Dáil Éireann - Volume 686 - 01 July, 2009

Health Insurance (Miscellaneous Provisions) Bill 2008: Report Stage.

  Deputy Noel O’Flynn:Amendment No. 1 has been ruled out of order, it is in conflict with the principle of the Bill.

  Deputy James Reilly:I had hoped the Ceann Comhairle would stay because I take issue with this. I have been informed the amendment is in conflict with the principle of the Bill but I fail to understand how. One of my colleagues explained to me that it might not be included in the Long Title or something of that nature but this is clear: “This Act shall come into operation on such day or days as the Minister for Health and Children my appoint by order or orders but not before the requirements of the Voluntary Health Insurance Act 2008 have been fulfilled.” I see no conflict there.

Furthermore, the Long Title of the Bill is “An Act to amend the Health Insurance Act 1994, the Taxes Consolidation Act 1997, the Stamp Duties Consolidation Act 1999 and the Insurance Act 1936, in particular——

  Acting Chairman:I ask the Deputy to stop because I must follow the rules and those rules state that if a Deputy has a difficulty with an amendment being ruled out of order, he or she must see the Ceann Comhairle in his office.

  Deputy James Reilly:I rang the Ceann Comhairle’s office but I could not get a reply.

  Acting Chairman:That is the procedure. I cannot allow any further discussion and I ask the Deputy to resume his seat so we can move to amendment No. 2.

  Deputy James Reilly:I cannot agree to that. It states at the end of the Long Title “and to provide for related matters.” Let me explain the situation.

  Acting Chairman:I am the Acting Chairman and I must follow the rules.

  Deputy James Reilly:I accept that. Could the Acting Chairman suspend the sitting so that I can speak to the Ceann Comhairle?

  Acting Chairman:The Deputy can go to see the Ceann Comhairle, the debate will be going on for some time. When we have the sos at 1.30 p.m. the Deputy can make arrangements to see the Ceann Comhairle then. I ask the Deputy to resume his seat so we can proceed with the next amendments.

Amendment No. 2 arises from Committee proceedings and amendments Nos. 3, 6, 14 and 16 to 19, inclusive, are related and will be taken together by agreement. Is that agreed?

  Deputy James Reilly:No, it is not agreed. I want to make clear that I will not co-operate in any shape or fashion with this process unless I get satisfaction on this. This is key to the Bill. We will be in breach of EU competition law and we will be taken to the European Court of Justice and fined. The Spanish were fined €20 million for their breaches and a daily amount thereafter. Is the Minister going to proceed with this in such a feckless manner? We will receive a fine that will increase with each day this Bill is enacted before the provisions of solvency are met by the VHI. That is how we are in conflict with Europe and that is what has been ruled out of order in a most tenuous way. I cannot accept that and I will not co-operate in any way [650] with business in this House for the remainder of the debate if this is not addressed. It is scurrilous that the key point we are making is to be ignored.

I can hear the advice being given to the Acting Chairman but the point is that the EU Commission had not ruled on this before this debate and had not stated it was going to take us to the European Court of Justice. This is not a rehash, new facts have come to light and they must be discussed.

  Deputy Jan O’Sullivan:Obviously the EU has decided to refer Ireland to the European Court of Justice between Committee and Report Stages. It is pertinent to the debate and the Minister should explain the relevance in terms of the timing of the legislation. It was intended that the VHI would have an exemption up to 1 September. The European Commissioner, who happens to be Mr. Charlie McCreevy, has now referred this to the European Court of Justice, having indicated his intention of doing so at an earlier stage.

1 o’clock

As the Minister explained to us on Committee Stage, the VHI does not have the capital at the moment to comply with the requirements of the EU, and getting the capital may be dependent on this legislation, although I do not know whether that is true. My understanding is that the VHI is expecting to receive funding on the basis of community rating through this interim mechanism but at the moment it is not in a position to comply with the EU directive until it gets an injection of capital, which, as the Minister explained, could come by way of privatisation or from the Government. The Labour Party is vehemently opposed to the privatisation of the VHI. The Bill now has all these implications, although it did not before, because of the actions of the Commissioner. To be helpful, the Minister needs to make a statement on this matter before we can proceed with the legislation.

