Health Insurance Authority: Presentation
Deputy Gormley: I will go back to the Ombudsman’s report. Was it discussed at length in the Department at the time?
Mr. Smyth: It was, because we received a legal opinion on the Ombudsman’s report, particularly on the issue of entitlement in the health services and there was much discussion about that issue in the Department at the time. The Ombudsman had raised fundamental issues about entitlement, that is to say, access to services, both in private nursing homes and to public beds. However, that legal advice centred on entitlement and did not divert Ms Heuston from that issue. Much attention was given to this issue by the Department at the time.
Deputy Gormley: When Ms Deirdre Gillane appeared before the joint committee, she stated that when the Ombudsman’s report was discussed, the concerns about illegality were found to be unwarranted. Was that the case?
Ms Roisin Heuston: The Ombudsman certainly raised the issue of eligibility versus entitlement. That was addressed in legal advice we received from the Office of the Attorney General, which pointed out that they were two clear, distinct and separate issues. One may be eligible for services but that does not automatically convey an entitlement.
Deputy Gormley: Was that the legal advice from the Office of the Attorney General?
Ms Heuston: Yes.
Deputy Gormley: Did it centre on that?
Ms Heuston: Yes.
Deputy Gormley: Did it deal with the charges issue?
Ms Heuston: No. There are two separate issues. The Ombudsman’s report was concerned with private nursing home charges and the legislation pertaining to them. The only time it veered in any way towards the public service was in its views on eligibility versus entitlement. However, the report itself was an examination of charges and other issues concerning private nursing homes.
Mr. Smyth: The entitlement issue concerning public beds only arose as part of a broader view taken by the Ombudsman about entitlement to services which covered both public and private beds.
Deputy Gormley: Does the authority believe that risk equalisation could take another form? Rather than having the transfer of money, could there be a transfer of high risk patients between the various insurers?
Professor Wood: That is an extremely interesting proposal. Unfortunately, it is not one that we or the Minister can implement. I understand what the Deputy is saying. If one insurer has 20% of the market share, it should have 20% of all good patients. Will one go through the VHI member list, taking every fifth member and send them to the competitor? How can this be done fairly and allow consumer choice?
Deputy Gormley: One could take the high risk patients. A formula has been worked out for the MEP, market equalisation percentage.
Professor Wood: I agree it is an alternative method of solving the problem. However, I do not know how one can force people to move to a particular health insurer.
Deputy Gormley: I fully accept the need for community rating. However, it is unfair that an individual who joins a scheme at 45 of years pays the same as the individual who joined at 25 years of age. I understand a 75 year old, provided he or she joined at 25, should pay the same as the 25 year old member. However, does this payment gap between the 25 year old and the 45 year old need to be examined?
Professor Wood: As we said in reply to Deputy Twomey, we have sent a paper to the Department of Health and Children supporting the introduction of lifetime community rating. The authority’s position is that it is a good idea.
Deputy Gormley: How would it work?
Professor Wood: In practice, various formulae have been proposed. It could be 1% extra each year over the age of 25 years when one joins for the first time.
Deputy Gormley: When will the paper be published?
Professor Wood: It has been sent to the Department and is on its website.
Deputy Gormley: I welcome the delegation to the joint committee. The Minister stated in July 2003 that VHI wanted to be privatised. Does Mr. Sheridan still see privatisation as desirable? What share of the company could the employees expect?
Mr. Sheridan: I wish to make the obvious point that this has nothing to do with risk equalisation. The issue of the future corporate structure of VHI——
Deputy Gormley: Does Mr. Sheridan think that risk equalisation might assist it? If risk equalisation is introduced it might push privatisation. Is VHI waiting for the introduction of risk equalisation before privatising?
Mr. Sheridan: No. I will answer the question, but in terms of health insurance, it does not have anything to do with risk equalisation. The position of VHI on its future corporate structure is that a changed is required. An agreement in principal was reached with the previous Minister that VHI should move from being a statutory body to being a semi-State company. Many technical reasons exist for such a change which would be seamless in that people would not recognise the difference, but which would make a major difference to our ability to carry out and sustain a strategic business approach to our business.
We do not have a view on privatisation. We accept this is a question for the Government. We would be happy to go from being a statutory body to being incorporated as a semi-State company. We have views which we have made known to the Government. I do not wish to go into them because the question is totally theoretical at present, given that we have no indication that the Government wishes to go down that road. If the Government decided on privatisation, we would want to enter the debate as to its appropriate form. However, our position is neutral on the issue. We have views on how it should be done, if it were to be done, but we are quite happy to stay within the public system. Our concern is not with the ownership of the company but with our ability to carry out a strategic business plan.
