Health Insurance (Miscellaneous Provisions) Bill 2011: Committee and Remaining Stages

Sections 1 to 3, inclusive, agreed to.

Amendments Nos. 1 and 2 are related and may be discussed together.

I move amendment No. 1:

In page 5, to delete line 15, and substitute the following:

"the Central Bank of Ireland, require the Central Bank of Ireland to prepare any report".

I thank the Minister of State. I dislike the extension for a year. I have discussed the issue with four or five Ministers, and in a much more heated way than this morning. We have had plenty of notice of when we were to have competition in health insurance and the way we did it drove out a potential competitor.

I will refer to a point of commonality between the Milliman report and the Minister and myself. Milliman looked at commercially available evidence-based medical necessity criteria and in its report, stated:

We believe that a previous attempt to introduce evidence-based criteria was abandoned late in 2009 because of push back from Consultants.

That is a flaw that is built into the system. If there were competing health insurance companies, not turning down the elderly which they did not and not turning down the sick which they did not, but getting a person a better price whether he or she was old or young, this kind of abuse would have been eliminated by competition. That was the mistake that, in addition to its protectionism of VHI, the Department and successive Ministers made. They failed to realise that their programme for change would have been facilitated by competing health insurance companies within the criteria that we all support — community rating, open enrolments and life-time cover.

Milliman shows so many examples of where having a monopoly health company increases costs. In the 67 page version I got, there were 32 with redactions. Even ploughing through the rest, one can see all sorts of examples of where having a monopoly health insurance company suits the consultants, the hospital managers and those from whom we all are trying to get costs extracted. There is a phrase that bread does not appear in the shops because a bunch of philanthropists got together; it appears because of competition between different bakers.

I note how Milliman removes many of the foundations on which we believe this policy is based. Its report states that ageing is "not the most important factor" driving cost increases. There is much evidence for that by new epidemiologists latterly.

Milliman states, "we note that VHI has redesigned its products with a view to segmenting the market and in effect quasi risk-rating its products." VHI is doing what we were asked to bring in legislation to stop other companies doing. It states that utilisation management can reduce bed days by 30%, and that it is "important to understand the drivers of claims costs . . . We have not seen any evidence that this is being done". One makes a monopoly, one protects it. We had it in the past with Aer Lingus, CIÉ, etc., and VHI is one of those. It is not performing as the Minister of State wishes and I support her in that regard.

Milliman states: "We found little evidence of any attempt by VHI to control hospital utilisation effectively", and on the same page, a "hospital had been admitting relatively young patients for diagnostic work-ups with no real demonstrated need for acute inpatient hospital care". By any standards, VHI monitoring of all of that is what one would expect from a monopolist. It is not monitoring it and it is leading to the problems that the Minister is trying to address with the support of this House. In fact, the report states that VHI is so obsessed with the treatment of the number of old people with which it is lumbered that, effectively, it took its eye off the ball in looking at these kind of cost control issues. By the way, VHI's average age of membership was found by Milliman to be 38, which was the same as Bupa when it withdrew. I wonder at this edifice, this house of cards, that we built up to prevent competition.

The Department was undoubtedly, to use the Minister for Public Expenditure and Reform, Deputy Howlin's, words, "captured" by VHI, and so, I believe, was the Health Insurance Authority. That is why I am trying to move this. As the European Court of Justice indicated in its judgment of 29 September, it should be moved to the Financial Regulator. What we have been doing heretofore has increased costs — I support the Minister of State in her efforts to reduce costs — provided a gravy train for one company and, as Senator Colm Burke noted, prevented competition. Instead of having competing insurance companies which sought to reduce hospital stays and develop group GP practices, our health insurance system was so dependent on the incumbent medical profession that it ended up re-financing inefficiency.

