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2016-2017-2018
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
PRIVATE HEALTH INSURANCE LEGISLATION AMENDMENT BILL 2018
A NEW TAX SYSTEM (MEDICARE LEVY SURCHARGE - FRINGE
BENEFITS) AMENDMENT (EXCESS LEVELS FOR PRIVATE HEALTH
INSURANCE POLICIES) BILL 2018
MEDICARE LEVY AMENDMENT (EXCESS LEVELS FOR PRIVATE
HEALTH INSURANCE POLICIES) BILL 2018
EXPLANATORY MEMORANDUM
(Circulated by authority of the Minister for Health, the Honourable Greg Hunt MP)
PRIVATE HEATH INSURANCE LEGISLATION AMENDMENT BILL 2018
A NEW TAX SYSTEM (MEDICARE LEVY SURCHARGE - FRINGE BENEFITS)
AMENDMENT (EXCESS LEVELS FOR PRIVATE HEALTH INSURANCE POLICES)
BILL 2018
MEDICARE LEVY AMENDMENT (EXCESS LEVELS FOR PRIVATE HEALTH
INSURANCE POLICIES) BILL 2018
OUTLINE
This package of three Bills supports the implementation of reforms to private health insurance
announced by the Government on 13 October 2017. The Private Health Insurance Legislation
Amendment Bill 2018 (the Bill) contains the primary amendments that will amend the Private
Health Insurance Act 2007 (the PHI Act), the Ombudsman Act 1976 and the Age
Discrimination Act 2004.
The measures contained in the Bills will:
allow for age-based premium discounts for hospital cover;
allow private health insurers to cover travel and accommodation costs for regional
Australians as part of a hospital treatment;
strengthen the powers of the Private Health Insurance Ombudsman;
improve information provision for consumers;
reform the administration of second tier default benefits arrangements for hospitals;
allow insurers to terminate products and transfer affected policy-holders to new
products;
increase maximum voluntary excess levels for products providing individuals an
exemption from the Medicare levy surcharge; and
improve consumer transparency by removing the use of benefit limitation periods in
private health insurance policies.
The private health insurance reform package was the result of extensive consultation, including
through the Private Health Ministerial Advisory Committee.
Private Health Insurance Legislation Amendment Bill 2018
This Bill will amend the Private Health Insurance Act 2007 (the Act) and associated legislation
to support reforms enabling private health insurers increased flexibility to offer hospital cover
products with improved value in terms of lower premiums through the application of age-based
discounts, increased maximum voluntary excess levels, and allowing insurers to offer benefits
for travel and accommodation as part hospital treatment cover. The Bill also includes
amendments to the Act to facilitate the introduction of reforms that improve information
provided to consumers; streamline second tier default benefit arrangements for private
hospitals; and allow insurers to terminate products and transfer affected policy-holders to new
products. It includes transitional provisions to address issues arising from possible non-
compliance with the Act.
The Ombudsman Act 1976 is also amended under this Bill to strengthen consumer protection
through the expansion of the powers of the Private Health Insurance Ombudsman (PHIO). The
PHIO's existing powers will be strengthened to enable inspections and audits at the premises of
private health insurers or brokers as part of complaint handling or in the context of
investigations by the PHIO at his or her own initiative.
Schedule 1- Increase to maximum excess levels
1
Insurers will be able to offer products with increased maximum voluntary excess levels that
exempt the holder from the Medicare levy surcharge. This will be enabled by amendments in
the three Bills which contain amendments to the Private Health Insurance Act 2007, A New
Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 and Medicare Levy Act
1986.
Consumers will have the opportunity to purchase products with a larger excess, in return for
lower premiums.
Schedule 2 - Age-based discounts for hospital cover
Insurers will be permitted to offer products which provide age-based discounts which meet the
conditions to be set out in the Private Health Insurance (Complying Products) Rules. It is
intended that, in line with the announced policy, the Private Health Insurance (Complying
Product) Rules will be amended to introduce a framework for insurers to offer products with
age-based discounts.
This is intended to improve the affordability of private health insurance for young Australians,
increasing their access to private hospital services.
An amendment to the Age Discrimination Act 2004 has also been included to allow for these
discounts to be made available to younger people.
Schedule 3 - Strengthening the powers of the Private Health Insurance Ombudsman
The Private Health Insurance Ombudsman will have the power to conduct inspections, and
investigations associated with complaints or compliant related matters and conduct audits at the
premises of private health insurers or brokers. Offence provisions have been established to
support the enforcement of these powers.
Schedule 4 - Transitional provisions relating to the treatment of certain health insurance
policies
The Government will improve consumer transparency by removing the use of benefit limitation
periods in private health insurance policies. The Bill ensures that consumers who have
purchased benefit limitation period inclusive policies since the Private Health Insurance Act
2007 was introduced:
do not need to repay premium rebates they have received;
are not retrospectively liable for the Medicare Levy Surcharge; and
are not liable for Lifetime Health Cover loadings.
Schedule 5 Part 1 - Benefits for travel and accommodation for hospital treatment cover
Insurers will be allowed to offer travel and accommodation benefits as part of hospital
treatment cover. As part of hospital treatment benefits for travel and accommodation are
eligible for risk equalisation. This provides an incentive for insurers to offer travel and
accommodation benefits as part of the hospital treatment cover. Risk equalisation supports
community rating by sharing much of the costs for high risk members between all insurers.
This change benefits people (particularly those that live in rural and remote areas) who need to
access hospital services not available locally.
Schedule 5 Part 2 Information requirements
A 'Private Health Information Statement' will replace the current 'Standard Information
Statement' (SIS) as the required method by which an insurer must provide information to
consumers.
2
The SIS will be discontinued from 1 April 2019 and insurers will be required to maintain and
provide up to date information about complying health insurance products in the form of a
Private Health Information Statement, the requirements for which will be set out in the Private
Health Insurance (Complying Product) Rules. This updated Information Statement will
provide insurers with more flexibility surrounding the format, content and delivery of
information, and give consumers access to better information.
Schedule 5 Part 3 Second tier administrative reforms
A legislative framework will be established in which the Minister for Health will assess and
determine whether or not to include a private hospital in a class of hospitals eligible for second-
tier default benefits. This is a departure from the current decision making process which is
administered by the industry-based Second Tier Advisory Committee.
Under the new arrangements, a hospital can apply to the Minister to be included in a class set
out in the Private Health Insurance (Health Insurance Business) Rules. The length of a private
hospital's second tier eligibility approval will also be increased to align with the hospital's
independent hospital accreditation cycle. There will be provision for certain decisions to be
subject to review by the Administrative Appeals Tribunal.
