces the level of subsidy, but the subsidy will still be in the order of 50% in some cases.
Does the Minister know the costs that will apply?
Yes, the assessment has been done. The White Paper committed——
The marginal cost of a public bed is not known.
——the Government to ending subsidisation but one must do so in a balanced, phased way so as not to create inflationary pressures. That is a wider issue to which we may return in future debates.
Senator Feighan raised competition and premiums. We do not see risk equalisation raising premiums. If one does not have risk equalisation, one runs the risk of rapid increase in premium for one group as if there is a variation in risk profiles to a significant degree, the only way it can be compensated for is by increasing the premium. The best guarantee for the insured population is risk equalisation. We argue that the person taking out insurance is being given significant stability and guarantees by risk equalisation in terms of the product he or she is purchasing.
Deputy Cowley mentioned the review issue. Obviously, it will take some time.
Deputy Neville made a good point. If this is passed on 1 July, the first step for the Health Insurance Authority is to seek data, as it is legally entitled to do, from both insurance companies now in the market. This covers up to December this year. It will then have up to 120 days to make an evaluation. A recommendation is made to the Minister, who then has 60 days in which to act if the figure is over 10%. One is looking at a good nine to 12 months before anything happens. The review of the Act is up to the Minister of the day but this could take up to three years.
Regarding Deputy O'Malley's question on developing competition, there has been much uncertainty for some years. We hope the introduction of a risk equalisation scheme will end this and clear the pitch for what the Irish market will be like, as any new entrants will have a degree of certainty for planning investment decisions and so on. As I say, there were some indications prior to 11 September 2001 that there were parties interested in coming into the market but after that date that interest waned, with some suggestions that the events of that day were a factor in not securing the necessary investment at the time.
Until people put their money on the table, we do not know if they are serious about entering the market but we hope the risk equalisation will facilitate competition. We want more competition in the market. To a certain extent, this is reflected in the refinement of the scheme compared to earlier ones. There is a degree of latitude in the scheme, with bands from 2% to 10%, and a lot of latitude for the Health Insurance Authority before it triggers risk equalisation. If it does not trigger it before the 10% material difference is reached, it is up to the Minister. When one reads through the details of the scheme, one sees is not a straightforward matter of someone writing a cheque for the other group. It is not as straightforward as that.
As the only dissenting voice, I accept much that the Minister is saying. However, almost 50% of the population depends on health insurance and it is true that as soon as risk equalisation becomes operational, young people will immediately pay more. The danger - I accept it is only a danger - is that if risk equalisation impacts on the market to reduce competition, prices will go up for everyone. That is the reason I raise this. The safeguards must be rigorously monitored right through. That is the reason I must be a dissenting voice - it is for those who depend on this.
The real drivers of health expenditure, in both the private and public sectors, will not be under the remit of risk equalisation. There are wider drivers of costs in health which the private sector feels as much as the public sector such as advances in technology. There is no comparison between the volume of MRIs being carried out today and five years ago. The cost of drugs for peptic ulcers, for example, has shot up because of the new drugs coming on stream.
These costs will arise, regardless of risk equalisation.
Exactly. The Deputy must be careful not to blame——
I am not.
——all the ills of health expenditure growth in six months or two years time on matters pertaining to risk equalisation. There are far more significant drivers of health costs, as Senator Henry and Deputy Cowley know.
I accept that.