  Deputy Caoimhghín Ó Caoláin:I expect the Minister, if she responds — as she should — to refer to her press statement of 25 June, which specifically referred to the European Commission decision. She stated: “The Government had already decided that the VHI should be in a position to attain authorisation as an insurance undertaking from the Financial Regulator and satisfy its prudential requirements as soon as possible.” The Government had already put in place a legislative basis for this in the Voluntary Health Insurance (Amendment) Act 2008, and the timetable for achieving authorisation was, as she stated, adversely affected by the Supreme Court decision in July 2008 striking down the 2003 risk equalisation scheme.

We need the Minister to address these matters properly. The Commission had given approval to the interim scheme in the previous week — that is, the week before the Minister’s statement on 25 June. Deputy Reilly is correct in his request to have this matter substantively addressed before we proceed from the first amendment validly before the House for consideration.

  Acting Chairman:From my understanding, we can only have a discussion of the amendments that are tabled. That is specified under Standing Orders. This amendment, as I told Deputy Reilly, is out of order as it is in conflict with the principle of the Bill. When we have a sos at 1.30 p.m. Deputy Reilly will have an opportunity to discuss this with the Ceann Comhairle. The Bill is being discussed until 5 p.m. today and there will be ample opportunity to raise this matter again if the Ceann Comhairle allows it.

Amendment No. 1 not moved.

  Deputy Mary Harney:I would appreciate an opportunity to respond, given that the other Deputies have been allowed to speak on this matter.

  Acting Chairman:On this matter?

[651]   Deputy Mary Harney:Yes, if possible.

  Acting Chairman:Will the Minister deal with the amendments?

  Deputy Mary Harney:I move amendment No. 2:

In page 4, line 36, to delete “enter into” and substitute “effect”.

I will deal with the issues raised and I will discuss my own amendments also.

I do not say this, as I mentioned last night with regard to another matter, in a complaining way, but when the market was opened up, rightly, on foot of EU directives regarding other health insurers, the issue of the VHI should have been dealt with at that stage. Unfortunately, it was not. Since then it has remained the case that the VHI is not in a position to be authorised. It could not and would not be authorised unless, in a community-rated market, there was a transfer of resources from younger to older people. That is precisely what this legislation is seeking to do. It is a prerequisite for the authorisation of the VHI.

The EU approved this legislation and regards it as a justifiable state aid. It made the point that the issue of authorisation is dealt with differently under Internal Market rules. I brought legislation through this House to provide for the authorisation of the VHI, and it was to be authorised by the start of this year. However, because of the risk profile of its members, it is not possible, without the provisions of this legislation, even to apply for authorisation. In addition, as I said at the committee, it needs capital, and if this is to come from the State, EU approval is required. The process of approval could take 18 months because that too comes under state aid rules, and it may be found not to be appropriate. The Government must discuss all these issues with the company.

I agree it is unfair that the company is not authorised but it is not possible to do that without a transfer of resources from younger to older people. That is the policy that has been supported by successive Governments. The initial risk equalisation scheme was brought in by the parties opposite, not by me. We have sought over many years to try to introduce it and we have been stopped at every opportunity because companies have engaged in litigation.

This Bill is seen as the most appropriate way to achieve our ends; it is time-limited to three years and is being done by way of a stamp duty on the companies and a tax credit to the individual members. I appeal to Members to co-operate with the passing of this legislation because not doing so will serve no purpose if they want to support community rating and the concept of younger people supporting older people. Even in the USA insurers now want a form of transfer, as they do in the Netherlands, which is held up as an example here, and other countries. There is no country that has community rating without risk equalisation and younger people supporting older people. It would be impossible otherwise.

There are two separate issues here. What the Deputies opposite seem to want is that the provisions of this Bill would not be enacted until authorisation takes place. It is a chicken and egg situation. They cannot be authorised without the provisions——

  Deputy Jan O’Sullivan:All Deputies opposite do not take that position. That is a misrepresentation.

  Deputy Mary Harney:All right. I misunderstood the Deputy and I apologise for that. However, that is certainly Deputy Reilly’s position. The purpose of his amendment is that the provisions of this Bill should not take effect until such time as they are authorised. I can tell him that is impossible. It could not happen.