Schedule 5 Part 4 - Closed and terminated products
The Bill includes amendments to allow insurers to terminate a product and to transfer all people
insured under that product to new policies. The insurer will be required to inform the person
being transferred of a range of matters which are intended to be included in the Private Health
Insurance (Complying Product) Rules. These provisions do not reduce an insured person's
other portability entitlements such as not having to re-serve waiting periods when moving to a
new policy.
Medicare Levy Surcharge exemption and related matters
In order to give effect to the increased maximum voluntary excess levels which is included as
part of Schedule 1 of the Bill, this package also includes two additional Bills containing
amendments to taxation laws:
(1) The A New Tax System (Medicare Levy Surcharge--Fringe Benefits) Amendment
(Excess Levels for Private Health Insurance Policies) Bill 2018 (Medicare Levy
Surcharge Amendment Bill) to amend the A New Tax System (Medicare Levy
Surcharge--Fringe Benefits) Act 1999; and
(2) Medicare Levy Amendment (Excess Levels for Private Health Insurance Policies) Bill
2018 (Medicare Levy Amendment Bill) to amend the Medicare Levy Act 1986.
A New Tax System (Medicare Levy Surcharge--Fringe Benefits) Amendment (Excess Levels
for Private Health Insurance Policies) Bill 2018
This Bill amends the principal Act to provide that the maximum voluntary excess level a policy
can have to exempt the holder from the Medicare Levy Surcharge is set out in the Private
Health Insurance Act 2007.
The Bill also removes grandfathering provisions that provided the Medicare Levy Surcharge
exemption for certain health insurance policies that pre-date the commencement of the Private
Health Insurance Act 2007. Individuals will need to migrate to a policy that has an excess no
more than the new maximum in order to remain eligible for the Medicare Levy Surcharge
exemption.
3
Medicare Levy Amendment (Excess Levels for Private Health Insurance Policies) Bill 2018
This Bill amends the principal Act to provide that the maximum voluntary excess level a policy
can have to exempt the holder from the Medicare Levy Surcharge is set out in the Private
Health Insurance Act 2007.
The Bill also removes grandfathering provisions that provided the Medicare Levy Surcharge
exemption for certain health insurance policies that pre-date the commencement of the Private
Health Insurance Act 2007. Individuals will need to migrate to a policy that has an excess no
more than the new maximum in order to be eligible for the Medicare Levy Surcharge
exemption.
Policy Background
On 13 October 2017, the Government announced reforms to private health insurance designed
to simplify private health insurance and make it more affordable for consumers. The package
consists of the following reforms:
o Product design reforms, including:
A new system for categorising health insurance products
(Gold/Silver/Bronze/Basic product categories);
Enhancing mental health support to improve patient access to mental health
services;
Establishing the Improved Models of Care Working Group to provide advice
on improving the funding arrangements for private health insurance funded
mental health and rehabilitation services;
o Introducing standard clinical definitions;
o Improved access to travel and accommodation benefits which will benefit regional
and rural patients and their carers;
o Strengthening the powers of the Private Health Insurance Ombudsman;
o Establishing the Ministerial Advisory Committee on Out-of-Pocket Costs to
consider best practice models for transparency of out-of-pocket costs;
o Information provision reforms, including upgrading the Government's website
(privatehealth.gov.au) and the development of a minimum data set for consumers;
o Allowing private health insurers to offer discounted private hospital cover to people
aged 18 to 29;
o Prostheses List benefit reductions;
o Increasing maximum excess levels;
o Changing coverage for some natural therapies; and
o Second-tier administrative reforms.
Financial Impact Statement
The total financial impact of the measures contained in the Bill from 2017-18 to
2020-2021 is $6.2 million.
4
Regulation Impact Statement
A Regulation Impact Statement is not required for Schedule 4 (OBPR ID 23453).
The following Regulation Impact Statement covers the remaining Schedules.
Name of Proposal: Private Health Insurance Reforms
Office of Best Practice Regulation (OBPR) ID number: 22741
Note: The announcement of the reform package (described in detail in Section 3) limits the
scope of this RIS. This RIS considers two options: the implementation of the reform package as
a whole, and the status quo.
1 What is the policy problem you are trying to solve?
Decline in private health insurance participation
Private Health Insurance is a key part of Australia's health system providing choice for 13.5
million Australians. As at 31 December 2017, 11.3 million Australians were covered by
hospital treatment cover (45.6 per cent of the population) and 13.54 million Australians had
some form of general treatment cover (54.6 per cent of the population). General treatment is
also known as extras or ancillary cover which includes services such as optometry and dental.
While in 2018, there was the lowest average weighted premium increase in almost 17 years, at
3.95 percent, in the past nine consecutive quarters coverage has declined in proportion terms
and in the December 2017 quarter has declined by about 20,000 people compared with the
same quarter in 2016. If this trend continues it may signal the start of a decline in coverage
similar to that seen in the 1990s when hospital insurance dropped from 45 percent to 30 percent
of the population over the decade. That decline was only arrested by the introduction of the
premium rebate (which lowered the cost), the Medicare Levy Surcharge (MLS) and Lifetime
Health Cover (LHC) (which created incentives for higher income earners and younger people
to purchase insurance).
Table 1 below includes a comparison of the number of people and the percentage of the
population with hospital and general treatment policies over the past four years. Table 1 shows
that the percentage of the population with hospital treatment and general treatment has declined
over the past three years.
Table 1: Hospital treatment and general treatment health insurance policies
Number of Number of
% population % of population
people with people with
Year with hospital with general
hospital general
treatment treatment
treatment treatment
As at 30 June 2017 11,318,742 46.1 13,509,160 55.0
As at 30 June 2016 11,328,577 46.8 13,426,697 55.5
As at 30 June 2015 11,276,328 47.3 13,276,992 55.7
As at 30 June 2014 11,091,439 47.2 12,986,541 55.3
The current decline in participation is attributed to the cost to consumers growing on average
by 68 per cent in 10 years and the confusing product offerings. In addition, the two thirds of
the population that are aged under 50 have been born or reached adulthood under Medicare.
Many people in this age group regard health insurance as a supplement rather than a necessity,
and they are therefore more likely to respond negatively to increasing premiums.
5
Figure 1 below shows the change in the number of people with hospital treatment policies by
age category over the past four years. This graph shows the decline in participation rates,
particularly for the 20-24 and 25-29 age groups.
Figure 1: Private health insurance participation (hospital cover) by age category1
900
Hospital treatment policies
Thousands
Number of people with hospital treatment
800
700
600
500
2014
cover
400
2015
300 2016
200 2017
100
0
95+
0-4
5-9
30-34
75-79
10-14
15-19
20-24
25-29
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
80-84
85-89
90-94
Age categories
If no changes are made to the current arrangements, it is expected that private health insurance
premiums will continue to increase and people may choose to downgrade or cancel their health
insurance or not take out private health insurance at all.
