Seanad Éireann - Volume 182 - 01 February, 2006
Adjournment Matters. - Health Insurance Industry.
Mr. Bradford Mr. Bradford
Mr. Bradford: I welcome the Minister of State to the House. Hundreds of thousands of people across the country are concerned by the Government’s decision to introduce risk equalisation in the health insurance industry. I have addressed this topic in both Houses over the past five or six years. The prospect exists of risk equalisation being adjudicated on in various domestic courts and also the possible, or in my view inevitable, impact on competition being examined from an EU perspective. These prospects are beyond our remit in this House so I wish to focus on the political decision the Government has taken to introduce risk equalisation.
I was amazed at the Tánaiste’s decision to introduce risk equalisation. It goes against every recorded political comment on competition and choice for the consumer. Risk equalisation is a bizarre concept that will shut down competition in the Irish health insurance industry and return us to the days of one company being available to the Irish consumer. Her decision is inexplicable.
Current circumstances are no different from those of last year, when the Minister for Health and Children refused to introduce risk equalisation. The Health Insurance Authority makes recommendations to Government but on previous occasions when the introduction of risk equalisation was recommended the Minister refused to do so. She did not feel the circumstances warranted the introduction then but the circumstances have not changed. The Competition Authority and the Health Insurance Authority, charged with the responsibility of examining competition in Irish health insurance, expressed the view that the current situation allows for competition. The Health Insurance Authority has stated that there is no short-term prospect of instability in the health insurance market. In this context I cannot understand why risk equalisation has been introduced.
In the Irish health insurance market, where the dominant player has a major share of the market, this new policy is bizarre. It is analogous to asking a small local shopkeeper to hand over half his profits to Tesco or another major supermarket chain. Introducing risk equalisation will reduce competition in the health insurance market and we will lose the second largest player in health insurance, BUPA Ireland, and its enterprise in Fermoy, which employs hundreds of people. This will be detrimental to choice and runs counter to the Government policy of being pro-consumer and pro-choice.
From where did the impetus come to make the decision to change to risk equalisation? The circumstances which exist in the current calendar year are no different to the circumstances which existed last year, and 12 months ago the Tánaiste refused the recommendation to introduce risk equalisation. She seems to have reversed that policy.
Transfer of funding from BUPA through risk equalisation would result in a large proportion of its surplus being put into the VHI reserve. What will that do to ensure the VHI becomes more competitive and efficient? If we want to promote the cause of the VHI, a long-established and valid health insurance company in this country with hundreds of thousands of customers, we should promote efficiency within it. If the VHI has inefficiencies or faces financial issues that are difficult to resolve, simply taking the profits of the smaller company to prop it up will not be of any great benefit to the Irish health insurance consumer in the long run.
As the Minister of State is aware, the Irish health insurance market is unique by European and world standards. One company is dominant. If we want to change that situation and ensure that people have a choice not simply between VHI and BUPA but between five or six different companies, we must ensure that competition is welcomed and nourished in the Irish market. The introduction at this stage of a risk equalisation policy and transferring the profits of the small company to the large company goes against all that is good for health insurance in the long term.
The Minister for Health and Children must reflect carefully. If the Minister were of a different Government or from a different political party perhaps there would be some explanation. However, I cannot understand how the Tánaiste made the decision. Whether we are for or against most of her policies, we must concede she has attempted throughout her political career and in all of her utterances, to be a champion of competition, choice, the free market and opening up the market. Risk equalisation goes against all of that.
Who put on the pressure? Was it the Taoiseach, or was it at union or partnership level? Whoever put on the pressure and made the Tánaiste concede to the introduction of risk equalisation is not doing the Irish health insurance market or consumer any favour in the long term. This type of formula has no place in a modern economy attempting to foster competition. Even at this late stage, and leaving aside the prospect of an adjudication by the courts and Europe on the question of competition, we should be able to show political leadership by reversing the risk equalisation decision.
Mr. B. Lenihan Mr. B. Lenihan
Mr. B. Lenihan: I will take the Adjournment matter on behalf of my colleague, the Tánaiste and Minister for Health and Children, Deputy Harney. There is widespread support in this country, reflected in the decisions of the Oireachtas, for applying community rating to health insurance. Under community rating, subscribers pay the same amount for similar cover throughout their lives. Numerous references were made to the concept of risk equalisation. In truth, risk equalisation is simply the technical formula for the implementation of the principle of community rating.
