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Seanad Éireann díospóireacht -
Wednesday, 21 Feb 2007

Vol. 186 No. 5

Health Insurance (Amendment) Bill 2007: Second Stage.

Question proposed: "That the Bill be now read a Second Time."

The Government decided today that emergency legislation should be introduced to amend the Health Insurance Acts. This urgent measure is required to support our system of community rating, which ensures that health insurance is affordable for old and sick people. It closes off any potential abuse of the three year exemption from risk equalisation payments. Deputies——

On a point of order, we are not Deputies.

I beg the Senator's pardon.

(Interruptions).

Senators will be familiar with the regulatory framework which underpins the operation of the private health insurance market in Ireland. The key elements of this framework have been supported by successive Governments. These are community rating, open enrolment and minimum benefits. The adoption of this approach to regulating the market has been part of the reason the level of private health insurance coverage in Ireland is unique in Europe. Approximately 52% of the population now have health insurance cover.

There are many reasons people choose to buy health insurance cover. Many people in Ireland choose to do so because it is affordable. Even more importantly it remains affordable throughout people's working lives and into retirement. We all know we are more likely to need expensive medical treatment later rather than earlier in our lives. In most countries and as part of a risk rated insurance market, health insurance premia increase as people get older and as a reflection of the higher risk of claims related to ageing.

The policy of community rating means health insurers cannot discriminate against older customers and must offer their various plans to subscribers at the same cost regardless of age or medical history. This is a fair and equitable approach. Apart from keeping health insurance affordable, it is a practical demonstration of intergenerational solidarity whereby younger and healthier members of the population pay more than would be needed in a risk-rated market but themselves benefit in later life when they might be expected to pay prohibitive premia if their higher risk were to be reflected in the price paid.

It is generally accepted that a community rated market cannot operate as intended if insurers in the market have markedly different risk profiles. Some mechanism is required to balance the risks and spread them across the market so that the different insurers can offer community rated products. For this reason, all community rated markets also have a risk equalisation mechanism of some nature in order to balance the risks. New entrants to the market typically tend to attract young subscribers with a lower than average risk of claiming under their policies. There is much evidence to suggest that existing older health insurance subscribers are reluctant to switch their businesses to new entrants.

To counteract this phenomenon, the Health Insurance Acts allowed new entrants to the market to avail of a three year exemption from the obligation to make risk equalisation payments that otherwise might be levied as a result of their having a more favourable risk profile. The exemption was intended to give new entrants the opportunity to establish themselves and to build up a market share. It was clearly the intention of the Oireachtas when the measure was enacted that this exemption should be confined to new entrants seeking to build up market share from zero by organic growth.

It was recognised that the exemption could be open to abuse by an existing insurer reincorporating itself or establishing an associated company and seeking to secure a second three year exemption by claiming to be a new entrant. Section 12B of the principal Act, inserted by section 10 of the Act of 2001, was amended in 2003 to prevent such a move. However, the amended legislation did not encompass the situation which emerged with the announcement on 31 January by the Quinn Group that it had reached an arrangement with BUPA for a takeover of the latter's Irish operations. This development followed BUPA's announcement on 14 December that it was withdrawing from the Irish market following the dismissal of its High Court challenge to the risk equalisation scheme.

I emphasise that the Government and I welcome the Quinn Group's interest in entering the market. It has built a strong reputation and a successful business in the reformed motor insurance market and has been a positive influence on the level of competition in that market. I have not seen the legal agreement between the Quinn Group and BUPA for the transfer of the BUPA Ireland business to the Quinn Group. However, the Attorney General has advised that the potential exists for an incumbent or non-incumbent to avail of the three year exemption by particular corporate transactions, in essence, acquiring or restructuring the business of an existing player in the market.

In the Government's view, the securing of the exemption in this way would constitute a frustration of the intention of the Oireachtas when it passed this measure into law. The Government is advised that this loophole should be closed off as a matter of urgency. The Government decided, based on legal advice, that the most effective means of achieving this is to remove the exemption for new entrants in its entirety. The removal will become effective immediately the Bill now before the House is signed by the President. It will not affect the exemption VIVAS currently has and which expires in October 2007. Clearly, it does not prejudice the ability of the Government to form policy for the market or the Oireachtas to pass further legislation at any time. On the other hand, not to close off the exemption now would have constrained policy development in a significant way.