  Deputy James Reilly:I would like to respond.

[652] The VHI has not reached the required solvency level. On Committee Stage I asked the Minister who set this level at 40% when the international standard is closer to 25%, and she told me she did not know. Perhaps she might tell me now whether——

  Deputy Mary Harney:I did not tell the Deputy that. I do know who set the level and I have known for years. It was set by the independent Financial Regulator.

I wish to clarify this issue. The record of the proceedings on Committee Stage will show that this is an independent function of the regulator, who is not subject to any political influence. I have said on the record here and at committees that I regard the figure as extremely conservative and I wish it were lower. However, that is what the regulator, who is responsible for regulating financial services companies, has decided. In recent times we have, if anything, been critical of a liberal approach to regulation, but that is the approach the regulator adopted. There is no political function. The regulator reports to the Minister for Finance, as it happens, but he has no function with regard to this issue, as is the case around Europe. The solvency II directive from Europe will change this, but it will not be enacted for another couple of years.

  Deputy James Reilly:I asked the Minister on Committee Stage why the level was set at 40% here when it is 25% elsewhere. Perhaps that is what the Minister said she did not know.

Anybody looking in from the outside will see a country applying a very high solvency requirement for any new companies coming in and insisting they meet the requirement while giving a derogation to its own company in this regard. This would be clearly construed as a form of protectionism, which is bad for the country’s reputation. I still do not understand why the requirement is set at 40%.

Let us not go down the road of talking about regulation. The Minister is right; it leaves much to be desired. If the solvency requirement were not set at the level it is, the VHI could be authorised. There is more than one way of authorising it. It is not a chicken and egg situation. Why is the same rule not applied to all our insurers? That is why we do not have more competition in the market. This is an indirect means of blocking proper competition. Has our own Competition Authority been asked for its views on the Health Insurance (Miscellaneous Provisions) Bill? Could the Minister outline what these views were? How does she now purport to address the issue of the VHI, given that the reserve fund seems to be falling rather than rising? We were told last year the fund would soon reach the required level but it fell from 33% to 27%. Are VHI customers sufficiently protected? Will we have regulation by 30 September? How much will it cost the State when we are fined by the European Court of Justice for being in breach of competition rules? What is the view of the Competition Authority on this? Was it asked for an opinion or did it request the opportunity to offer an opinion?

  Deputy Caoimhghín Ó Caoláin:The Minister made an appeal earlier for support for the passage of this legislation. I remind her that in the earlier exchanges across the House on the Order of Business, I indicated clearly that I did not intend to oppose the passage of the Bill. This is not in response to her appeal but because, although I am not an advocate for private health insurance at any time, I accept the broad principle and merit of this legislation and its necessity at this time. I am prepared to make that independent judgment. I wish to clarify that we are not all of one mind on this side of the House and that we have independent thinking processes.

  Deputy Jan O’Sullivan:I also want to reiterate, as I made clear in my initial contribution, that the Labour Party supports community rating.

[653]   Deputy James Reilly:As does Fine Gael.

  Deputy Jan O’Sullivan:The referral to the European Court of Justice has taken place since we last discussed the Bill. Clarification is required in this regard. Do we need this legislation to be implemented so that funding can be transferred under community rating to the VHI in order to save it from the European Court of Justice? When can we expect the court’s ruling? Is it envisaged that the VHI will have obtained enough funding in the meantime to satisfy the regulator and be included under the directive? In other words, will this legislation protect us from the European Court of Justice judgment?

  Acting Chairman:I have given substantial latitude to Members thus far and I ask for their co-operation so that we can work through the amendments. Deputy Reilly can bring the issue he has raised to the Ceann Comhairle during the sos.

  Deputy Mary Harney:These related amendments clarify an issue that was raised on Second and Committee Stages relating to contracts and the renewal of contracts. The definition of “effect” covers both entering into a contract and any renewal of a contract. The definition of “information return” is also provided.

I appreciate the points made by Deputies opposite. The solvency ratio is determined by the independent Financial Regulator, and the corresponding figure is substantially lower in other countries. It is the case that any company regulated in any other European Union country can do business in Ireland and be regulated at a lower solvency ratio. Neither I nor the Minister for Finance has any role in this matter.