Community rating means that individuals can continue to afford health insurance right into those decades of their lives when they are most likely to need it. The position in Ireland, with community rating and lifetime cover in place, is in marked contrast to countries such as the United Kingdom and the United States where risk-rated health insurance products result in older subscribers no longer being able to afford to maintain their insurance cover. That is the fundamental policy here and it is certainly subscribed to by my party. I cannot speak for the party of the Tánaiste. However, as Senator Bradford referred to that issue, it shows how compelling a case can be made for risk equalisation and community rating that the Tánaiste decided as she did.
Risk equalisation is the mechanism that supports a community-rated health insurance market. Provision for risk equalisation has been part of the framework for health insurance since the enactment of the Health Insurance Act 1994. The risk equalisation scheme of 2003, having been affirmed by Seanad Éireann, took effect from 1 July 2003. The scheme had previously been submitted to the EU Commission which, in May 2003, found that the scheme is justified, given the open enrolment, community rating and lifetime cover requirements that apply in our health insurance market.
This is not about taking from a small company and transferring to a large company. It is about maintaining the principles of open enrolment, community rating and lifetime cover in our health insurance market. Risk equalisation involves transferring funds from insurance companies which have a large proportion of young, healthy subscribers to companies which have a larger proportion of older persons who are more prone to illness and therefore more likely to make claims on their health insurance policies. This ensures that younger and older subscribers pay the same amount for similar health insurance cover.
The Health Insurance Authority submitted its report, in accordance with the provisions of the Health Insurance Acts and the risk equalisation scheme, in respect of the period January to June 2005 on 27 October. The authority, the relevant statutory body, recommended the commencement of risk equalisation transfers having analysed returns made by insurers and having considered representations made. The authority’s report confirmed a significant divergence in market risk profiles between insurers. Having considered the authority’s report, letters containing a proposed determination were sent to the insurers involved on 21 November last.
On 23 December, the Tánaiste made the decision that risk equalisation transfers between insurers in the market is necessary, having carefully considered the report submitted by the Health Insurance Authority and representations made by insurers in the market. The Tánaiste did so in accordance with the provisions set out in the risk equalisation scheme and in the Health Insurance Acts, having regard to the best overall interests of health insurance consumers. Commencement of risk equalisation transfers on foot of a recommendation from the authority is subject to specific statutory processes and considerations. The Tánaiste is satisfied that the decision made was the correct one and the question of reviewing it does not arise.
Senator Bradford refers to the need to defend and promote competition. The Health Insurance Acts specifically provide for taking competition into account. They state that the best overall interests of health insurance consumers include a reference to the need to maintain the application of community rating across the market for health insurance and to facilitate competition between undertakings. Given this obligation, the Tánaiste notes that the York economic report commissioned by the Health Insurance Authority concluded that, “there is no satisfactory case for the non-implementation of risk equalisation payments as long as there is a fundamental commitment to community rating”.
The advisory group on the risk equalisation scheme in its report to the then Minister stated: “If the primary policy had been to facilitate and encourage competition and the secondary objective had been the protection of community rating, the Advisory Group would have recommended a scheme of risk equalisation based only on age and gender.” The risk equalisation scheme as currently constituted allows the insurance authority to base its calculations on age and gender only, and has been commenced on this basis.
The Tánaiste and the Government are committed to a vigorous community-rated private health insurance market. It is clear that risk equalisation is not in itself inconsistent with a competitive market and it should shift the focus of insurers away from commercial advantage arising from risk selection which is of no benefit to consumers. The Tánaiste is committed to the development of greater competition in the market and has asked the Competition Authority and the Health Insurance Authority to report to her on related measures within six months.
Mr. Bradford Mr. Bradford
Mr. Bradford: Does the Minister of State take seriously the statement by the health insurance company, BUPA, that if risk equalisation is implemented as scheduled and proposed, it will have no choice but to withdraw from the Irish health insurance market? Does he consider that to be a genuine statement based on fact or simply based on posturing?
Mr. B. Lenihan Mr. B. Lenihan
Mr. B. Lenihan: I am not in a position to speak for BUPA. Neither am I briefed or informed this evening to make a considered judgment on an utterance or statement it made. BUPA participates in the Irish health insurance market in the full knowledge and understanding of the applicable statutory provisions enacted by the Oireachtas.
The Seanad adjourned at 7.50 p.m. until 10.30 a.m. on Thursday, 2 February 2006.
Seanad Éireann 182 Adjournment Matters. Health Insurance Industry.