This is a Bill to amend the National Health Insurance Acts, 1911 to 1936, by modifying the financial system on which the existing Acts are based so as to permit the release for expenditure on additional benefits of part of the income of the National Health Insurance Society which at present is carried to reserve. For a proper understanding of the Bill, it is necessary to go back to the position of health insurance before the passing of the Act of 1933 which amalgamated all approved societies and branches and replaced them by the National Health Insurance Society. There were then some 85 of these different societies and branches, and their assets consisted partly of cash investments and partly of book credits known as reserve values. These reserve values represented that part of the liability which each society assumed by admitting to membership persons who were over the age of 16 years when they became insurable for the first time. Provision was made for their redemption by a sinking fund which was formed by putting aside a proportion of the weekly contributions and used to convert these national investments into actual cash investments. The retention of part of the contributions for the sinking fund was made possible by the assumption by the Exchequer of a liability to pay two-ninths of the actual expenditure by societies on benefits and administration until the reserve values had all been converted into cash.
Each approved society was a separate self-governing entity with its own benefit fund and invested assets. While every employed person was compulsorily insured he was free to join any society which would accept him. Owing to competition between societies some societies might expand their membership, others such as those confined to a particular trade or class might maintain a stable membership and others for various causes might suffer a steady diminution in membership. As no society had any guarantee of continuity of membership the method of finance had to have regard to that fact so that the principles of actuarial valuation might apply to them as in the case of voluntary insurance bodies. An actuarial valuation applies at regular intervals, usually five years, a test of the sufficiency of the existing assets of a society to provide in the future for its liabilities towards all persons in the society on the valuation date. It is a measure of the funds which a society should have so that, if it never recruited another member, these funds, together with future contributions, would provide all the benefits to which the members would be entitled until, in the course of time, through death, transfer or lapse of membership, the society had ceased to exist.
The National Health Insurance Act, 1918, effected certain modifications rendered necessary by experience of the working of the scheme which showed that the finances of societies required strengthening. This was achieved by additional State aid and by reducing the sums retained for the service of the sinking fund to redeem reserve values. The sums diverted from the sinking fund were used to establish a contingencies fund for each society and a central fund available for all societies. The object of the contingencies fund of a society was to provide a first line of defence against a deficiency in the benefit fund on valuation. The contingencies fund was left out of account on valuation, but if a deficiency emerged it was used to make good the deficiency. So far as it was not used it was credited to the benefit fund and became available in that fund at the next valuation. The object of the central fund was to come to the aid of a society with a deficiency which its own contingencies fund could not cover. Assistance to a society from the central fund was given only when it was clear that the deficiency was due to circumstances over which the society had no control. Its income was derived in part from a proportion of reserve value deductions, part from State grant, and part from the moneys available from unclaimed stamps. The State grant ceased in 1921 and since then the central fund is supported solely by moneys out of unclaimed stamps.
Another fund, known as the reserve suspense fund, was set up to deal with the necessary adjustments as regards new entrants to insurance; the transfer of members from one society to another; or lapse from insurance. Since unification transfers are now confined practically to international transfers to and from Great Britain. These complicated technical arrangements were an essential part of the old individual society system. When the financial position of some of these societies gave cause for anxiety some ten years ago, and it was evident that a continuation of the system would result in the further growth of anomalies and inequalities between different groups of persons, indefensible in a national insurance system, the Act of 1933 was passed unifying approved societies in the National Health Insurance Society. It was recognised that the reserve value system was no longer appropriate to a national society and that the principles of actuarial valuation were capable of considerable modification. Departmental consideration was given to the matter and discussions with the actuarial adviser were directed towards the question of what changes in the financial system were possible and desirable. One of the first obstacles to progress was the absence of reliable standards applicable to this country for the measurement of factors affecting the actuarial basis of the scheme. All previous valuations had been made on standards originally based on British experience which had ceased to apply. The first task was to collect information on which a reliable standard of measurement could be based. The provision of the information required was undertaken by the new society, and data covering a period of years was supplied to the actuary who furnished a report on the sickness experience of the society.
