The purpose of the Bill is to enable the Voluntary Health Insurance board to act as agent in the making available of health insurance to persons who will be resident outside the State for temporary periods.
The VHI board advised the Minister, Deputy Cowen, that it must be able to offer an international health care plan to corporate and individual clients as soon as possible if it is not to be vulnerable to competitive challenge. This legislation, which will facilitate the board's wishes, entails a limited amendment of the VHI Acts to give the board an additional power to act as agent in specified circumstances, which relate to the making available of health insurance cover to persons while abroad.
The VHI was established in 1957 as a not for profit body to provide health insurance cover. At that time 15 per cent of the population did not have an entitlement to public hospital services. In the early days VHI's role was, primarily, as a provider of cover for those who did not have an entitlement to hospital services, and, as time passed, as a provider of health insurance to all those who wish to avail of private health insurance irrespective of their eligibility for health services. Its role, and importance, in relation to our health care system has expanded considerably since its foundation. The environment in which it operates has become more demanding and sophisticated over the years, particularly as regards the expectations of its members in terms of quality of product and service. It has provided a solid and valuable service to members of the public over many decades.
Currently membership of VHI is at an all time high of 1.45 million people, representing 40 per cent of the population. More than 1,000 members join every week and it operates 6,700 group schemes throughout the country. In the half year to August 1998 a total of 33,882 new members joined VHI — an increase of 12 per cent on the same period in 1997.
The evolving competitive market has elicited an enthusiastic and vigorous response from the board, management and staff of VHI. Membership continues to grow and, where it previously had five main plans on offer, it now offers the consumer the choice of ten plans, following the introduction of its new options plans at the beginning of the year.
Typically, VHI returns in excess of 95 per cent of its premium income to members in meeting claims costs. For the financial year ended February 1998, VHI's premium income amounted to £304 million while £294 million was returned to members in the payment of benefits arising from claims incurred. Between March and August this year, VHI paid out more than £156 million on 170,920 claims. Its reserves stood at £76 million at the end of February and the Minister is aware of the board's commitment to strengthening them further.
In common with other sectors, the health insurance market was opened to competition pursuant to EU directives. Prior to the introduction of the Health Insurance Act, 1994, VHI operated as a statutory monopoly. That Act, and the associated regulations, provided a framework for a competitive private health insurance market, while maintaining the key principles of private health insurance in Ireland — open enrolment, lifetime cover and community rating.
Following the establishment of this framework, the British United Provident Association — BUPA — the largest private health insurer in the UK market, decided it would enter the Irish private health insurance market. The Government is glad that a significant international player has entered our market and hopes that more players will enter and further enhance the competitive environment. There is a considerable challenge involved in securing this desirable objective while maintaining, in an effective way, the core principles of community rating, open enrolment and lifetime cover which have traditionally characterised and sustained our socially beneficial system. No one can seriously argue that insurers do not have a strong financial incentive to engage in preferred risk selection or cherry picking. In fostering competition we must exercise great care and skill not to engineer a market which could lend itself to practices that would undermine our core principles and the ethos of inter-generational solidarity.
The broader environment has also undergone dramatic change since VHI was founded. Ireland as an open economy has embraced global change, international trade and foreign investment. Central to this process is the ability of people to move from Ireland to other countries in a free manner. In the modern economic global village an increasing number of Irish people employed by export companies, multinational companies and State agencies will live abroad for significant periods during their working lives.
Up until now VHI members who have spent time living abroad as part of their job, have relied on the public health system in the foreign country or have arranged private health care insurance overseas — something that may prove awkward or inconvenient to arrange. Market research by VHI identified a demand among its members for a health insurance product that would provide those who reside temporarily outside the State with comprehensive cover for their health care costs. The Bill enables VHI to meet that demand by acting as agent for the sale of an international health care plan.
At present VHI provides a worldwide emergency service for members who travel, known as VHI Assist. This offer limits cover for VHI members going abroad in respect of treatment arising from unexpected illness or accident, but does not aim to cover longer stays.
The provisions in the Bill are comparatively brief. They are essentially concerned with enabling the board to provide its members with access to an additional product which takes account of expressed customer need. Arrangements to be put in place by VHI on foot of the proposed legislation will put an additional service at the disposal of members to form a seamless continuation of their VHI membership on their return from residing temporarily abroad.
The Bill is by no means the main piece of legislative work to be done in relation to VHI. There is the fundamental consideration of the optimum future corporate status of VHI to be addressed. The position is that the broader issue of the appropriate corporate status of VHI going forward is being actively considered in the context of the preparations relating to the proposed White Paper on private health insurance.
Section 1 provides for the VHI board to have the power to act as an agent for an insurer in the sale of an international health care plan. The section provides that the board will simply require the Minister's consent to exercise its power to act as agent in the terms specified in the Bill.
