KENNY WELCOMES COMMUNITY RATING PROTECTION IN HEALTH INSURANCE (AMENDMENT) BILL 2012

Posted on November 15, 2012 2:19 PM   |   Permanent Link   

The Health Insurance (Amendment) Bill provides for a permanent risk equalisation scheme for private health insurance in Ireland. It will replace the current interim scheme that expires on 31st December 2012.

The Programme for Government 2011-2016 commits to introducing a system of risk equalisation for the current insurance market. It is also committed to introducing a system of universal health insurance by 2016, and states that exchequer funding for hospital care would go into a Hospital Insurance Fund, which would subsidise or pay insurance premiums for those who qualify for subsidy. The Programme stated that the Hospital Insurance Fund would oversee a strong and reformed system of community rating and risk equalisation.

Insurers are currently compensated for differences in costs that may arise due to the age profile of their customers. Amongst other measures, the Bill provides that the risk equalisation system will also take account of gender, level of cover, and level of hospital utilisation. Other provisions strengthen restrictions around product changes. In addition the EU 2012 Framework for State Aid is incorporated into the Act.

The Health Insurance (Amendment) Bill 2012 provides for a permanent Risk Equalisation Scheme to replace the current Interim Scheme of Age-Related Tax Credits and associated Community Rating Levy, provided for in the health Insurance Acts. The Interim Scheme expires on 31 December 2012.

Risk equalisation is essentially a method for compensating insurers who carry heavy risk burdens by means of payments from other insurers who carry lighter ones, and its role is to protect the current system of community rating in private health insurance.

The Interim Scheme is a system of tax credits which provides for a cost subsidy from the young age groups to the old groups. On current estimates the scheme will have transferred a net amount of some €275 million in 2011, and the estimated amount for 2012 will be €360 million. The VHI has been a net beneficiary of the scheme due to their age profile client base. The scheme is funded through a community rating levy charged to insurers. This amounted to €197m in 2009, €318m in 2010, and €343m in 2011.

The permanent scheme provided for in the Bill differs from the Interim Scheme in a number of respects. In the permanent scheme, risk equalisation will extend to subsidies between the more healthy and the less healthy. The Bill provides that, in addition to age, the risk equalisation system will also take account of gender, the level of cover provided by a health insurance policy, and the level of hospital utilisation.

Risk equalisation credits will replace the tax credits in the Interim Scheme. The rates of these risk equalisation credits are not set out in the Bill, but will be disclosed at Committee stage.

The Bill also aims to support the revised risk equalisation scheme and discourage market segmentation by strengthening product change restrictions. Health insurers are required to notify the Health Insurance Authority (which regulates the private insurance market) of new types of insurance contracts and changes to existing ones. The Bill extends the notification period required for these changes.

In addition, the HIA and their officers are given considerable additional powers under the legislation, including the power to enter premises (with a warrant or permission from the owner), and secure documentation for inspection, and to require the production of books or records.
There is a long legislative and legal history around the issue of risk equalisation, with a key issue being the impact on market competition. Some of the implications raised by stakeholders in relation to the Bill include the impact on competition and market entry, on health insurance affordability, the effect of the health status measures, and the regulation and role of the VHI.

The 1992 EU Third Non-Life Directive essentially forced competition in private health insurance on a reluctant Department of Health. The 1996 regulations provided for a system of risk equalisation, but this scheme was revoked in 1999 in the context of the setting up of an Independent Advisory Group on the Risk Equalisation Scheme and the publication of the White Paper on Private Health Insurance by the Department of Health and Children. The independent advisory group reported to the Department of Health in 1999 ("the Harvey Report").

It found that risk equalisation is essential to underpin community rating and concluded that the 1996 Scheme was "unduly unstable". In the White Paper (1999) the Department decided that amended risk equalisation arrangements were warranted to strike a balance between the need to protect against risk selection and encouraging competition.

The Health Insurance (Amendment) Act 2001 introduced a mechanism whereby the Health Insurance Authority (HIA) would be given a major role in deciding whether the market conditions exist, such as to warrant activation by the Minister of a risk equalisation scheme.

In an effort to encourage competition, the Health Insurance (Amendment) Act 2001 also amended the 1994 Act to give new competitors the option not to be affected by the risk equalisation scheme for the first three years following their market entry, though they would be obliged to make returns to the HIA once they had traded for six months.

While the 1994 Act made provision for the establishment of the HIA, the body was not brought into existence until 1st February 2001. The 1994 Act was amended by the Health Insurance (Amendment) Act 2001, providing for, amongst other things, an enhanced role for the HIA, with more responsibility than was envisaged under the 1994 Act. The HIA is funded by a levy imposed on private medical insurers' premiums and is independent of the State. The role of the HIA includes acting as a register of medical insurers, and undertakings, and vetting new market entrants. It is also involved in consumer protection and information provision, as well as providing advice on matters of medical insurance to the Minister for Health and Children. The HIA receives returns from medical insurers every six months and on this basis makes recommendations to the Minister regarding risk equalisation.

The Bill states that the principal objective of the Minister and the Authority, is to ensure that access to health insurance cover is available to consumers of health services, with no differentiation made between them whether effected by risk equalisation credits or stamp duty measures or other measures, or any combination of these measures.

The Bill now includes the desirability of ensuring that the less healthy, including the old, have access to health insurance cover by means of risk equalisation credits. This is done in the interests of social and inter-generational solidarity and regardless of the health risk status, age, gender or frequency of provision of health services to any particular generation.