Falling membership, particularly among younger Australians (who cross subsidise the
premiums of older people), risks the overall stability of Australia's health system as people
dropping out or not taking out insurance must use the public hospital system which
significantly increases cost to governments.
In the 12 months to 31 December 2017 health insurers paid $14,812 million in hospital
treatment benefits. This included more than 4.6 million episodes and 11.9 million hospital
treatment days.2
Industry data shows that private health insurance pays for almost two-thirds of non-emergency
surgery, 90% of day admissions for mental health care and 50% of all mental health
admissions, 70% of joint replacements, 60% of chemotherapy and 88% of retinal procedures.
Background
Australia's health system is funded by a mixture of public and private funding and service
delivery. The role of private health insurance in Australia is unique among OECD countries, in
that it operates as a Commonwealth supported and regulated industry, but is complementary to
a universal public insurance system - Medicare. Most medical practitioner services are funded
or subsidised through Medicare and state public hospital services are generally provided free to
public patients. Private health insurance covers some or all of the costs of healthcare for private
1
Australian Prudential Regulation Authority, Private Health Insurance Membership Trends, June 2017.
2
Australian Prudential Regulation Authority, Private Health Insurance Statistical Trends - Benefit Trends,
December 2017.
6
patients and provides consumers with greater choice in the provision of treatment, access to
shorter waiting times, and coverage for some services not funded by Medicare.
A key feature of Australia's private health insurance industry that makes it different from many
other forms of insurance is that it is community rated. This means insurers are prohibited from
discriminating between people who wish to be insured on the basis of their health or likelihood
to claim. Under community rating, everyone is entitled to buy the same product, at the same
price (except for Lifetime Health Cover) and an insurer cannot refuse to insure an individual.
By requiring that the premium paid for a person's chosen health insurance product, and the
cover available under that product, are the same regardless of the health or demographic
characteristics of the individual seeking coverage community rating imposes a cross-subsidy
from low risk to high risk policy holders. Community rating prohibits insurers from
discriminating on the basis of past or likely future health or risk factors such as age, pre-
existing condition, gender, race or lifestyle in the premiums that they charge. Although
community rating means that people who are older or sicker do not have to pay higher
premiums commensurate with their risk, it also means that younger and healthier people pay
more than they otherwise would.
Community rating is underpinned by a system of risk equalisation. Risk equalisation attempts
to adjust for the risk of adverse selection. It is designed to spread the burden of high cost claims
across all insurers, helping to keep them all financially viable. Under risk equalisation,
a proportion of claims for older and high claiming members are 'pooled' and are redistributed
between insurers retrospectively through the risk equalisation arrangements. In 2015-16, annual
net transfers were around $439 million.3 These arrangements are designed to ensure that
insurers (and policy holders with those insurers) with higher numbers of older members or high
users are not financially disadvantaged compared with those insurers with a younger or
healthier membership.
The ongoing viability of the community rating requires the retention of a broad membership
base. Rather than target certain age segments (e.g. younger members), the current system
encourages insurers to compete for both younger and older members. Without a broad
membership base, premiums would need to increase to cover the cost of insuring higher risk
consumers who maintain their health insurance.
If private health insurance participation rates continue to decline, private health insurance will
no longer cover the cost and number of hospital treatment days mentioned earlier. This will
therefore impact on tax payers and public hospital waiting times.
Current government initiatives
The Australian Government has three major initiatives in place to encourage take-up of private
health insurance, the Medicare levy surcharge, Private Health Insurance Rebate and Lifetime
Health Cover.
Following the introduction of private health insurance incentives between 1997 and 2000, there
was large growth in the proportion of Australians holding private health insurance (Figure 2).
The Medicare Levy Surcharge, the 30 per cent premium rebate, and Lifetime Health Cover saw
the percentage of the population with hospital coverage increase from 30.5 per cent to over 45
per cent in 2001. Participation peaked at 47.3 per cent in June 2015.
3
Australian Prudential Regulation Authority, Private health insurance - Risk equalisation financial year results
2015-16, February 2017.
7
Figure 2: Private health insurance participation in Australia since 19714
Hospital Treatment Coverage (insured persons as % of population)
90% Introduction of
Introduction of Life Time
Commonwealth medical benefits at 30% 30% Rebate
Health Cover from 1 July 2000
80% flat rate restricted to those with at least means testing
basic medical cover from September from 1 July 2012
Higher rebates for
70%
older persons from
Introduction of Medicare
1 April 2005
60% from 1 February 1984
50%
40%
30% 31 October 2008. Increase in MLS
Medibank began on 1 July 1975. A income thresholds, subject to
1 July 1997. A Medicare Levy
program of universal, non annual adjustment.
20% Surcharge (MLS) of 1% of
contributory, health insurance it taxable income is introduced
replaced a system of government for higher income earners
10% Introduction of 30% Rebate
who do not take out private from 1 January 1999
0%
Medicare levy surcharge
The Medicare levy surcharge (MLS) is a tax on higher income earners who do not hold
appropriate hospital insurance. It is designed to encourage individuals to take out private
hospital cover.
The MLS is payable in addition to the Medicare levy.
The base income threshold (under which the MLS is not liable to be paid) is $90,000 for singles
and $180,000 for families. Table 2 provides details of the MLS tiers.
Table 2: MLS income thresholds from 2014-15 to 2017-18
Singles ≤$90,000 $90,001-105,000 $105,001-140,000 ≥$140,001
5
Families ≤$180,000 $180,001-210,000 $210,001-280,000 ≥$280,001
Base Tier Tier 1 Tier 2 Tier 3
0.0% 1.0% 1.25% 1.5%
Table 3 shows the number of people and amount of MLS paid in 2015-16.
4
Australian Prudential Regulation Authority, Private Health Insurance Membership Trends, June 2017.
5
Single parents and couples (including de facto couples) are subject to family tiers. For families with children, the
thresholds are increased by $1,500 for each child after the first.
8
Table 3: Payments under the Medicare Levy Surcharge during 2015-166
Rate Number of taxpayers Amount of Payment
1.0% 70,571 $61,720,785
1.25% 55,041 $69,793,906
1.5% 29,943 $74,340,999
Others 592 $313,957
TOTAL 156,147 $206,169,647
Note: The 'Others' category is for taxpayers who were liable for MLS for part of the year only.
As part of the 2014-15 Budget, the Australian Government announced that from 1 July 2015
the income thresholds used to determine the MLS and the private health insurance rebate
(discussed below) would be kept at the 2014-15 rates for three years.
As part of the 2016-17 Budget, the Australian Government announced the continuation of the
pause on indexation of income tiers for the MLS and the private health insurance rebate for a
further three years until 30 June 2021.
Private Health Insurance Rebate
The Australian Government provides an income tested and age related rebate to encourage
people to take out and maintain private health insurance. The Government's estimated
expenditure on the Private Health Insurance Rebate will amount to more than $6.4 billion in
2017-18.7
Most people who hold private health insurance are eligible for a rebate on their insurance costs.
