Health Insurance (Amendment) Bill 2015

I welcome the opportunity to discuss this year’s adjustment to the risk equalisation scheme because it is not a secret that I have always been uneasy about the operation of such a scheme and its impact in terms of cost to health insurance customers, and its impact on competition generally.  

 I understand that the Health Insurance Authority, whose job is to advise on changes required to the scheme, is more than aware of the gravity and implications of its task, and I am sure it does everything possible to minimise costs, but the truth is that once someone starts to interfere in any market, no matter how hard they try to be precise and how careful they are in trying to isolate the differences in costs attributable to the difference in the customer age base, they cannot know with any certainty what the cost base and price might have been in a fully competitive market.

 I understand the need to protect VHI customers and, consequently, the VHI itself but it must be remembered that the VHI was born and grew for 50 years in a totally protected environment, with zero competition, and all the young people who wanted insurance were insured by it.  Despite that privileged position, and despite the long run-in it had in terms of the change brought about by EU deregulation of health insurance, it failed to accumulate the reserves required of the private sector and now requires a subsidy from its competitors to stay afloat.

 My purpose here is not to criticise the VHI, of which I have been a member for over 50 years, and will remain one.  I want the VHI to survive and prosper but I worry that we may be subsidising it for inefficiency, therefore losing all the possible benefits of competition.  I realise that is due to the almost impossible task of trying to extract the extra cost of its carrying older people from, for instance, knowing the extra cost of carrying those older people if we had full competition.  Consequently, it behoves us as legislators to inform ourselves and be constantly vigilant about a risk equalisation scheme and its accompanying stamp duty levy.

 When it was first introduced, the levy on every insured person’s premium was €160; I believe that was in 2009.  Since then the total amount paid in levies by insured persons of all insurance companies is over €2.5 billion.  It would not be accurate to say that has been the price of competition but it has been the loss to consumers of the potential benefits of competition.  I am aware that is due to the fact that existing providers were sucking up all the young health insurance seekers.

 When we interfere in the market for good reason, which we all know is to protect the investment in VHI over the years and to ensure that it will have money to pay for older people like myself and the Ceann Comhairle, we must be sure that competition has brought at least some benefits to all those insured.  We rely totally on the Health Insurance Authority to guarantee the benefits of competition.  It is its job, in addition to advising on the risk equalisation payments, but I wonder if equal attention is given to both objectives.  I do not know that and I wonder if it is even knowable.

 One of the important measures in this Bill, which I welcome, is to change what is considered to be the measure of health status for the purposes of determining the levy and the risk payment, and including day cases as well as hospital nights as an indicator.  The Minister said earlier that 30% of hospital activity now consists of day cases, so it should be included, and I agree it should incentivise more efficient use of our hospitals.  However, how is it expected that it will have no significant impact on the levy?  I read a quote from the Department that it did not expect this to have any impact on the levy.  I do not understand how that can be the case.  I appreciate that excluding the age cohort from 60 to 65 will have a mitigating impact on the levy but will it be enough to offset a one-third increase in the number of cases?  In, say, two years time when this is bedded in, I wonder if we will be able to say that it has had little impact on the consumer price of health insurance.  Increasing the age threshold for risk equalisation payments will benefit the provider with most older people.  If there is any possibility that these payments have any element of subsidising inefficiency, this change means we run the risk of increasing and reinforcing that inefficiency.

 There is one other aspect of the legislation which I very much welcome and believe is a measure to reduce the danger of subsidising the form of monopoly over and above the necessary subsidy required by the different age profiles.  That is the move towards creating diagnosis groups in an effort to get a more refined measure of health status.  I understand that this cannot be introduced until better data collection methods are available but it at least demonstrates an awareness of the dangers of looking mainly at the different age profile.

 I am not opposed to any of the measures in the Bill but I want to reiterate my concern about the possible pitfalls of risk equalisation and its impact on competition.  I would point to a number of reasons that should concern all of us and why they should continue to command constant vigilance by this and future Ministers.  First, since the liberalisation of the market kicked in, several new operators have come and gone and only this week we heard that another operator is to sell on.  The only provider still standing is the one which is the major recipient of the levy.  I do not know if there is any causal relationship between those two facts but we have to ask if there is such a relationship.

 Second, many people mentioned the report published this week on universal health insurance.  It is taken as a given that it is not as imminent as we previously thought.  That makes it all the more important to ensure that the system of health insurance we do have works as efficiently as possible for consumers who are paying dearly for it, and will continue to pay dearly for it.

 Third, in the context of the many people in recent years who left insurance and the young people who chose not to take out insurance during the worst of the recession, two measures were introduced to bring them back in.  One was a reduction in premium for very young entrants to entice them back in and the other was a late entry loading for anyone who had not taken out insurance before the age of 35.

This was done with very good reason, which I perfectly understand, and what is more, it is working.  When we consider that the purpose of setting up this whole complicated and arcane risk-equalisation scheme was to ensure community rating, in other words that everybody would be charged the same, I do not know if anybody else sees the irony in the situation where saving community rating means doing away with it for these groups.  So we will now be charged differently from everybody else.

 I know it is working, but the point I am making is what a tangled web we weave when we interfere in or try to second-guess the market.  I accept completely that compensating for different age profiles is a very difficult task, but that is not to deny the need for it for the moment.  Presumably, eventually the age profiles will themselves equalise and we will not need a risk-equalisation scheme.  We really need to monitor this scheme extremely carefully and ongoing vigilance is absolutely necessary.  To the extent that the measures in the Bill will help to ensure the scheme works as efficiently as possible for consumers, I very much welcome it.