In the meantime consideration of the financial position generally had continued as a result of the valuation made on unification at the end of 1933, which had disclosed a deficiency of £46,700. The contingencies fund of £183,000 had been drawn on to meet this deficiency, the balance, small in relation to the future liabilities, being carried forward. In making this valuation, previous methods and standards of sickness and mortality, etc., as in previous valuations had been used, but the report as to the sickness experience showed that these standards did not provide a proper measure of the society's liabilities and that a valuation on the basis of the society's own experience would show a large deficiency which would call for a reduction in benefits or an increase in contributions. It was considered, however, that the principles underlying valuations of individual societies could not properly apply to one national society to which all persons entering insurance must necessarily belong. Although the excess of income over expenditure amounted to sums varying from £150,000 to £200,000 a year, which were being added to reserves, nevertheless, on the old valuation system, these reserves were insufficient. It was, however, felt that in a comprehensive national scheme as distinct from a commercial scheme or a scheme worked through a multiplicity of societies new considerations might be taken into account subject to the best expert opinion available.
The Department's actuarial adviser was, accordingly, consulted and the result is contained in his very informative report dated 28th March, 1941, which has been presented to the Oireachtas. That report confirmed the departmental opinion that fundamental alterations in the financial structure of the scheme were possible and that, instead of continuing to accumulate reserves, an appreciable proportion of the society's income might safely be regarded as available to provide additional benefits for its members.
The Bill now before the Seanad provides for the repeal of all those sections of the National Health Insurance Acts which deal with the crediting and debiting of reserve values and transfer values and with the provision of a sinking fund for the redemption of reserve values by means of a deduction from contributions. It also repeals the provisions relating to the contingencies fund, which, as already explained, is formed by placing to temporary reserve a proportion of the contribution income. The result of these repeals will be that the whole contribution income of the society, which hitherto has been apportioned between the benefit fund, including the administration account, of the society, the contingencies fund and the sinking fund for redemption of reserve values, will be credited to the benefit fund and administration account of the society. The Bill also provides for the repeal of those sections of the existing Acts governing valuation and the manner of dealing with a surplus or deficiency arising on valuation. Instead of these provisions, the Bill proposes that, as at the dates on which a valuation under the existing Acts would normally be made, there shall be made a comprehensive actuarial review by an actuary appointed by the Minister with the consent of the Minister for Finance.
In his review, the actuary is to have regard to the amount by which the income of the society, other than that available for administration expenses, exceeded the expenditure on benefits, medical certification and the provision of transfer values during the preceding five years, and he is required by the Bill to report as to the amount of such excess which, in his opinion, may be made available for additional benefits in the next succeeding additional benefit period. The type of report contemplated would correspond to the report to which I have already referred and which governs the amounts which will be made available for additional benefits in the five years beginning 1st April, 1942. The Minister, after considering any such report, is to determine the amount which may be made available for additional benefits, and the society may submit for his sanction a scheme for the provision of such additional benefits. The Bill proposes to make no change in the list of additional benefits contained in the existing Acts.
Under Section 3 of the Act of 1911 two-ninths of the cost of the provision of additional benefits including the cost of their administration is borne by the Exchequer. It is contemplated that the amount to be made available for additional benefits in each of the next five years will be £175,000 of which about £39,000 will be borne by the Exchequer. The Central Fund is to be reconstituted as the National Health Insurance Reserve Fund, and will in future be the only resources of the scheme held in reserve to meet adverse experience. It is of the highest importance that the existing capital assets of the society which represent the investments of its benefit fund, should be maintained intact and should not be encroached upon. They are under no circumstances available for distribution. They perform the function of producing by way of interest, an income which is a supplement to contributions. If this interest income were to fail then it would be necessary to replace it by an increase of contributions. If adverse circumstances were experienced in which the income of the society fell to a level lower than that necessary to provide ordinary benefits, or if the claim rate so increased that the income was no longer sufficient to meet it, then the proper procedure would be not to encroach on capital assets but to increase contributions or reduce benefits in order to restore equilibrium.
