Independent Report to the Minister for Health And

Independent Report to the Minister for Health And

Review of Measures to Reduce Costs in the Private Health Insurance Market2014

Independent Report to the Minister for Health and

Health Insurance Council

October 2014

TABLE OF CONTENTS

Acknowledgements………………………………………………………page4

Chapter 1 Introduction………………………………………………….page5

Chapter 2Analysis of Claims Cost Data - Health Insurance Authoritypage9

2. 1 Introduction ……………………………………………………..page 9

2.2 Recent Irish Claims Cost Experience……………………………… page9

2.3 Impact of Ageing…………………………………………………..page 13

2.4 Analysis of Claims Data Submitted by Insurers……………………..page 19

Chapter 3 Summary of Submissions Received…………………………page 26

Introduction……………………………………………………………….page 26

3.1Summary of HSE Submission……………………………………..page 26

3.2Summary of IHAI Submission (non-psychiatric elements)………..page 28

3.3Summary of Insurance Ireland Submission……………………….page 30

3.4 Summary of IHCA Submission ………..…………………………page 35

3.5Summary of Society of Actuaries in Ireland Submission…………page 37

3.6 Summary of Submissions from Saint John of God Hospital,

St. Patrick’s Mental Health Services and IHAI on Industry

Approach to Private Psychiatry……………………………………..page38

Chapter 4 Chairman’s Observations and Recommendations …………page41

Introduction…………………………………………………………………page 41

4.1 Key Recommendations Phase 1 Interim Report……………………page 41

4.2 Data to Analyse Trends in Industry……………………………….page 42

4.3 Private Health Insurance Claims Cost Analysis…………………….page44

4.4 Care Setting and Resources…………………………………………page46

4.5 Age Structure………………………………………………………page 47

4.6 Clinical Audit and Utilisation Management……………………….page48

4.7 Industry Approach to Private Psychiatry……………………………page49

4.8 Fraud, Waste & Abuse………………………………………………page50

4.9 Chronic Disease Management………………………………………page50

4.10 Claims Processing…………………………………………………..page50

4.11 Admission & Discharge Processes………………………………….page51

4.12 Private A&E………………………………………………………..page 52

Chapter 5Conclusion.………………………………………………………page 53

Appendix 1 Status Report on Recommendations made in Phase 1 Report page 55

Appendix 2 HIA Claims Cost Data…………………………………………page62

ACKNOWLEDGEMENTS

I would like to acknowledge the support and co-operation I received from all participants in this review – the health insurers, the Health Insurance Authority, and the Department of Health.

Chair, Review Group

October 2014

Chapter 1 Introduction

1.1Introduction

On 27 June 2013, I was appointed by the Minister for Health to Chair a Review Group under the auspices of the Consultative Forum on Health Insurance, to work with the insurance companies and the Department of Health to effect real cost reductions in the private health insurance market. The work of the Group has been conducted in two phases, with the first phase report published on 26 December 2013.

The Phase 1 report sets out the context, establishment, membership and terms of reference for both phases of the Groups’ work. The report also outlines the legislative provisions for private health insurance in Ireland, the objectives of both phases of the review and the approach and methodology followed. (Membership and Terms of Reference for the Group are reproduced at 1.2 below for reference).

On completion of Phase 1 of the review, I reported to the Minister for Health and the Health Insurance Council, and following Ministerial approval, the Group moved to Phase 2 of its review.

Work on Phase 2 has now been completed and I have reported to the Minister and the Health Insurance Council, with the results of this work now presented in this report. In particular, Phase 2 of the process focused on the compilation and analysis by the Health Insurance Authority (HIA) of claims data to assess the cost drivers for health insurance, the effects of medical technology and innovations on costs, and claims processing issues. As with Phase 1, a number of plenary meetings were held, and I also engaged in a series of bi-lateral meetings with health insurers and relevant stakeholders. I also received a number of submissions from relevant stakeholders which were examined and considered under the Phase 2 Review. A summary of these submissions is contained in Chapter 3 of this report. (Full text of the submissions is available to view on the Department of Health’s web-site at.

1.2 Membership and Terms of Reference

Membership of the Review Group is comprised of representatives of the four commercial health insurers – Aviva Health Insurance, GloHealth, Laya Healthcare and VHI Healthcare, the Department of Health and the Health Insurance Authority. The Secretariat is provided by the Department of Health.