A person may claim the private health insurance rebate if they:
are eligible for Medicare;
have a complying health insurance product that provides hospital treatment or general
treatment, or combined cover; and
have an income for MLS purposes below Tier 3 (see Table 4 below).The Private Health
Insurance Rebate Percentages are as follows:
Table 4: Private Health Insurance Rebate effective from 1 April 2017 to 31 March 2018
Singles ≤$90,000 $90,001-105,000 $105,001-140,000 ≥$140,001
Families ≤$180,000 $180,001-210,000 $210,001-280,000 ≥$280,001
Rebate
Base Tier Tier 1 Tier 2 Tier 3
< 65 25.934% 17.289% 8.644% 0%
65-69 30.256% 21.612% 12.966% 0%
70+ 34.579% 25.934% 17.289% 0%
The rebate percentage is adjusted on 1 April each year based on the Rebate Adjustment Factor,
which has the effect of increasing the rebate in line with the Consumer Price Index rather than
the growth in premiums. The Rebate Adjustment Factor is set out in the Private Health
Insurance (Incentives) Rules 2012 (No.2).
6
Data from the Australian Taxation Office, September 2016.
7
Australian Government, Budget Paper No. 1, Budget strategy and outlook 2017-18, Statement 6, Table 8.1.
9
Lifetime health cover
Lifetime Health Cover (LHC) is an Australian Government initiative that started on
1 July 2000. It was designed to encourage people to take out hospital insurance earlier in life,
and to maintain their cover throughout their life. LHC is a financial loading that can be payable
in addition to the premium for private health insurance hospital cover.
LHC loadings apply only to hospital cover. They do not apply to private health insurance
general treatment cover. To avoid incurring the LHC loading, residents of Australia must
ensure they hold appropriate hospital cover before they reach their LHC deadline (also known
as the LHC base day which is 1 July following a person's 31st birthday).
A person's loading is determined by the number of years they are aged over 30 at the time they
commenced hospital cover. Each year will attract an extra two per cent to their hospital cover
premium, up to a maximum of 70 per cent loading. Once a LHC loading on private hospital
insurance has been paid for 10 continuous years, the loading is removed.
New migrants to Australia who have already reached the 1 July following their 31st birthday do
not incur a LHC loading if they purchase hospital cover with an Australian registered insurer
before the first anniversary of (or within 12 months after) being registered as eligible for
Medicare.
The Department conducts an annual mail-out specifically targeting people who are approaching
their LHC deadline. The mail-out is intended to serve as a reminder for the recipients that they
have an opportunity to avoid extra costs on private health insurance should they wish to
purchase it before their approaching deadline.
2 Why is government action needed?
In 2015-16 the Government consulted on private health insurance to identify key issues of
consumers and stakeholders across the sector. The consultations raised common themes around
people's concerns:
poor value for money;
high out-of-pocket costs for consumers;
lack of transparency;
lack of sustainability; and
complex regulation.
In response to these findings, the Government established the Private Health Ministerial
Advisory Committee (PHMAC), consisting of key representatives of interest groups in the
private health sector to consider and develop possible reforms to private health insurance with
the aim of improving the value of private health insurance to consumers, as well as protecting
the long-term efficiency and sustainability of the sector. Additional information about the
PHMAC is available at http://www.health.gov.au/internet/main/publishing.nsf/Content/phmac.
Government action is needed to help strengthen the viability of the private health system by
addressing concerns about affordability, complexity, and lack of transparency of private health
insurance.
Without Government action, there is a risk that participation in private health insurance will
continue to decline. As mentioned above, continued falling participation will have an impact
on access to services. An increased impact on the demand for services in the public hospital
system will result in greater pressure on Commonwealth and state funding for public hospitals.
10
It will also have an impact on funding levels under the National Health Reform Agreement and
implications for the contributions to public hospitals required from tax payers.
The Australian Government considers that a healthy and stable private health insurance system
is essential for the stability of Australia's overall health care system. Encouraging private
health insurance cover provides consumers with a greater choice of care options and relieves
pressure on the state public hospital system.
3 Government Announcement
On 13 October 2017, the Government announced a wide ranging package of reforms to make
private health insurance simpler and more affordable for Australians. The key aim of these
reforms is to make private health insurance better value for consumers and make policies easier
to understand. The Government is helping to reduce the rising costs for health insurers - which
would otherwise be passed on through higher premiums. These reforms include:
Younger Australians will be encouraged to take up private health insurance by allowing
insurers to offer products which discount hospital insurance premiums for 18 to 29 year
olds by up to 10 per cent. This discount will phase out after people turn 41.
People with hospital insurance that does not offer full cover for mental health treatment
will be able to upgrade their cover and access mental health services without a waiting
period on a once-off basis. This will significantly enhance the value of private health
insurance for young people.
To support Australians in regional and rural areas, insurers will be able to offer travel
and accommodation benefits for people in regional and rural areas that need to travel for
medical treatment.
An agreement has been entered into with the Medical Technology Association of
Australia to lower the price of implanted medical devices from 1 February 2018. This
has had immediate benefits for consumers in contributing to the lowest premium rise in
seventeen years.
Consumers will be able to select a higher excess in exchange for a lower premium. This
will be the first increase in the maximum excess since 2001.
Private health insurance will be simplified as insurers will be required to categorise
products as gold/silver/bronze/basic, and use standardised definitions for treatments to
make it clear what is and isn't covered in their policies.
The privatehealth.gov.au website will be upgraded to make it easier to compare
insurance products, and insurers will be able to provide personalised information to
consumers on their product every year.
The powers of the Private Health Insurance Ombudsman will be boosted and its
resources increased to ensure consumer complaints are resolved clearly and quickly.
Following consultation with the private health insurance and medical sector, the
Government has agreed to stop insurers from offering benefits for a range of natural
therapies.
The Improved Models of Care Working Group will consider how to better support
privately insured people's access to efficient and clinically appropriate mental health and
rehabilitation services.
The Ministerial Advisory Committee on Out-of-pocket costs will provide options to
improve the transparency of medical out-of-pocket costs.
The second tier default benefit, providing a safety net for consumers attending non-
contracted hospitals, will continue, but the administration of eligibility will be
transferred to the Department of Health.
11
4 Policy options
In light of the Government's announcement of the private health insurance reform package
(outlined in Section 3 above), two options have been considered:
1. Implement private health reform package; and
2. Maintain current arrangements (status quo).
1. Implement private health reform package
This consists of a suite of reform options, which must be implemented as a whole, to achieve
the above objectives include:
Reform 1: Product Design Reforms - Gold, Silver, Bronze, Basic
Private health insurance products will be simplified for consumers through the creation of easy
to understand categories of cover. From 1 April 2019, there will be four categories of hospital
products (Gold, Silver, Bronze and Basic) and three categories of general treatment (extras)
products (Gold, Silver and Bronze). The minimum coverage requirements for each product
category will be developed by the Government during 2017-18 in consultation with the Private
Health Ministerial Advisory Committee and industry more broadly before being implemented.