For this reason the reserve fund is of importance. Its purpose is to perform the functions of a contingencies reserve fund and it is proposed that it should be allowed to accumulate by its own interest and by the addition from year to year of certain moneys made available from the proceeds of unclaimed stamps until, in the opinion of the actuary, it has reached a figure which will constitute a reasonable reserve. He will consider its position at each quinquennial review and will advise as to the amount, if any, which may be transferred from it to the benefit fund of the society. Any amount so transferred will be taken into account in deciding the amount made available for additional benefits. The Bill also deals with the disposal of moneys representing unclaimed stamps, and proposes that an amount not exceeding £15,000 of these moneys be paid each year to the Exchequer as an Appropriation-in-Aid of the cost of central administration, the balance being credited to the new reserve fund. Under the existing Acts, the State bears two-ninths of the expenditure on benefits and administration by the National Health Insurance Society. It contributes a substantial amount by way of State grant on contributions, provides the cost of the district medical referee scheme and in addition the whole cost of central administration, including the cost of printing contribution cards and of the printing and sale of insurance stamps. Including expenditure in respect of National Health Insurance by allied Departments the whole State expenditure at present on National Health Insurance is £321,000 a year. The present Bill will add to that expenditure by the State, two-ninths of the cost of the additional benefits to be provided amounting to £39,000 annually.
The remaining provisions of the Bill are rather technical in nature. They deal with the winding up of the contingencies fund, the sinking fund and the reserve suspense fund; with the cancellation of reserve value; with the provision of transfer values in cases of transfers of insurance to or from Great Britain or to or from the military forces fund; and with the allocation of interest income amongst the various funds and accounts on which interest is earned.
Before I conclude I think it well to say that this Bill is, to some extent, experimental in character. The changes made in the finances of the scheme are fundamental, but it must not be taken that they permit of any loosening of supervision and control over the existing financial resources. Because the income of the scheme has regularly exceeded the expenditure, it must not be assumed that a satisfactory position exists, allowing of large extensions of the benefits, limited only by the amount of that excess. On the contrary there are indications that the position is far from satisfactory in certain respects and the actuary in his report of 1939 dealing with the sickness experience and also his report of last year dealing with the general financial position has drawn particular attention to these.
It is clear from his reports that the rates of incapacity for which payment to members is being made by the society are exceedingly heavy, particularly in regard to disablement benefit, which are two or three times the corresponding British rates, and far exceed the amount of incapacity for which provision was made in the financial basis of the scheme in this country. He states that unless drastic administrative measures are taken successfully to eradicate the "claim habit" the incapacity experienced will have to determine the actuarial basis of the scheme. This is a question which is actively engaging the attention of the society and the Department.
The actuary also draws attention to the comparatively low proportion of persons of insurable age who are insurably employed in this country, while pointing out that in recent years a considerable increase in members has occurred, particularly at the later ages, and concludes that the insured population, both as regards numbers and age distribution, is not in a stable position. He adds that since changes in numbers and age constitution may have a marked effect, not only on the capital liabilities of the scheme, but also on the average cost of benefits, it must be remembered always that this instability in the insured population is a factor of fundamental importance in considering the effect of far-reaching amendments of the financial arrangements and enlargements of the scope of benefits. The need for extreme caution is evident. It must not, therefore, be assumed that, because recent experience allows of a temporary enlargement of benefits, there is a certainty of continuing these additional benefits indefinitely.
Apart from the very important considerations advanced by the actuary, it may well be that an increase in the incidence of unemployment, due to present economic conditions, might have the effect of so seriously reducing the contribution income of the society, that expenditure on additional benefits might have to be curtailed.