It is a pity we did not provide for a fully competitive health insurance market in 1994. Nobody disputed the three criteria but the problems arose when one company was required to subsidise the others. The epistemological basis of the claims about an ageing client profile has been exaggerated. The evidence has to go away from the Health Insurance Authority to an independent regulator capable of adjudicating on these matters. I doubt the State has ever managed to produce witnesses who were refused cover. A study presented by Alastair Gray at an Office of Health Economics conference in November 2002 indicated that age is, in part, a red herring in respect of health expenditure. A paper published in the Journal of Economic Literature in September 2008 stated that increases in life expectancy during the 21st century will have a modest effect on health care in the US. The major expenditure occurs in the last six months of life but this period can be delayed by keeping healthy. The crude model set out in the legislation is wrong in that regard. Another article states that recent health economics literature challenges the conventional wisdom of increasing health expenditures as a function of age distribution of the population. A German study concludes that western societies should not worry about the effects of ageing.

We have no evidence that BUPA refused to recruit old people. I have produced evidence that it was actively recruiting old people until it had to leave the market because the amount by which it was required to subsidise VHI exceeded its profits. The current system has resulted in considerable inefficiencies. I support the Minister of State in her efforts to address the issues arising but cobbling the system together for another year through a technical Bill will not solve the basic problem. A Government in its first year in office should be radical in introducing the reforms which I am convinced will reduce the cost of medical care in Ireland.

The lack of competition in health insurance is serious and it has resulted from the Department's decision to back its in-house health insurance company. The consumer is not being well served. One of the competing firms had a high consumer rating and won all sorts of prizes at EU level for its employment practices. Protectionism in economics is not part of the EU. It was time to act in this area 17 years ago. The system will continue to present cost problems because that is inevitable among monopolies. I presume that most of the €275 million to which the Minister of State referred goes to VHI. Senator Cullinane pointed out that other companies were prohibited from discriminating on grounds of age and were required to have lifetime enrolment and community rating policies. People could have saved money by dealing with one of the lower cost companies. This was not solely because they were believed by the Department to be cheating by only recruiting young people.

Customers did not change because VHI always held out the possibility that the Government would intervene. They got the benefit of competition by staying with the monopolist. A survey found that 21% of customers felt it was too much hassle to change, 13% did not see significant cost savings and 13% stayed because they had been with the company for a long time. Approximately 50% of respondents did not want to change but they could have saved substantial amounts of money if they had done so. When BUPA was in the market savings were possible. I did what the policy claimed was impossible by moving from VHI to one of the new companies, thereby saving money, even though I was in the age group which was supposedly being refused cover.

We need competition in this area. The existing regulatory framework has resulted in the State losing cases in the Supreme Court and the European Court of Justice. The question of damages will arise at the end of January. It is time to introduce radical change rather than keep the system going for yet another year.

As this legislation covers the next 12 months, a comprehensive review will be required to ensure we do not repeat previous mistakes. The amendments proposed could be considered over the longer term but we should leave them aside for now.

In regard to moneys owed to hospitals, the problems are not solely caused by medical consultants. My legal practice received a hospital bill for an individual who was my client 12 years ago. That money cannot now be collected but the fact that it was being pursued raises questions about hospitals' accounting systems. Further issues arise in regard to files which cannot be located, which means people are unable to determine what was done 12 months or two years ago. I was recently told about a consultant who was credited by a hospital with procedures that were never carried out because the statistics were being compiled from the information contained in discharge letters to GPs rather than drawn from the entire file.

In regard to computerisation, everyone in Denmark possesses a patient medication card which allows treatments to be recorded by computer. Everyone who deals with a patient can access his or her file. In private hospitals, staff visit wards on a daily basis to ensure insurance forms have been filled out, whether by the consultant or the patient. This does not appear to happen in the public sector. The Minister for Health referred to one Dublin hospital which was accounting for public and private revenues in the same way because it had developed a mechanism which allowed it to follow up bills immediately rather than four weeks after a patient had been discharged.

Given that the measures will last for a 12 month period, I suggest that the amendments be withdrawn.

I thank the Senator for engaging on this Bill. The Government cannot accept his two amendments. The Central Bank is the Financial Regulator for prudential and solvency purposes. Typically, insurers must satisfy various prudential requirements that are appropriate to the Central Bank. These are requirements that apply generally to all insurance and financial services companies and relate to matters such as their financial operation and investment policies. Currently, the Central Bank is the Financial Regulator in respect of Aviva Health and Quinn Health Care. The VHI is not currently financially regulated by the Central Bank of Ireland.