Insurers will be required to identify which product category an insurance product fits into
according to minimum product requirements specified in Commonwealth secondary
legislation.
The Private Health Ministerial Advisory Committee and industry have been consulted on the
minimum standards for each product category.
The Department expects to finalise the product categories by April 2018.
Reform 2: Product Design Reforms - remove waiting period for mental health
Support access to mental health by providing an enhanced safety net for policy holders
requiring urgent hospital care for mental health conditions, by removing the two month wait
period for upgrading psychiatric cover on a once off basis. This change will take effect from 1
April 2018.
Reform 3: Improved Models of Care Working Group
Establish the Improved Models of Care Working Group to provide advice to the Private Health
Ministerial Advisory Committee on options to improve the delivery of mental health care and
rehabilitation funded by private health insurance.
Reform 4: Standardised Clinical Definitions
The Government will introduce standard clinical definitions for insurers to use across all of
their documentation across all platforms. This proposal will assist consumers in knowing their
own products and being able to compare and understand different health insurance policies.
The Department is close to finalising a draft list of clinical definitions.
Focus groups and consumer testing is scheduled for March 2018 to ensure the list of clinical
definitions is meaningful to consumers.
Reform 5: Improved access to travel and accommodation benefits for regional and rural
areas
This will help privately insured regional and rural patients and their carers who need to travel
for hospital/medical treatment undertaken away from where they live. Travel and
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accommodation benefits will be made eligible for risk equalisation, this creates an incentive to
insurers to include (or improve) these benefits.
Reform 6: Information Provision Reforms
The Private Health Insurance Ombudsman (PHIO) website, privatehealth.gov.au, will be
redeveloped to better assist consumers to choose a private health insurance product that best
meets their health needs.
The role of the PHIO will also be expanded to enable it to conduct inspections of private health
insurers.
A minimum data set will replace the current Standard Information Statement (SIS) as the
regulated method by which insurers provide information to consumers.
Insurers will need to make system and/or process changes to undertake the minimum data set
requirements. Information will need to be regularly updated by insurers to ensure data integrity
on privatehealth.gov.au.
Reform 7: Consultation on measures to support transparency of out-of-pocket costs
The Government has established an expert committee to work with consumers, the medical
sector and private health insurers on best practice models to make information on
out-of-pocket costs charged by doctors more transparent to help consumers with private health
insurance better understand out-of-pocket costs.
Reform 8: Discounts for 18 to 29 year olds
From 1 April 2019, insurers will be able to choose to offer products which provide premiums
discounts for people aged 18 to 29 for hospital cover. The provision of discounted products by
insurers will be voluntary. The maximum discount will build to 10% for people aged 18-25,
and will remain until the person turns 41 after which time it will phase out at a rate of 2
percentage points per year for up to five years.
Reform 9: Prostheses List benefit reductions and reforms
This proposal will offer immediate relief for private health insurers by reducing benefits paid
for medical devices on the Prostheses List, while the Department continues to work with the
Prostheses List Advisory Committee (PLAC) to deliver medium to longer term better value for
consumers of private health insurance.
Reform 10: Increasing permitted excess levels
From 1 April 2019 the legislated annual voluntary excess limits for private health insurance
hospital products will be increased from $500 to $750 for singles and from $1,000 to $1,500 for
couples/families. The updated legislation will allow, but not mandate, insurers to offer higher
excess products with lower premiums.
Reform 11: Removing coverage for some natural therapies
From 1 April 2019, private health insurers will not be permitted to provide cover for natural
therapies, with the exception of traditional Chinese medicine, chiropractic and massage
therapy. Private health insurers will be required to remove cover for natural therapies from all
general treatment products that provide cover for these therapies. The Commonwealth, through
the Private Health Insurance Rebate, will therefore no longer subsidise these non-permitted
therapies.
However, insurers can continue to offer access to these therapies as inducements for people to
purchase cover, as long as the cost is not more than 12 per cent of the premium.
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Reform 12: Improvements to second tier default benefit administrative arrangements
There will be a number of improvements to the second tier administrative arrangements to
provide simplified administration and improved transparency and consistency of second tier
default benefit arrangements. Second tier default benefit administrative arrangements refers to
the process by which private hospitals without a contract with an insurer are assessed as
eligible to receive no less than 85 per cent of the average charge for the equivalent episode of
hospital treatment from insurers. This will include the Department of Health assessing private
hospital applications for second tier default benefit eligibility on a cost recovery basis alongside
its existing (delegated) role of declaring private hospitals for health insurance purposes. The
existing industry-based Second Tier Advisory Committee (STAC) will be abolished.
2. Maintain current arrangements (status quo)
Maintaining the status quo would not impose additional regulatory burden on insurers or
consumers as the existing arrangements would continue. While maintaining the current
arrangements was considered, this option was not preferred as it would not meet the objective
to improve the affordability of private health insurance and increase the information available
to consumers. The continued decline in private health insurance participation would also be
likely to continue. This would place pressure on the public health system, and increase costs to
governments.
5 What is the likely net benefit of each option?
1. Implement private health reform package
Implementing a suite of reforms would improve private health insurance and participation, and
the information available to consumers in the short to medium term.
Benefit
Implemented in full, these reforms aim to:
increase affordability of private health insurance;
improve information available to consumers to allow them to more easily compare products
and choose the most appropriate product for their needs/circumstances; and
maintain the sustainability of the private health system to ease the burden on the public
health system.
The impacts of each reform are outlined in the table below:
Reform 1: Product Design Reforms - Gold, Silver, Bronze, Basic
This reform aligns with making information simpler for consumers, and more easily
comparable.
Consumers
The 13.5 million people with private health insurance will be affected by the product
categorisation changes. These changes will help to simplify private health insurance so that
consumers know what they are, and are not, covered for. They will also make it easier for
consumers to shop around and compare products, and find a product that meets their needs.
Consumers who are considering purchasing private health insurance will also benefit from
these changes. In conjunction with the other reform measures in this submission, this change
will simplify private health insurance and help to restore consumers' perceptions of the value of
private health insurance.
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When consulted, consumers revealed that they find health insurance products complex and
difficult to understand. They also reported experiencing considerable difficulty when trying to
compare private health insurance products, and understand what services different products do,
and do not, cover.
The new product categories will provide consumers with greater certainty about the services
covered by each type of product. This reform aligns with the objective of making information
simpler for consumers to understand.
