Statement by Minister Harney – Strategy for a Stable, Community Rated Health Insurance Market
The Minister for Health and Children, Mary Harney, T.D., today gave further details about the set of strategic actions approved by the Government to ensure the effective operation of community rating in health insurance market so as to protect older and sicker customers.
The Minister said,
“The Taoiseach has underlined the importance of solidarity in the health insurance market and that older and sicker customers should be supported by younger and healthier customers.
“This is the key to all the changes the Government has approved.
“We have carried out a fundamental analysis of the health insurance market. We started out by reaffirming that this Government, like its predecessors, wants to see an effective community-rated market, and we have then identified all the actions needed ensure this.
“Everything we are doing is to secure a stable, community-rated market that contains effective solidarity between the younger and older people and healthier and sicker people. We are protecting older and sicker people from being loaded with premium increases or more expensive policies solely because of their age and medical history.
“There are very complex challenges involved in our health insurance market. It is important to deal with all the complexity on the basis of a clear objective and a determination to achieve it.
Market problems being addressed
“I have been concerned that the direction of the market has been moving away from community-rating and the solidarity we want.
“For example, we’ve seen the creation of a plethora of new policies that are designed for, and marketed to, younger or healthier age groups, or just for the staff of particular corporate customers. I recognise the commercial incentives for this; but we are determined to change those incentives. We want all companies to have an incentive to win and keep older and sicker customers, and to provide better value and developing health insurance services to their customers, particularly in primary and preventive care.
Position of the VHI
“The VHI has a strong record and a track record of customer service for more than 53 years. This will stand to it.
“However, I am concerned at the financial position of the company now due to a number of factors. The company clearly has to meet the needs of its customers, and it has a preponderance of older customers in the market. It has seen a very strong growth in claims in recent years, putting pressure on its funding from policy premiums. The comprehensive new risk equalisation scheme is only one element that stabilises the market. The company itself will have to address other matters, such as managing claims volumes and input costs.
“However, I am confident that the company will work successfully to achieve authorisation by the Financial Regulator in the context of the full strategy the Government has set out today, including our preparedness to invest a very substantial capital amount in the company and our plans for robust risk equalisation and transitional provisions.
“The Government has decided to make a substantial capital injection to help the VHI achieve authorisation. The level of this investment will be determined in due course by the Minister for Finance and the Minister for Health & Children in light of appropriate advices. The amount required will depend on a number of factors including the extent to which VHI arranges reinsurance and the requirements set by the Financial Regulator when the company makes its application for authorisation.
“The capital injection takes place in a context in which we are arranging a subsequent sale of the company, but it is principally for the purposes of authorisation. The Government expects that in the sale process, the injection of State capital will be recovered, with a return also. Our first step in the process will be to appoint financial advisers, and the Government will take further decisions in relation to the sale upon that advice. I have no doubt that several well-established, potential purchasers will come forward.
“We are also clear that the capital investment is subject to EU approval and we will be setting out the entire details and context to the European Commission.
“The sale of the company is being undertaken so that the State can be judged by all concerned to be totally impartial in the design and operation of the risk equalisation scheme.
“The potential for a third party investment in, and sale of, the VHI was signalled as far back as the White Paper on Health Insurance in 1999.
“I discussed the Government’s strategy with the Chairman and CEO of the Company this afternoon. I am confident that everyone involved will work in the new strategic situation to provide an excellent health insurance service in a community-rated market. I am fully confident that employment will be sustained and services will be maintained.
Support from all companies for Community Rating / Risk Equalisation
“I also met the other two companies in the market to explain the Government’s strategy.
“I’ll echo the Taoiseach in saying that it is imperative that all companies in this market support and have confidence in community rating and the provisions for comprehensive risk equalisation that we are putting in place.
“For that reason, we have included in the mandate to our financial advisers on the sale of the VHI the task of examining how a more even balance of customers might be achieved in the market. The risk equalisation scheme will provide for financial transfers, but the huge imbalance of older customers between companies in the market puts a strain on one company and gives rise to very different and unbalanced approaches by companies to risk equalisation depending on whether they are large payers or recipients of payments under the scheme.
“This examination will respect customers’ contractual rights. I would emphasise that all customers have clear statutory rights to switch companies. The Health Insurance Authority will underline this again in its public communications.
“We wish to see vibrant competition for customers, based on service, innovation, quality and value, not based on seeking low claiming customers and avoiding high claiming people.
“I reiterate that the entire series of changes put the needs customers, particularly older and sicker health insurance customers, on top of everything else.”
Key features of a stable market
The Government has decided it is important to set out clearly to all concerned – including health insurance customers, companies, their staff, potential market entrants and the European Commission – the features of a stable market and the comprehensive set of steps being taken towards achieving it.
The key elements of those features are:
- insurance policies are appropriate for people’s health needs and relatively affordable;
- policies are not priced for customers on the basis of age or medical history (the principle of community rating);
- consumers’ rights to purchase any policy and to switch company are protected (the principle of ‘open enrolment’);
- consumers’ right to stay covered from year to year is protected (the principle of ‘lifetime cover’);
- competition brings innovation and benefits to consumers;
- each company is regulated on a level playing field to comply with solvency, reserves and other requirements;
- the State acts as an even-handed regulator of the market and organiser of risk equalisation transfers, without being an owner of a particular company;
- there is full compliance with EU requirements in all respects;
- there is, to the extent possible, a relatively even balance of customers between companies in the market;
- health insurance is developed in a way that supports overall health policy objectives, i.e. best outcomes for patients, a high level of health status in the population, a more prominent role for primary care, fair access for all, and financial sustainability.
Actions to be taken
The key steps the Government has decided to take are:
- Implement a new, robust, risk equalisation scheme to support the core policy of community rating. The Health Insurance Authority will issue a consultation document to the market within a matter of weeks and the goal is to publish legislation in 2011 with enactment and implementation by the start of 2013.
- The continuation of the present interim tax relief/levy system, and a new transitional arrangement from 2012 that will approximate as closely as possible to a full risk equalisation scheme. The HIA will advise on the level of tax-relief/levy for 2011 under the present interim system.
- To make a substantial capital investment in VHI so that it can meet the reserves requirements set by EU law and by the Financial Regulator, and so end the derogation in domestic legislation from compliance with the relevant EU Directives. The amount will be determined by the Minister for Finance and the Minister for Health & Children in light of appropriate advices and will depend upon factors such as reinsurance taken out by the company and the precise requirements of the Financial Regulator in assessing the application for authorisation.
- To arrange for the subsequent sale of VHI. Financial advisors are to be appointed in the coming weeks to advise the Government on the precise sequencing and structures for disposal, so that the goals of the Government’s strategy for the market are met. The exact timing of sale will be a matter for further decision by the Government.
- In the context of disposal, to assess which actions may be possible to achieve a more even balance of older customers between the health insurance companies in the market.
- To engage with the European Commission on this comprehensive strategy for the health insurance market, in particular, on the new risk equalisation scheme (for which approval will be needed) and the capitalisation of the VHI in the context of authorisation and subsequent disposal, for which State Aids approval will be needed.
- The preparation of a new set of minimum benefits regulations for health insurance, so as to bring primary care and other services into the set of benefits that insurers must offer.
- The implementation of other measures to enhance competition and choice in the insurance market, such as the VHI opening travel insurance benefits to non-members.
- The implementation of lifetime community rating, so that there is an incentive for people to take up health insurance earlier in their adult life, rather than later.
These measures will require considerable work over the next two to three years.