The following Terms of Reference were agreed by the Group for Phase 1 and Phase 2 of the review process:

The Minister for Health and the four commercial private health insurers have agreed to a process to effect real cost reduction/cost management in the Irish private health insurance market to ensure its long term sustainability.
The Review Group will be chaired by Mr. Pat McLoughlin. The Review Group will also comprise representatives from the Department of Health and the HIA and will be mindful of the need to respect competition law in its deliberations. All parties will be represented by two persons. As appropriate, the Chairman may meet other stakeholders for their input in order to complete the review.
The purpose/objective of the Review Group is to consider/identify effective industry-wide cost reduction/cost management strategies for the private health insurance market (scope to include but not limited to public hospitals, private hospitals and consultants). It is envisaged that this will be a two stage process as follows:
Phase 1 – Review Group/Chair to produce a high-level analysis of measures identified to reduce/manage private health insurance costs to include proposals or recommendations on the following broad themes:
Understanding the drivers of significant increase in claims in recent years
Utilisation Management
Clinical audit - provision of treatment in an appropriate medical setting to appropriate care standards, to include clarification or common understanding of day case & side room/care pathways/interaction with HSE National Clinical Programmes
Efficiency improvements in length of stay, admission processes, discharge management and claims processing, including fraud and maladministration
Provider reviews – public and private
Clarification on classification of consultants
Measures to promote participation of younger members in the PHI market
Standard Plan for PHI (will be further progressed through the deliberations of the existing CFHI Subgroup)
Effective commercial management of proprietary drugs/utilisation of generic drugs
Agreement to set targets for cost reduction/management.
Phase 1 is to be completed by end October, with the Independent Chair to report simultaneously to the Minister for Health and the Health Insurance Council.
Phase 2 – Following Stage 1, the Review Group will undertake a detailed evaluation to further develop its Stage 1 high level analysis and to include proposals/recommendations on the following:
Audit of the volume of procedures
An examination of the base cost of claims - to include agreement on the benchmark costs of a comprehensive range of procedures
Further development of clinical audit and interaction with HSE Clinical Programmes
Measures to introduce procedure-based payments in public hospitals and clarity on what is chargeable, including negotiation of rates and rewards for efficiency and outcomes
Measures to curb year-on year increases in claims through wider/more targeted use of claims management tools
Consideration of possible ways to lessen the impact of medical technology /innovation on PHI costs, i.e. through cost effectiveness analysis. This will include the development of initiatives to manage procurement
Legislative measures that might be required to address cost reductions
Agreement on measures to promote participation of younger members in the market, e.g. discounts on premiums for 23-29yr olds ; introduction of LCR (will be further progressed through the deliberations of the existing CFHI Subgroup)
Industry approach to private A&Es
Industry approach to private psychiatry
Ways to clarify certain processes and structures which influence charges to private health insurers, e.g. consultant classifications, consultant charges for private patients, determination of public/private patient status at admission, completeness of claims information from public hospitals
Further efficiency improvements in relation to length of stay, admission & discharge procedures and claims processing
Increased utilisation of appropriate Primary Care settings.
Phase 2 is to be completed within six months, with the Chair to report simultaneously to the Minister for Health and the Health Insurance Council.
Secretariat to the Review Group will be provided by the Department of Health.

1.3 Updated Figures

Since publication of the Phase 1 report the HIA has collated data for 2013, based on Information Returns submitted by health insurers for July to December 2013; this data is referenced in the Phase 2 report. The HIA has also collated data for the first quarter of 2014.

At the end of June 2014 there were 2,017,087 people insured with inpatient health insurance plans, or 43.9% of the population. This compares with 2,058,239 at the end of June 2013 and represents a reduction in the number of insured people of almost 41,000 over the previous 12 months.The market peaked in 2008 with 2,297,000 people insured at that time.

In 2013, Irish open membership private health insurers paid claims of €1,783m which represents a 4% decrease compared to 2012 levels of €1,856m. Between 2004 and 2008, there was an increase of 6.7% in the average claim per insured person. Between 2008 and 2012, there was an increase of 12.6% per insured person. The average cost of claims paid (prescribed benefit) per insured person fell by 2% between 2012 and 2013. The HIA notes that while a reduction in the average claims costs per person is positive, it is based on data for claims paid and so is impacted by speed of claims payments. Further data will be required in order to determine whether reduced claims paid in 2013 is part of a change in trend.