Section 1 contains standard provisions dealing with definitions. Section 2 deals with the provision under existing legislation that risk equalisation payments apply to existing undertakings. However, it is considered prudent to put beyond doubt that should an undertaking no longer be on the Health Insurance Authority register of undertakings, it should be liable for risk equalisation payments in respect of contracts written when it was a registered undertaking.

Section 3 comprises a technical amendment that follows on from section 2. Section 4 repeals with immediate effect the limited three year exemption from risk equalisation for new entrants to the market. The purpose of the exemption was to promote competition in the market by allowing new entrants a period of time during which market share could be built up before risk equalisation payments fell due to be paid. However, the exemption has the potential to be exploited by a company which acquires an existing undertaking or associated company to avoid making risk equalisation payments. The Government believes it is therefore necessary to enact legislation to prevent such abuse. Section 5 provides for the usual short title and collective citation.

I have repeatedly restated the Government's commitment to maintaining community rating in this market and to promoting greater competition. I also want to ensure the regulatory framework does not place unnecessary obstacles in the way of companies seeking to enter the market and allows them to earn a reasonable return on capital. For that reason I have appointed a market review group chaired by Colm Barrington to examine whether, having regard to all aspects of the current market and the need to maintain community rating, it is possible for current and prospective participants in the health insurance market to earn a rate of return on capital employed which would be regarded as adequate for the insurance industry.

When I receive the Barrington report at the end of March I expect to bring it and the reports of the Competition Authority and the Health Insurance Authority, together with my recommendations, to Government in April.

I commend the Bill to the House.

I remind Senators that we must conclude at 11.55 p.m., including the Minister's reply.

I will share time with Senator Bradford. We are very upset on this side of the House as this is bad legislation.

Under the order of the House I will call the Minister in three minutes' time.

The Minister might give way. This legislation reminds me of the nursing homes fiasco, where legislation was rushed through the House and ended up being referred to the Supreme Court. If, with us having passed a motion for earlier signature, the President were to refuse to sign the legislation, what would happen? Would it be complete chaos? She has done so in the past on health legislation.

That is the President's prerogative and is nothing to do with us.

We are in favour of risk equalisation but there are different ways of implementing it. In Australia it was applied only in respect of 65 year olds. As far as I am aware BUPA accepts the principle but disagrees as to the payment involved. EU Commissioner Mr. McCreevy also has major concerns, as does the Minister, which is why she is awaiting three reports, from the Competition Authority, the Health Insurance Authority and Mr. Barrington.

The Minister spoke about the different solvency requirements for VHI. We have heard about that matter for years but no action has been taken. Is it not time for an independent audit of the assets of VHI to ascertain how well off or otherwise it is? Is it on the verge of bankruptcy, as it claims?

The Minister has known of this since July but has only decided to take action tonight. It also emerged during the debate in the Dáil that the Minister for Enterprise, Trade and Employment, Deputy Martin, knew about it in 2003 and assured the House that what has happened tonight would not happen. Competition works as it provides more choice for consumers and a cheaper and more varied service. The Minister compared the British example, which is grossly unfair as one cannot compare the NHS with our system.

The purpose of derogation is to encourage competition but the Minister has now removed that and we have the anomaly whereby VIVAS will benefit from a derogation but other companies will not.

Has the Minister, her junior Minister or officials met representatives of the Quinn group since its announcement some weeks ago? Has the Minister held discussions with them on their future plans in the market?

I am deeply unhappy with the proposed legislation. I am on the record of this House and elsewhere in recent years as expressing grave concern over the concept of risk equalisation as it is practised in this country. Risk equalisation is a bar to competition and to consumer choice. Since the Health Insurance Act opened up the market in 1996 there has been minimal interest in entering the Irish market. If the Bill is passed tonight, it will ensure no new company will enter the Irish market.

The Minister referred in her contribution to the unique situation in the Irish health insurance market due to its size but it is also unique that one company is so dominant. The VHI owns 80% of the market and that is the fundamental problem. Until that is tackled we will not have sufficient consumer choice and competition. I favour community rating. It can happen if there is sufficient choice and a variation on risk equalisation. The practice in this country, however, has driven away new companies and tonight is another nail in the coffin as far as new entrants to the market are concerned.