Insurers
All private health insurance funds will be affected by these changes. The product
categorisation changes should generate competitive pressures for insurers to reconfigure and
enhance their products in such a way to acquire a product categorisation above Basic. PHMAC
is well progressed in the development of the minimum product requirements for the product
categories. The minimum coverage requirements for each product category (Gold, Silver and
Bronze) will continue to be developed by the Government during 2017-18 in consultation with
PHMAC and industry more broadly before being implemented. The two peak private health
insurance bodies support these changes so the risks of achieving this aspect of the package are
low.
Brokers
Private health insurance brokers will be impacted by these changes. It is likely they will need
to update their IT systems and websites to reflect the new product category labels applied to
products. Brokers are also likely to need to deliver training to sales staff on the new product
categories that have been applied to products.
Reform 2: Product Design Reforms - remove waiting period for mental health
This reform aligns with the objective of improving access to private health and increasing the
value of private health insurance.
Consumers
The enhanced mental health 'safety net' arrangements will help improve access to mental
health services for privately insured patients. The 'waiting period exemption' will ensure that
people with basic health cover (approximately 5 million people) are supported if they suffer an
episode of mental illness and wish to upgrade their cover to immediately access higher benefits
for care in a private hospital. The introduction of a waiting period exemption is likely to be
utilised by approximately 1,400 patients each year.
Private mental health services are highly valued by people, particularly younger people.
However, most basic and medium level hospital products provide limited cover for mental
health services. Patients with these products who require overnight or multi-day care in a
private hospital for a serious mental health condition will usually face large-out of pocket costs.
Waiting periods for upgrading cover can prevent patients from accessing timely care.
Insurers
Removing limitations on the number of mental health sessions or treatments a consumer can
access will have an additional cost and premium impact, but that impact is unable to be
quantified because it depends on the consumer and provider response, which are both
unknown. Addressing low value or inefficient mental health care and rehabilitation is likely to
generate savings for private health insurers which can be passed on to consumers via lower
premium increases. It can also provide options for services which better meet the needs of
consumers. The two peak private health insurance bodies support these changes so the risks of
not achieving this aspect of the package are low.
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Reform 3: Product Design Reforms -Improved Models of Care Working Group
While the establishment of the Improved Models of Care Working Group will not have any
direct impacts, advice provided to government may inform future policy decisions which could
benefit consumers, carers, insurers and/or hospitals/providers.
This working group will provide advice to Government on options to replace admitted mental
health and rehabilitation services which deliver inefficient care.
The working group will be comprised of consumers, clinical experts and representatives from
the health insurance and private hospital sectors.
It is expected that the issues and options identified by the working group may extend beyond
mental health and rehabilitation to other areas which have admission rates that are higher than
clinically necessary or inefficient.
There is evidence to suggest that the existing funding arrangements for private health insurance
provide inappropriate incentives for patients to be admitted to hospital for mental health and
rehabilitation services when it may be more clinically appropriate and efficient to deliver
services in a non-admitted or community based setting. This adds to the cost of care and leads
to higher private health insurance premiums.
Reform 4: Standardised Clinical Definitions
This reform aligns with making information simpler for consumers, and more easily
comparable.
Consumers
Standardising clinical definitions will have a positive impact on consumers as the current
clinical definitions are inconsistent across different private health insurance products and are
therefore can be confusing for consumers. By simplifying clinical definitions and mandating
the use of the standard clinical definitions across all insurer material, consumers will be able to
more easily compare health insurance policies and understand their own product. This proposal
is also not expected to increase premiums.
Consultation showed that a key concern for consumers was product complexity and poor
understanding of private health insurance products. Introducing standard clinical definitions
for both inclusions and exclusions will assist consumers in making an informed choice about
private health insurance and what services different products do, and do not, cover.
Insurers
While private health insurers agree that clinical definitions should be standardised for the
benefit of consumers, it will reduce their flexibility in product design. Insurers will also need to
update their systems in order to use the new standard clinical definitions. It is likely this will be
done when insurers are also making changes to introduce the 'Product Design' and
'Information Provision for Consumers' initiatives.
Brokers
Private health insurance brokers will be impacted by these changes. It is likely they will need to
update their IT systems and websites to reflect the new product category labels applied to
products.
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Reform 5: Improved access to travel and accommodation benefits for regional and rural
areas
This reform aligns with the objective of improving access to private health insurance, in
particular for people in regional and rural areas.
Consumers
This measure will improve the value of private health insurance products for regional and rural
consumers. This change may result in an increased uptake for private health insurance in rural
areas, where participation rates are lower than in urban areas. There is a small risk that
additional costs to insurers of paying benefits for travel and accommodation will lead to a rise
in overall premium costs but the increase is likely to be negligible.
Many consumers living in regional and rural areas believe that private health insurance
provides lower value for money compared with urban consumers due to lack of available
services. Improving transport and accommodation benefits will provide a direct benefit to
people living in regional and rural Australia who need to travel to access treatment that is not
available in their local region.
Insurers
Insurers are likely to support this change, particularly as benefits will be eligible for risk
equalisation. This provides an incentive to insurers to include (or improve) travel and
accommodation benefits. Insurers who attended the PHMAC rural workshop in
December 2016 were broadly supportive of improving travel and accommodation benefits for
regional and rural consumers. Some insurers raised concerns about changing risk equalisation
to favour rural and remote consumers as they felt that making adjustments to benefit rural and
remote consumers could set a precedent and lead to other segments wanting to receive similar
benefits. It will not be mandatory for insurers to offer travel and accommodation benefits.
Currently around half of all private health insurers offer benefits for travel and accommodation
for members who must travel to access medical services. Generally, travel and accommodation
are only claimable by members with top level general treatment (extras) cover and the benefits
offered are minimal.
Reform 6: Information Provision Reforms
These reforms align with the objective of making private health insurance simpler for
consumers to understand, as well as affording greater consumer protections.
Consumers
This reform will benefit all private health insurance consumers. The redevelopment of
privatehealth.gov.au will help consumers to choose the best private health product for their
health needs by making it easier to compare multiple products. Consumers will have a choice in
how they elect to receive information as insurers will be able to use the minimum data set in
whichever format the consumer prefers. The information can be tailored to individuals, which
will be more meaningful for consumers. The redeveloped website will be presented to
consumers for focus group testing, user acceptance testing and assistance in developing the
comparator functionality. Making private health insurance product data available to third
parties in a malleable format will benefit consumers who choose to use a broker when looking
to purchase private health insurance. The PHIO will be able to conduct inspections and audits
of private health insurers to ensure they meet their regulatory obligations in relation to private
health consumers. They will employ six additional staff members as investigators to focus on
verifying customer activity records and addressing complaints by consumers in respect of
private health and private hospital contractual arrangements, including prostheses. Having
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access to a health insurer's records directly within their premises, investigating officers will be
able to ensure that an insurer is not overlooking records in responding to enquiries by the
PHIO. This will also provide assurance to complainants that the PHIO are able to verify the
accuracy of the information provided by insurers and not rely solely on the health insurer to
respond to the PHIO without making any errors. PHIO's expanded role will strengthen their
ability to protect consumers' interests and assist consumers to have confidence in PHIO's
processes and the outcomes of their investigations. The government will seek to work in
cooperation and partnership with the sector as an overarching principle.