Deputy Gormley: Is the Chairman of VHI not on record as being in favour of VHI privatising?
Mr. Sheridan: Some years ago, in the context of the publication of a White Paper which also addressed the issue of corporate structure and privatisation, the VHI board stated publically that they favoured privatisation. Since then however, we have been looking at what is essential and what matters in terms of the company’s business. The question of who owns the company is not what matters because one way or another, we exist to look after our members. We do not wish to move away from that. We want to be able to have a sensible strategic approach to running the business, which can be accommodated through incorporation as a semi-State company.
There are other issues that remain problematic such as VHI remaining in the State sector. There are conflicts of interest between the Government’s role as a provider and policymaker and its role as owner. We believe these issues must be resolved by the Government rather than by us.
Deputy Gormley: What are the implications for the market and VHI if BUPA wins its case in the European Court of Justice.
Mr. Sheridan: I would be more concerned about the implications for community rating. Community rating is not sustainable. We cannot charge a community rated price to our members and remain viable. We charge the community rate and produced a very low price increase in 2004 because we decided that our members were entitled to pay a community rated price in a community rated market. We will lose money this year and if we continue to charge a community rated price in this marketplace, which appears reasonable and what our members are entitled to, we will not be viable and will lose money. It is a totally cynical exercise. I do think that BUPA will win its case because——
Deputy Gormley: Would it be correct to say that if VHI continues to lose money, it will go out of business?
Mr. Sheridan: Of course we will go out of business but our argument is self-evident. Community rating cannot exist in a competitive market if it is not sustained by sharing the risk. Otherwise, the market says that community rating is desirable but it wants VHI to charge its members a rate based on its community, while other health insurance companies are able to charge rates based on their communities. There will be a large difference between VHI’s prices and those of its competitors because VHI has older members and its competitors have younger members. Even a child would see that this is not a sustainable arrangement. We are simply facing up to the fact that this type of community rating is unsustainable, which is what all the experts have concluded.
Deputy Gormley: Why has the Government not acted on this in the last eight years?
Mr. Sheridan: It has not acted because of the efforts of a very effective BUPA lobby, which has used every means at its disposal.
Chairman: What methods has the BUPA lobby used?
Mr. Sheridan: Before I joined VHI, I was a guest at the British embassy where the embassy was openly lobbying on behalf of BUPA. The Government clearly wants competition, as does VHI and everybody else. BUPA says that it cannot compete in the market and that it will leave it. Last week, we apparently witnessed a sensible approach being adopted for the first time when the HSA hopefully appeared ready to recommend the introduction of risk equalisation. BUPA suddenly released its figures, of which it had previously deprived the market by refusing to publish them. These figures show that BUPA will lose money if it is made contribute towards community rating. This is complete nonsense. Of course, BUPA will lose money if it is charging a premium based on its younger membership and is not contributing towards the cost of the risk in the community. In the same way, VHI will lose money if it charges a real community rate and does not have receipts from risk equalisation. All health insurance companies will lose money if they charge community rating without risk equalisation. If VHI or BUPA do not increase their prices and take on the community risk, they will lose money. BUPA also needs to become more efficient.
Deputy Gormley: So if we do not have risk equalisation, we will not continue to have community rating and it will be the end of VHI.
Mr. Sheridan: Yes, that will happen.
Deputy Gormley: Mr. Sheridan said that prices are now higher despite perceived competition. Is he saying that we are not witnessing real competition? Can he explain the reason for higher prices?
Mr. Sheridan: I accept the current mantra that competition is good, provided competition benefits consumers. The way competition has been introduced in the private health care market has not benefited consumers because it has resulted in higher prices. Where have BUPA’s profits come from, if not from Irish consumers? Why are BUPA’s profits so much higher in Ireland than in the UK? They are higher because Irish consumers pay more than they should. It is easy to see that if one attacks the younger members of the population, choice is not as effective as it might be. So risk equalisation is the antidote to the anti-competitive nature of community rating.
Deputy Gormley: So we will get lower prices with risk equalisation.
Mr. Sheridan: The introduction of risk equalisation will serve to reduce the rate of increase in prices. The drivers of price increases are such that risk equalisation will not reverse them but it will slow them down.
Deputy Gormley: It will slow down the increase in prices?
Mr. Sheridan: It will slow down the rate of increase in prices.
Chairman: The point Mr. Sheridan is making is that there is competition in the market but he is not really bringing in VHI’s financial strength. Is it true that VHI’s total reserves at the end of February 2004 were €330 million?