Will the Minister bring forward the reports? We have all heard rumours about the contents of the Competition Authority report and the Health Insurance Authority report and they seem to pose grave questions about the current system of risk equalisation. The reports will be available soon but we now propose to pass legislation that will block new entrants. This is a bad night for the Irish consumer because we are putting an end to competition. I appreciate that the unexpected has occurred in recent months but this is a poor response.

I am sure five minutes will be enough for the Minister to reply so I will call two other speakers who have two minutes each.

The Government cannot do other than what it is doing. Without community rating and risk equalisation, the private insurance market would be cherry-picked. The Government has responded with alacrity to ensure affordable health insurance is available to the old and the sick. The abolition of the three year exemption will make it possible for new entrants to come into the market, it will level the playing field.

Having listened to the debate in the other House, it is clear to me that the level of private insurance premium in this country compares favourably with that obtaining elsewhere. This is the only way the Government can go and it is a responsible reaction to a situation that threatens affordable insurance for the old and the sick.

It is rushed legislation brought in at the 11th hour.

There are none so blind as those who will not see. The usual lack of logic obtains.

There is a note of farce about this because we have not been told the reason for it. I am happy to accept the Bill if it closes off a loophole and is urgently and legally necessary but we have not been given any reason, we have simply been informed that the Attorney General says it is necessary. We are entitled as a House to be treated with respect and to be fully informed.

Most reasonable people would agree that the phoenix syndrome should be prevented, where companies could be formed in Dublin and, when they must meet their tax liability, collapse and a new paper company formed. We had this situation in the entertainment industry and apparently it now exists in the health service. I believe the Department was aware of this possibility and it should have acted earlier. If it stops companies profiteering, as BUPA did to the greatest possible extent——-

Correct.

——I support it. We need a service for the sick and elderly, those who need it, and if this provides it, I am all for it but we are entitled to be told why there is such unseemly haste.

To say this Bill is the consequence of peculiar decision making is to put it generously. The fundamental problem is the belief that competition is the remedy. In my view, good regulation is the solution and we have never had that. There was a cosy consensus, an easy relationship, between the VHI and public and private hospitals. They effectively made deals which made fortunes for private and public hospitals and it was all handed on to the consumer. It could have been dealt with by ensuring that there was real pricing and we were not subsidising easy-going private and public hospitals through the VHI when things were cheaper. This is an appalling and unnecessary rush and a terrible derogation of the Oireachtas responsibility, coming from a Department whose reputation for drafting sloppy legislation gives us all good reason to be nervous.

The current risk equalisation model was introduced by a Fine Gael Minister for Health, Deputy Noonan, in 1996. Until Senator Bradford spoke this evening, I thought Fine Gael supported risk equalisation. Why do we need to have risk equalisation? Community rating means that people pay the same rate for the same products regardless of how sick or old they are. That cannot be done without a transfer of payments from younger people to older people.

Why not break up the VHI?

VHI has three younger members for every old member. BUPA has 18 young members for every older member. Clearly fair competition cannot take place in that scenario. Why the rush this evening? When the Quinn Group acquired BUPA, it did not acquire BUPA Insurance. It acquired BUPA Ireland, which is a service company servicing the insurance company. Therefore it needed to apply for authorisation. That application will probably be considered by the Financial Regulator on 28 February and thereafter it would need to be registered by the Health Insurance Authority, which would probably happen early in March.

However, VIVAS Health made it known that if the Quinn Group were to avail of this loophole, it too would use a similar vehicle. Unlike the Quinn Group, VIVAS Health did not need to apply for authorisation. It could have approached the Health Insurance Authority before 5.30 this evening or after 9 o'clock in the morning and reregistered, allowing it to avail of a further three years' exemption. That would mean community rating would collapse and no money would be paid until the end of 2010, which is in nobody's interest. We cannot continue to maintain community rating without having risk equalisation.

In response to Senator Bradford's question, both the HIA report and the Competition Authority report have been published. Nobody has suggested eliminating our current risk equalisation model.

Not eliminating but amending.