Insurers
A minimum data set, the Private Health Insurance Statement, will replace the current
Standard Information Statement (SIS) as the regulated method by which insurers provide
information to consumers.
This new minimum data set, regulation regarding provision of this information (referred to in
current legislation as the SIS) will be made technology neutral to reflect how consumers access
information. This means that as well as post mail-outs, consumer information can also be
provided via email, as a hyperlink and on the insurer's member portal, as long as it is provided
according to the regulated timeframes in a format agreed by the consumer.
Product data provided by insurers to the PHIO for use on privatehealth.gov.au will be made
publicly available in a consolidated and downloadable format. It will be optional for insurers to
provide consumers with a Private Health Insurance Statement, which provides information on
the amount of premium paid for the policy during a financial year and the amount (if any)
under the premiums reduction scheme. Updated regulation will require the statement to be
provided to a consumer on request.
Insurers will be able to provide the annual Lifetime Health Cover Statement with the premium
change communication instead of as a separate item.
The costs incurred by insurers in changing the way in which information is provided to
consumers will be mitigated by the removal of the regulatory requirement for all SIS,
Lifetime Health Cover and Private Health Insurance Statements to be mailed out. The saving
to insurers of not having to mail out this paperwork has been estimated to be in excess of
$8 million.
There will be a small cost to insurers associated with these enhancements by way of increase to
the Complaints Levy for the cost of the redevelopment and ongoing maintenance of
privatehealth.gov.au and the cost of employing investigators to undertake the PHIO inspection
function. Insurers will need to make system and/or process changes to undertake the minimum
data set requirements. Information will need to be regularly updated by insurers to ensure data
integrity on privatehealth.gov.au, so there will be costs associated with this initiative. These
costs are mitigated by the removal of the regulatory requirement for insurers to mail out
particular information including the Standard Information Statement at certain specified times
(including annually), the annual Lifetime Health Cover Statement and the Private Health
Insurance Statement.
Insurer representatives on the Private Health Ministerial Advisory Committee and the
Information Provision for Consumers Working Group showed support for the redevelopment of
privatehealth.gov.au and a minimum data set as they will benefit their members (and
consumers more broadly) by making it easier to compare products and providing the
appropriate information to make informed decisions.
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Brokers
Providing access to private health insurance product data will allow brokers to provide
consumers with advice on products across all health funds.
Reform 7: Consultation on measures to support transparency of out-of-pocket costs
While the establishment of the committee will not have a direct impact on consumers, it is
likely that recommendations from the committee will be of benefit to consumers through
increasing transparency of information and reducing information asymmetry.
Consumers
Out-of-pocket costs have been a long standing concern for private health insurance policy
holders. While 86 per cent of services are covered under 'no' or 'known' gap arrangements, the
remaining 14 per cent of services incur out-of-pocket costs not covered by insurers. One in
seven patients is required to pay out-of-pocket costs which are often large and unexpected. The
average out-of-pocket cost for spinal surgery is $2,250 and for brain surgery is $1,500. Patients
often incur multiple out-of-pocket costs for the same procedure depending on the costs of the
surgeon, assistant surgeon and anaesthetist who each bill the patient separately.
Making doctors' out-of-pocket costs more transparent will allow consumers to compare
doctors' fees more easily and make an informed choice knowing the expected out-of-pocket
costs.
Insurers
While the establishment of the committee and subsequent reporting will not have any direct
impacts, advice provided to government may inform future policy decisions to benefit
consumers, insurers and doctors.
The Government has established an expert committee to ensure a collaborative approach in
determining the best model to make information on out-of-pocket costs charged by doctors
more transparent and to help consumers with private health insurance better understand out-of-
pocket costs.
This committee consists of experts representing medical craft groups, insurers and consumers.
Reform 8: Discounts for 18 to 29 year olds
This reform aligns with the objective of maintaining a viable and sustainable private health
system. As discussed earlier, the viability and sustainability of the private health insurance
system relies on a broad membership base. Encouraging more young people to take out private
health insurance will benefit everyone.
Consumers
Consumers aged between 18 and 29 may be able to purchase a policy that offers an age-based
discount and will pay lower premiums than would otherwise be the case. However, consumers
may also find it more difficult to compare products if the sector introduces a variety of discount
arrangements.
Younger Australians, particularly those under the age of 30, have far lower rates of private
health insurance participation than most other age groups. This means that many young people
are currently missing out on the benefits of private health insurance.
This reform aligns with the objective of improving access to private health insurance for a
cohort of people who will be able to access private health insurance products at a lower
premium amount than would otherwise be the case.
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Insurers
Insurers may be able to encourage people aged under 30 years old to purchase private health
insurance by providing age-based discounts for hospital products.
From 1 April 2019, insurers will be able to offer discounted private hospital cover to people
aged 18 to 29. Legislation currently prevents insurers from offering premium discounts to
people on the basis of their age.
Insurers will be able to offer premium discounts on hospital cover of two per cent for each year
that a person is aged under 30, to a maximum of 10 per cent for 18 to 25 year olds. These
discounts will gradually be phased out after an insured person turns 41.
Reform 9: Prostheses List benefit reductions and reforms
This reform aligns with the objective of reducing the cost of private health insurance for
consumers.
Consumers
Consumers of private health insurance will benefit from lower premium increases than in
previous years. They will continue to benefit from certainty of access to medical devices
funded by private health insurance which the Prostheses List provides.
Private health insurers have publicly stated that every $200 million in prostheses benefits
reductions will decrease private health insurance premiums by one per cent.
Insurers
Minimum benefits payable for almost all medical devices listed on the Prostheses list have been
reduced since 1 February 2018 (reductions may vary). The 2018 round of benefit reductions is
estimated to save private health insurers $188 million on prostheses expenditure in the 2018
premium year.
Further reductions to some devices' benefits will also occur on 1 February 2019 and
1 February 2020. Total estimated savings to private health insurers over the next four premium
years 2018-2021) are more than a billion dollars.
Expenditure on prostheses accounts for 14 per cent of private health insurance hospital benefits
paid annually. Evidence suggests that Prostheses List benefits are generally inflated when
compared to the equivalent prices paid for devices in the public sector. Reducing prostheses
expenditure places downward pressure on premium increases.