Section 1 contains a definition empowering the VHI to hold an appointment as agent for an insurer. The section also sets a reasonable limitation on the type of undertaking in respect of which the VHI may act as agent. It defines an "insurer" as the holder of an authorisation within the meaning of the European Communities (Non-Life Insurance) Framework Regulations, 1994. This means the insurer concerned will have been duly notified to our central competent authority for insurance business, having already satisfied the competent insurance authority in the member state of establishment of its capacity to conduct the class of insurance business concerned.
Section 1 defines an international health care plan in terms of providing for the making of payments in relation to costs incurred in the provision of medical, surgical or related services. It further defines such a plan as being applicable to persons who will reside outside the State for such periods as the board may specify therein.
Since the Bill's initiation, the definition of an international health care plan has been broadened. It can now accommodate more diverse benefits which the insurer may deem attractive to the consumer. This is considered to be a positive move from both the business and consumer standpoint.
Section 2 provides that the board, for the purposes of the powers granted under the Bill, will be subject to Part IV of the Insurance Act, 1989. The VHI Act, 1957, provided that the board was not to be subject to the provisions of the insurance Acts. However, as the Bill proposes to assign to the board the power to act as agent for an insurer, it was considered, and is provided for under section 2, that it must comply with the provisions of Part IV of the Insurance Act, 1989, which provides for the regulation of insurance intermediaries. The board has advised that it does not envisage any difficulty in complying with this provision.
Sections 3 and 4 contain standard provisions relating to expenses and citation, respectively.
As I already stated, the purpose of the Bill is to enable the Voluntary Health Insurance board to act as agent in the making available of health insurance to persons who will be resident outside the State for temporary periods. The Bill is being introduced because it is necessary to amend the Voluntary Health Insurance Acts, 1957 and 1996, to empower the board to act as agent for the making available of an international health care plan. An international health care plan, made available pursuant to the legislation, would be based on an agreement between the board and a major international insurer. Under the plan, responsibilities and liabilities involved in providing the benefits covered would fall exclusively to the international insurer. The premia applicable under the plan would be primarily a matter for the international insurer.
The proposed plan would be available to people who intend to live and work outside the jurisdiction for periods of typically more than six months and up to five years. The plan's main features will be medical insurance cover, evacuation and repatriation services and medical assistance services. As the plan's principal purpose will be insurance against the cost of health care delivered outside the State, it will not be subject to the provisions of the Health Insurance Act, 1994.
People currently insured with the VHI will be able to transfer to the international health care plan without waiting periods or pre-existing illness restrictions, providing they have served out the restrictions applicable under their existing cover. They will be transferred back to their former VHI plans on the same terms when they return to Ireland. The VHI will market the international health care plan through its existing group scheme network and it will be available to both group and individual members. The provision of easy mobility for people between VHI membership and cover under the plan would be a particularly customer friendly arrangement for people who must reside outside the State from time to time in connection with their employment.
The board's wish to offer an international health care plan is the only issue being addressed in this Bill. Its provisions represent a full response to a specific request made to the Minister, Deputy Cowen, by the board in relation to what it regards as a potentially significant disadvantage in the conduct of its business.
In accordance with commitments contained in the Government's action programme, the White Paper on private health insurance will address the options open in relation to the VHI's future, including the question of a strategic alliance. The Minister, Deputy Cowen, has made it known, on a number of occasions, that all options are being considered in relation to the most appropriate status and corporate structure for the VHI into the future. This matter has been the subject of extensive consultation between officials of the Department and senior management of the VHI. Consultation with outside interests which was undertaken to facilitate the preparation of the White Paper has now been completed. It is hoped that the drafting of the White Paper will be completed by the end of the year and that, subject to Government approval, it will be published early next year.
The VHI cannot undertake the role as insurer in relation to the plan because it is not authorised pursuant to the relevant non-life insurance regulations. The VHI Act, 1957, provides that the board is not subject to the Insurance Acts. The EU non-life insurance directives include the VHI among a number of undertakings across Europe to which the directives provisions shall not apply. The converse of this situation is that the VHI, in its present form, has a limited scope of operational capacity. The arrangements set down under this Bill, therefore, represent a practical way forward in the matter.
In the competitive environment in which it now operates, the VHI must be empowered to compete effectively. As well as meeting specific customer demands, the capacity to make available an international health care plan will ensure that the VHI is equipped to consolidate its existing business in the corporate sector by putting it on the same footing as other insurers which can offer plans of the kind involved.
As I stated at the outset, this is short, but important, legislation. It provides the VHI Board with a specific power it requires at this time to enhance its competitive position. It is indicative of a private health insurance market that is growing in complexity and sophistication. This reflects how the needs of our people are changing in tandem with the social and economic development of our country. The arrangements to be put in place by the VHI on foot of the legislation will serve the expressed needs of the modern consumer.