No. The HIA suggested that the phasing-in period should be changed from three to four years, with payments of 25% in year one, 50% in year two etc.

The Minister is now eliminating the three-year rule.

I will outline the reason for eliminating the three-year rule. If we allowed companies not to pay any tax for the first three years, clearly they would use various corporate structures to keep changing their status to avoid paying tax. The advice is that for as long as the three-year exemption exists, companies could use what is called in the business the hit and run scenario. They would do business for three years with a lot of young customers and then exit. That scenario does not give any clarity, certainty or fair competition. I was not advised last July. This issue arose in the context of the court case. We took legal advice, which recommended the law should not be changed until the judgment was given. It was given at the end of last year at which point legal advice was sought. The former Minister for Health and Children, Deputy Martin, was not aware of this loophole nor was anybody else because it was never envisaged that a company would sell a service company and not sell its insurance business, which is what has happened in this case.

The Government is committed to competition and unlike Senator Ryan, I believe that competition brings more innovation and we get better value for money.

The Minister should consider the United States — 16% of gross domestic product.

A monopoly market with a single player does not promote innovation. We want competition, but it must be on the basis of community rating. It must be fair competition.

When will the VHI be broken up?

When I receive the Barrington group report in March, I will bring proposals to Cabinet in April to address all the issues. It is not fair to suggest we have not addressed the status of the VHI. Recently the Government agreed to commercialise the VHI and put it on the same commercial footing as its competitors, which means it would be required to meet the solvency requirements of its competitors.

When will that legislation be introduced?

I very much regret that was not done ten years ago.

Has the Minister met representatives of the Quinn Group since its announcement?

I asked my officials to contact the Quinn Group last week when I knew I would be bringing proposals to Cabinet yesterday. I met Mr. Quinn and his chief executive officer on Monday. I welcomed that the group had entered the market. I informed them that we had a loophole that we could not sustain. I was not in a position to tell them or anybody else what we would do. I did meet the Quinn group on Monday evening. I felt that it would have been discourteous when I was about to bring in legislation not to have met the only player to come into the market. I had met all the other players on many occasions, VIVAS and the VHI and so on.

What happens if it leaves?

I hope it will not leave. Nobody more than I wants to see it and others in the market. There will be more entrants into the market because I and the Government are determined to create the conditions to encourage that, on the basis of community rating and fair competition.

The Minister has not acted on this for the past ten years.

As it is now 11.55 p.m., I am required to put the following Question in accordance with an amendment to the Order of Business: "That notwithstanding anything in Standing Orders the Bill is hereby read a second time; the sections not disposed of are hereby agreed to in Committee; that the title is hereby agreed to in Committee, and the Bill is accordingly reported to the House without amendment; that Fourth Stage is hereby completed and the Bill is hereby received for final consideration and that the Bill is hereby passed".

Question put.
The Seanad divided: Tá, 26; Níl, 12.

  • Brady, Cyprian.
  • Brennan, Michael.
  • Daly, Brendan.
  • Dardis, John.
  • Dooley, Timmy.
  • Feeney, Geraldine.
  • Fitzgerald, Liam.
  • Glynn, Camillus.
  • Hanafin, John.
  • Hayes, Maurice.
  • Kenneally, Brendan.
  • Leyden, Terry.
  • Lydon, Donal J.
  • Mansergh, Martin.
  • Minihan, John.
  • Mooney, Paschal C.
  • Morrissey, Tom.
  • Moylan, Pat.
  • Ó Murchú, Labhrás.
  • O’Brien, Francis.
  • O’Rourke, Mary.
  • Phelan, Kieran.
  • Scanlon, Eamon.
  • Walsh, Jim.
  • White, Mary M.
  • Wilson, Diarmuid.

Níl

  • Bannon, James.
  • Bradford, Paul.
  • Browne, Fergal.
  • Burke, Paddy.
  • Coghlan, Paul.
  • Cummins, Maurice.
  • Feighan, Frank.
  • Hayes, Brian.
  • Norris, David.
  • Phelan, John.
  • Ryan, Brendan.
  • Terry, Sheila.
Tellers: Tá, Senators Minihan and Moylan; Níl, Senators Cummins and Ryan.
Question declared carried.
Barr
Roinn