Chapter 2Analysis of Claims Cost Data - Health Insurance Authority

2.1 Introduction

Early in my work, we agreed that it would be important to assess the drivers behind the growth in private health insurance costs. As part of this analysis, the Health Insurance Authority submitted a paper on health insurance claims costs to the Department of Health and the Consultative Forum on Health Insurance, in July 2013.

That paper discussed the Irish experience in relation to health insurance claims costs and examined general methods used to control private health insurance claims costs, in principle and in practice, drawing on examples from other jurisdictions.

Subsequently it was agreed under the Consultative Forum that insurers would submit further data on claims costs broken down by procedure to the Health Insurance Authority and that the Authority would analyse that data.

This Chapter updates the analyses included in the July 2013 paper and adds an analysis of the data referred to above.

This data supports the indications in earlier analyses that claims costs increases between 2007 and 2012 arose mainly in relation to increased activity in private hospitals and that this increased activity is not driven primarily by demographic factors.

It is not possible to fully determine the impact that changed casemix has on claims costs from the data available because the data does not provide information on diagnosis. In order to conduct such an analysis, it would be necessary for insurers to collect and submit data on diagnosis in a consistent way. This is not currently happening but the Minister for Health intends to introduce measures that will facilitate the collection of data of this kind.

2.2 Recent Irish Claims Experience

Around €1.9bn was paid in claims by Irish private health insurers in 2013. The figure is broken down by insurer in the table below.

Insurer / Claims Paid in 2013 (€m) / Proportion of Total
Aviva Health / 229 / 12%
Glo Health / 9 / 0%
Laya Healthcare / 314 / 17%
Vhi Healthcare / 1,232 / 65%
Restricted Membership Undertakings (estimate) / 110 / 6%
Total / 1,893 / 100%

Of this total, 92% relates to hospital stays coming within the definition of prescribed health services and is paid to private hospitals (46%), public hospitals (26%) and hospital consultants (20%). The remaining 8% relates mainly to outpatient benefits, or to benefits (including hospital benefits) that do not come within the definition of prescribed health services.

Since 2004, open membership insurers have submitted details of “prescribed benefits” to the Health Insurance Authority. “Prescribed benefits” include approximately 80% of the cost of claims paid by open membership insurers. The chart below shows how prescribed benefits have increased for open membership insurers since 2004. In calculating the averages, children are counted as 1/3rd in order to reflect the lower premium payable.

In the four years between 2004 and 2008, the average claim per insured person (measured by market prescribed benefit) increased by 6.7% p.a. on average. During this period, the consumer price index grew by an average of 3.9% p.a.

In the four years between 2008 and 2012, the average prescribed benefit per insured person grew by 12.6% p.a. During this period, the consumer price index fell by an average of 0.3% p.a.

In 2013, the average prescribed benefit per insured person fell by 2.2%, the first time this figure decreased since the Authority started receiving this data.

Increased Utilisation

The trend in recent years in the average number of treatment days per insured person is shown in the following chart. Again, children are counted as 1/3rd in order to reflect the lower premium payable.

Between 2004 and 2008 the average number of treatment days per insured person fell by 12%. Between 2008 and 2012 the average number of treatment days per insured person increased by 45%. It can be seen, therefore, that the increase in average claim per member between 2008 and 2012 (61%) largely results from increased usage of hospital services, with the utilisation measure increasing by (45%). The remainder of the increase results from increased cost per utilisation (11%).

In 2013, the average number of hospital treatment days per insured person fell by 3%, indicating that the reduction in average claims cost per insured person in 2013 was driven by reduced utilisation.

The following chart shows the variation in the total number of bed nights (counting each day patient visit as 1 bed night) between 2004 and 2013.

As can be seen from the chart, the total number of bed-nights in the market was relatively unchanged between 2004 and 2008. Between 2008 and 2009, the total number of bed nights in the market grew by 274,000 in the year (or c. 750 bed-nights per day). Between 2009 and 2012 the total number of bed-nights in the market increased by a further 167,000. Between 2012 and 2013 the total number of bed nights reduced by c. 100,000.