It is a prerequisite for authorisation that VHI or any other company with an older membership profile be able to obtain transfer payments by way of the provisions in this legislation from those with a younger membership profile. That is the first step. However, even with those measures in place, if we maintain the 40% solvency requirement VHI will require an injection of capital. I anticipate that the authorisation issues will have been dealt with before the infringements take effect. I do not know what the gestation period will be but generally, in regard to issues such as these, we are looking at a period of 18 months to 24 months.

We have provided in legislation for the VHI to be authorised by 1 January 2009. If I had not extended that timeframe, the VHI would have gone under, with serious consequences for its 1.5 million customers. These provisions are necessary to ensure that younger people support older people and healthier people support sicker people. There is nothing more than that involved in this legislation. Its provisions will be valid for three years and we hope in that period to put into effect appropriate risk equalisation legislation. However, given the decision of the Supreme Court, this is the only way we can effect change in the short term.

  Deputy James Reilly:The Minister has stated on two separate occasions that these measures will only apply for three years, yet we will deal with an amendment later which extends that validity to four years, to 2012. Will the Minister answer my question as to whether the Competition Authority was asked for its opinion on this issue or sought to give such an opinion?

  Deputy Jan O’Sullivan:I thank the Minister for providing a degree of clarification. However, she indicated that it will be 18 to 24 months before there is a decision by the European Court of Justice. Presumably, on that basis, it might be possible to extend the timeframe further in September, if necessary. Does the Minister intend to do so? She has indicated that the VHI will require an injection of capital in any case. Has she any proposals in this regard? I understand the House will not return from its recess before 1 September which means we will not have an opportunity to express a view on this. The Labour Party is completely opposed to the [654] possibility of privatising the VHI. Moreover, we would like to see more non-profit insurers entering the market. I am not sure how likely that is given the requirement for 40% of capital to be set aside.

  Deputy Caoimhghín Ó Caoláin:I have no issue with these amendments. However, it would be helpful for all parties’ understanding of the Minister’s intended outworking of her proposals if she would provide a timetabled outline of how she expects the VHI’s risk equalisation needs can be assured into the future.

  Deputy Mary Harney:I agree with Deputy Reilly that it is unfair and uncompetitive if one company is obliged to put 40% of its premium towards its solvency requirements while another is not. That is why we have moved to introduce legislation to end that. Equally, however, if we did not extend the authorisation time from 1 January until September, the VHI would not have been authorised and would have gone under. The consequences of that for its 1.5 million customers are obvious. It is something of a chicken and egg situation. Without this measure there is no question of the VHI being in a position to submit a business plan proving its viability and sustainability. Therefore, this legislation is necessary as a first step towards authorisation.

I hope shortly to be in a position to answer Deputy O’Sullivan’s question and, before September, to enter into discussions with the company after this legislation is passed, after which I will bring proposals to the Government. Any proposals for an injection of capital, from whatever source, will require legislation. I hope to do so in order that the path can be cleared as quickly as possible. These measures are required for our own reasons and to satisfy the requirements of the regulator and the European Commission. The company itself needs to know the position, as do its members and competitors. We cannot delay outlining how we propose to inject the capital that is required to facilitate the authorisation of the company. I intend to do that between now and the autumn session.

  Deputy James Reilly:Will the Minister answer my question regarding the Competition Authority?

  Deputy Mary Harney:When the VHI obtained a derogation from the European Union at the time of the opening up of the market, it did not have to meet the solvency requirements of its competitors. I am not certain whether the Competition Authority has ever been asked for an opinion on this. My view is that the situation certainly does not represent fair competition. We do not need the Competition Authority to tell us that. For example, a company regulated in Northern Ireland or outside Ireland, whether in the United Kingdom or continental Europe, may sell health insurance products here but is subject to much less strict requirements than those imposed on companies regulated in this country. This is grossly unfair and it is the reason I seek to end the inequity and unfairness of the current system as quickly as possible. We cannot achieve this objective without the provisions of the Bill given the age profile of VHI members and the capital injection required.