As the House was aware, on 29 September last, the European Court of Justice ruled against Ireland in regard to a derogation exempting VHI from the requirement to be authorised by the Central Bank. It found that the State had failed to apply EU law relating to non-life insurance equally to all insurance undertakings. The effect of this decision is that VHI can no longer benefit from this derogation. The Government is considering the next steps in this regard, and decisions will be made shortly.

The proposal to merge the HIA and the Central Bank has been considered previously. This proposal requires careful examination, particularly in regard to how such a step would fit in with the programme for Government commitment to move to a system of universal health insurance. Under the programme, it is intended to establish a health insurance fund that would have both regulatory functions and payment or funding functions. In this context, it may seem more appropriate to transfer the functions of the HIA to the hospital insurance fund where the regulation of insurers would lie rather than placing it with the Central Bank as Financial Regulator. These matters will be considered by the Government as proposals for universal health insurance are developed.

The judgment to which the Senator referred did not propose moving the HIA to the Central Bank. There is some confusion in this regard. The Senator may be confusing prudential supervision with the risk equalisation scheme, which is very different. If, as the Senator claims, VHI is so protected, what does he have to say about the super-normal profits that were enjoyed by Bupa and the very significant profits enjoyed recently by Aviva? One should compare their circumstances with those of VHI. If Bupa's customers had an average age of 38 years, this was very much outweighed by the proportion of older persons in VHI and their relatively less-healthy profile. The damages case is to come before the court in January. Bupa left the market before it won its case and, it must be stated, after making very substantial profits.

The interim scheme does not nearly cover all additional costs that VHI incurs in paying for claims of older, less-healthy customers, as I pointed out earlier. Does the Senator realise that VHI has 80% of claim costs but less than 60% of the market share and, as a consequence, premium income?

There is much competition in the market but, as I stated, it relates to younger, healthier customers. There is undoubtedly an issue arising at present because of companies cherry-picking. They will continue to do so. This is very much the reason we need to ensure we have a risk equalisation scheme in place to cover us next year. That will allow us the time to develop a more comprehensive scheme thereafter.

I intend to withdraw amendment No. 1. With regard to desired reform, the 12-month period ought to be the outer limit. We need something other than the incumbents determining policy and making assumptions about their potential and actual competitors. Cases have been taken in the courts at a vast cost to the taxpayer. Many of the arguments have not stood up. While people may have been demonised, nobody was produced who was refused cover by one of the other companies. Claiming the contrary is to build the legislation on an unsure foundation. The legislation needs to move away from having the Department of Health protect its own insurance company and to form some kind of arm's length relationship. The producers know about what I describe, and hence the high costs that the Milliman report complains about.

I hope the Milliman report will be circulated to the Senators who attended this debate. It would definitely influence their feelings thereon. To the economist, rising costs are inevitable when one creates a monopoly and protects it so thoroughly, as has happened in the case in question. This is an area in which the Minister's reforming agenda is badly needed. If we had controlled the costs of the 50% of the population who once had health insurance, it would have served as a useful mechanism in trying to control the costs in the public sector, including in respect of medical card patients. The system is a high-cost system because it is protected. Extending the protection for another 12 months should definitely be the last resort.

Is there something the Senator wishes to have circulated in addition to the amendments?

I was suggesting that the Milliman report be circulated to the Senators who debated this point with the Minister of State.

I second that proposal.

Amendment, by leave, withdrawn.
Section 4 agreed to.
Sections 5 to 7, inclusive, agreed to.
Amendment No. 2 not moved.
Question proposed: "That the Title be the Title to the Bill."

The Long Title was part of the controversy in the Supreme Court on 16 July 2008. It is going too far to say it makes provision for specific matters. That would be to accord a Long Title the unprecedented status of constituting a substantive provision. The Bill does not do what is stated in the Long Title and that is what the Chief Justice pointed out on 16 July 2008.

Question put and agreed to.
Bill reported without amendment, received for final consideration and passed.
Sitting suspended at 2.30 p.m. and resumed at 3.30 p.m.