Increased private hospital capacity can lead to increased utilisation of private hospital accommodation by meeting previously unmet demand (including by providing services that were previously not available), meeting increasing demand (for example as a result of ageing) or through supplier led demand (a common feature of healthcare markets). A number of new private hospitals were added to private health insurance contracts between 2004 and 2009, viz:

  • The Galway Clinic, covered by private health insurance since 2004, 146 beds
  • The Hermitage Medical Clinic, covered since 2007, 101 beds
  • The Whitfield Clinic, covered since 2007, 64 beds (inpatient and day patient)
  • The Beacon Clinic, covered since 2008, “capacity for 214 beds”
  • The Santry Sports Clinic, covered since 2008, 62 beds (inpatient and day patient)

(Sources: Insurance policy documents, )

From 2010, the total number of private hospital beds continued to increase, viz;

  • The Blackrock Clinic main extension opened in October 2010 increasing by 50 inpatient bed capacity to 170 and providing for an expanded 30 bed day surgery unit, as well as a new A&E department.
  • St Vincent’s Private Hospital moved to a new building, which opened in November 2010 with 236 inpatient beds (previously 164) and additionally, an expanded day case/day surgery facility with 54 beds (previously 36).
  • Mater Private Cork opened in January 2013 with 75 beds with business from the old Shanakiel Hospital (44 beds) transferring to it.

(Sources: )

The substantial change in the role of the National Treatment Purchase Fund has almost eliminated demand for private hospital stays from publicly funded patients and made additional capacity available for use in private hospitals by insurance funded private patients.

It can be seen that there has been a very substantial increase in private hospital capacity. The Acute Hospital Bed Capacity Review: A Preferred Health System in Ireland to 2020, published by the HSE in 2007, stated that in May 2007, there were 1,654 private hospital in-patient beds and 272 day case bed/places. This was in addition to 2,227 designated inpatient and 229 day case private beds in public hospitals and not counting 200 beds in smaller private clinics. The report also stated that “It is conservatively estimated that there is a surplus of 130 private patient beds in Ireland. This increases to 900 with those currently in plan.”

2.3Impact of Ageing

The health insurance market has been ageing since the Authority commenced receiving data on the age structure of the market in 2003. The rate of ageing increased substantially when the insured population began to decline.

The ageing of the private health insurance market is a result of the following:

  • Ageing of the general population.
  • Increased private health insurance penetration amongst older people.
  • Reduced private health insurance uptake amongst younger people.

Ageing of the General Population

The age structure of the Irish population in the last three censuses is set out in the following table, along with the age structure in the 2013 population estimate produced by the Central Statistics Office (CSO).

Age Structure of the Irish Population in the Last Three Censuses and in 2013 Estimate
Age Group / 2002 / 2006 / 2011 / 2013 (Est)
0-19 / 29.1% / 27.2% / 27.5% / 27.9%
20-29 / 16.4% / 16.9% / 14.3% / 12.6%
30-39 / 15.2% / 15.8% / 16.5% / 16.4%
40-49 / 13.3% / 13.6% / 13.9% / 14.3%
50-59 / 10.9% / 11.1% / 11.3% / 11.6%
60-69 / 7.3% / 7.7% / 8.6% / 9.0%
70-79 / 5.2% / 5.0% / 5.1% / 5.3%
80+ / 2.6% / 2.7% / 2.8% / 2.9%

It can be seen that the general population aged somewhat between 2002 and 2013, with the proportion of the population aged over 60 increasing from 15.1% to 17.2%. Most of this ageing took place between 2006 and 2013, during which the proportion of the population aged over 60 increased from 15.3% to 17.2%. In particular, the fastest increase in the proportion of the population aged over 60 took place between 2011 and 2013 when the proportion increased from 16.4% to 17.2%. The CSO is projecting that the rate of ageing of the population will continue, with the proportion over the age of 60 exceeding 20% of the population by 2021.

Increased Private Health Insurance Penetration amongst Older People

The market penetration rates of open membership insurers (i.e. the proportions of the population insured with an open membership insurer) over the age of 50 in the second half of 2003 and in the second half of 2013 are set out in the following table.

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