  Deputy James Reilly:The Minister indicated that one has long gestation periods before cases are adjudicated in the European Court of Justice. Nonetheless, the court’s decisions have retrospective authority and apply from the date on which the initial breach took place.

  Deputy Mary Harney:That is correct.

  Deputy James Reilly:It is possible, therefore, that the issue will have been addressed by the time the court case commences and we will have incurred major expense as a result.

[655]   Deputy Mary Harney:I do not disagree. It is unfortunate that the measure we are introducing was not taken years ago. I would be pleased if the Financial Regulator were to reduce the solvency requirement. While I do not normally criticise independent regulators, as I have stated publicly, the approach adopted here is incredibly conservative given that health insurance is much more predictable than other forms of insurance. Unfortunately, a conservative approach has been adopted in an area that has considerable capacity for predictability and reliability, whereas a liberal approach appears to have been adopted in areas which are not characterised by such certainty.

  Deputy Jan O’Sullivan:The Minister stated it was unfair that insurers regulated outside the State compete on a different basis from insurers regulated here. Will she clarify how this issue will be addressed?

  Deputy Mary Harney:The issue cannot be addressed. A company regulated in the United Kingdom where I understand the solvency requirement is 25% or any other European country can do business here. As it happens, all the main competitors in the Irish health insurance market are regulated here and meet the 40% solvency requirement. I understand one of the companies in question had to meet a 50% requirement when it was first authorised. A company regulated outside Ireland would have a significant advantage over a company regulated here. Each company has the capacity to be regulated in its home state, which is clearly unfair.

  Deputy Jan O’Sullivan:The position will not change unless the regulator acts.

  Deputy Mary Harney:While the solvency II directive will bring greater clarity and lower the solvency requirement level to between 20% and 30%, the timeframe for its implementation is 2012-13. As to the timeframe for the Commission’s recent decision, we expected it to issue within three months of notification. We notified the Commission in October or November last but the decision was not issued until the past two weeks. While I am not certain a decision will take 18 to 24 months, that has been our experience in the past. I hope the VHI will be authorised much sooner than that.

  Acting Chairman:Deputies are aware of the rule that they may only speak twice to each amendment.

  Deputy James Reilly:The amendments were grouped. While I have tried to co-operate, if I am to be restricted to speaking twice on each amendment——

  Acting Chairman:That is the rule and changing it would require an amendment to Standing Orders.

  Deputy James Reilly:The amendments have been grouped which truncates the debate. If I am restricted, I will insist on discussing amendments individually which is not in anyone’s interest.

If the VHI was unable to meet the 40% solvency requirement when it was making significant profits and enjoyed a massive share of the market, it begs the question as to whether it will ever meet the requirement without additional help from the State. None of the Opposition parties, in particular the Fine Gael Party, has a problem supporting the principle of community rating. However, my party has problems with the manner in which the matter has been addressed.

On insurers, will the provisions of the solvency II directive supersede the powers of the Financial Regulator? While that would be positive news in this case, it may not be so positive in other cases. What is to prevent Hibernian Avivas Health, a large international company, [656] from deciding to be regulated in the North? The same applies to BUPA, now known as Quinn Healthcare. Can these companies decide to be regulated in another country?

  Deputy Mary Harney:BUPA was regulated in the United Kingdom when it was doing business here. At the time, it operated under a solvency requirement of approximately 25% and made profits of 17%, an unheard of figure in health insurance. The company did incredibly well. I am stating a fact rather than criticising it as the company provided excellent competition. BUPA also initiated all the early legal action on the issue before us.

Any company regulated in Northern Ireland or outside Ireland can do business in this State. The solvency II directive will be applied by all the national regulators. As an EU directive, it must be applied across the European Union. I welcome this as I understand the solvency requirement will be substantially lower than it is at present.

Amendment agreed to.

  Deputy Mary Harney:I move amendment No. 3:

In page 5, to delete lines 6 to 9 and substitute the following:

“(b) by inserting the following definition after the definition of “day patient service”:

“ ‘effect’, in relation to a health insurance contract or other agreement, means to enter into or renew such contract or agreement, as the case may be;”.”.

Amendment agreed to.

  Deputy Mary Harney:I move amendment No. 4:

In page 5, line 30, to delete “by inserting “7D, 7F,” after “7B,”.” and substitute “by substituting 6A(2), 7A, 7B, 7F” for “7A, 7B”.”.

I am pleased to provide for the proposal that the relevant regulations be affirmed by the Houses of the Oireachtas.

Amendment agreed to.

  Acting Chairman:Amendments Nos. 7 to 10, inclusive, and 30 to 34, inclusive, are related to amendment No. 5. The amendments may be discussed together by agreement.

  Deputy James Reilly:I suggest we discuss amendment Nos. 5 and 7 to 10, inclusive, together and amendments Nos. 30 to 34, inclusive, when we reach them.

  Acting Chairman:Amendments Nos. 5, 7 to 10, inclusive, and 30 to 34, inclusive, will be discussed together.

  Deputy James Reilly:With respect, given that we will have a sos in a couple of minutes, it would be preferable to discuss amendments Nos. 5 and 7 to 10, inclusive, together.

  Acting Chairman:I ask the Minister to move amendment No. 5.

  Deputy Mary Harney:I move amendment No. 5:

In page 5, between lines 39 and 40, to insert the following:

[657] “ ‘cumulative net financial impact’, in relation to a registered undertaking or former registered undertaking which has furnished one or more information returns to the Authority in respect of a period, means the difference between—

(a) the total amount of the age-related tax credits recorded in accounts for that undertaking in respect of that period as extracted from accounts furnished pursuant to section 7F(1)(a) and (b) to the Authority by the undertaking in respect of that period, and

(b) the total amount of the stamp duty referred to in section 125A of the Stamp Duties Consolidation Act 1999 recorded in accounts for that undertaking in respect of that period as extracted from accounts furnished pursuant to section 7F(1)(a) and (b) to the Authority by the undertaking in respect of that period;”.

To be fair to the Bills Office, the amendments in this group are all related and technical in nature. While the European Union is willing to agree to the proposed measure as a justifiable state aid, the Commission and Government do not want excessive compensation to arise. The insertion of a definition of the expression “cumulative net financial impact” in amendment No. 5 provides a basis for the health authority to assess on an annual basis whether the cumulative effects of the credits and stamp duty payments result in a positive or negative amount for the undertaking concerned. The definition relates primarily to section 7F of the Bill inserted on Committee Stage. Most of the amendments in the group are in this section.

Under European Union state aid requirements, insurers which are net recipients may, if they make excessive profits, have to repay to the Exchequer any over-compensation granted for providing the services in question. The amendment to the section recognises further the decision of the European Commission to approve the notification made in November, as announced on 18 June. While a framework was inserted on Committee Stage to assess whether over-compensation would arise under the provisions of the Bill, the amendment being made at this stage will ensure the framework more precisely mirrors the Commission’s decision. Section 7F provides for the submission of accounts to the health insurance authority by insurers to enable an assessment by the health insurance authority of whether the measures provided for under the Bill resulted in over-compensation.

Amendments Nos. 40 and 41 provide for the authority to determine the extent, if any, to which an insurer’s profit, the insurer being a net beneficiary under the provisions of the Bill, constitutes over-compensation. The authority will consider what will be the norm as regards profits in the insurance sector generally and whether the transfer of money under the provisions of the Bill will over-compensate an insurer or generate profits that are above the norm in the sector.

  Deputy James Reilly:I thank the Minister for clarifying the purpose of the amendment. We do not want any provision of the Bill to confer additional profitability beyond the norm to an insurance company. What will happen to excessive profits if it transpires that an insurer has been over-compensated? Will moneys taken from the VHI in such circumstances be redistributed to the companies from whence they came or will they be allocated to the Exchequer coffers? If the latter eventuality is the case, it would be grossly unfair on the other insurance companies.

Can the profits accruing to the company in question, VHI, which is being given powers to enter other areas of activity, be used to subsidise these new activities? The Minister is shaking her head but will she guarantee that she will be able to determine what income arises and whether it has been slipped under the door into other activities such as travel insurance, life insurance, SwiftCare clinics and so forth? I understand these activities are losing money.

[658] Debate adjourned.

Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.