Medical device sponsors
Medical device sponsors will be impacted by lower prices in the private sector. To offset these
impacts the government will look to introduce measures to deliver price stability, faster access
to the private market through more efficient and transparent application and listing processes,
and innovation support.
Hospitals
Although private hospitals will continue to benefit from certainty of reimbursement for medical
devices supplied to patients, some hospitals currently obtain an additional revenue stream from
supplying prostheses due to the difference between the price at which they buy prostheses and
the charge to insurers based on the Prostheses List Benefit. Some hospitals are likely to object
to this proposal on the basis it will reduce this revenue stream. It is likely that private hospitals
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will seek to regain lost revenue through higher prices in their contracts with private health
insurers.
Reform 10: Increasing permitted excess levels
This reform aligns with the objective of reducing the cost of private health insurance for
consumers.
Consumers
Maximum permitted excesses for private hospital insurance will be increased from $500 to
$750 for singles and from $1000 to $1,500 for couples/families. Maximum voluntary permitted
excesses have not changed since the year 2000 and increasing excesses to these levels will
restore the risk sharing relativities for consumers to those that existed when the current levels
were set. Consumers could choose to pay lower premiums by moving to a new maximum
voluntary excess product. Actuarial analysis suggests increasing excess levels will reduce
overall premiums on average by about 1 per cent. The premium impact for basic hospital
products is expected to be slightly greater with an average premium reduction of around
1.2%. While consumers on higher excess products would pay reduced premiums, they would
be subject to higher excess payments if they are admitted to hospital.
There is no requirement for consumers to move to products with higher excesses. It is expected
that more affordable private health insurance will encourage more people to take out cover,
which will result in $8 million expenditure over four years on the Private Health Insurance
Rebate.
Insurers
There will be an incentive for insurers to offer higher excess products on the basis that
premiums for these products would be more affordable for consumers. Consumers who move
to higher excess products will tend to be healthier people who do not expect to claim. With
healthier consumers contributing less to the overall premium pool, insurers will need to ensure
that aggregate premiums paid by all members remain sufficient to cover expected claims.
Therefore, it is expected that insurers will need to increase premiums for consumers who
choose to purchase zero or low excess products. Insurers may also choose to close zero or low
excess products in order to manage adverse selection risks (that is the risk that these products
will predominantly be purchased by those consumers who most frequently use their insurance).
Consumers who previously held these products will benefit from paying lower premiums, but
will face higher excess payments if they are admitted to hospital. Actuarial analysis suggests
that in 2019 approximately 8,300 additional people would be covered by private health
insurance as a result of increasing maximum voluntary excess levels. Annual participation
levels are expected to be a further 300 people higher each year after the year of introduction.
Insurers will be permitted to offer products with higher excesses from 1 April 2019.
State and Territory public hospitals
As an incentive to encourage private patient election, public hospitals often waive the excess
that would otherwise be payable under a patient's health insurance policy. Maximum voluntary
excess levels are currently set at $500; therefore the highest amount of revenue a public
hospital could forgo by waiving the excess is limited to $500 per admission. Increasing
maximum excess levels would result in public hospitals waiving excesses and forgoing revenue
of up to $750 per admission. Public hospitals that continue to waive the excess will face
reduced revenue, and will therefore have a slightly reduced incentive to continue with their
policies of encouraging patients to elect to be treated as private patients.
Reform 11: Removing coverage for some natural therapies
This reform aligns with the objective of reducing the cost of private health insurance for
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consumers.
Consumers
Removing the Private Health Insurance Rebate from some natural therapies may reduce the
perceived value of general treatment products for some consumers wishing to continue
accessing natural therapies. The Rebate will be maintained for chiropractic, Chinese medicine
and massage therapy.
Consumers will still be able to choose to access these natural therapies outside the private
health insurance system. The approximately 55 per cent of the Australian population who hold
coverage for general treatment (extras) insurance will benefit as changing coverage for the
listed natural therapies will remove costs from the system and contribute to reducing private
health insurance premium growth.
Insurers
Removing some natural therapy benefits from general treatment will result in reduced benefit
outlays (savings) for insurers. Insurers may choose to pass the benefit of these savings to
consumers through reduced premiums or enhanced general treatment benefits. Removing some
natural therapy cover could reduce overall premiums (hospital and general treatment) by up to
0.1 per cent in 2019. Insurers have argued that the group of consumers which highly values
natural therapies may choose to drop their private health insurance altogether if natural
therapies are not covered and/or subsidised through the Private Health Insurance Rebate.
However, it seems unlikely that there will be a material impact on membership, as relatively
few members access benefits for natural therapies and many of these members will purchase
private health insurance for a combination of reasons, not just to access benefits for natural
therapies. In addition, about two-thirds of all benefits paid for natural therapies relate to
massage, so this risk is largely mitigated by continuing to allow benefits for massage.
Some private health insurers provide access to gym services and other products as incentives
for consumers to purchase private health insurance. Private health insurers may choose to fund
natural therapies as incentives, which do not attract the Private Health Insurance Rebate.
However, insurers can continue to offer access to these therapies as inducements for people to
purchase cover, as long as the cost is not more than 12 per cent of the premium.
Providers
The following natural therapies will be removed from general treatment products:
Alexander technique, aromatherapy, Bowen therapy, Buteyko, Feldenkrais, herbalism,
homeopathy, iridology, kinesiology, naturopathy, Pilates, reflexology, Rolfing, shiatsu, tai chi,
and yoga. The decision to remove the above listed Natural Therapies was taken following a
review conducted by the former Commonwealth Chief Medical Officer, who found there was
no clear evidence demonstrating the efficacy of those therapies. Affected providers may be
financially impacted by this proposal as the removal of coverage for natural therapies by
general treatment products is likely to dampen demand. Natural therapy providers are
considered a small occupation group with charges related to private health insurance totalling
around $45 million (compared with the largest category of general treatment benefits, dental
services, with private health insurance charges of $4.8 billion). The largest sub-group of
natural therapy providers affected by this change would be Naturopaths
(approximately 50 per cent of affected benefits), followed by exercise physiology
(approximately 30 per cent of affected benefits).
Reform 12: Improvements to second tier default benefit administrative arrangements
This reform aligns with the objective of reducing administrative burden for hospitals and
insurers, which in turn, may have a positive impact on consumers as they may have increased
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information available to them.
Consumers
Consumers may be better informed about hospitals' average out-of-pocket costs, increasing
information transparency and reducing information asymmetry.
Insurers
Insurers will benefit from: reduced administrative burden as they will no longer need to
categorise hospitals themselves for second tier purposes; and improved transparency from
increased provision of HCP data. In the longer term, insurers will use significantly less
resources to calculate second tier benefit schedules as these will only be fully calculated every
third year.
Private Hospitals
Private hospitals will need to reapply for continued second tier eligibility less often than under
current arrangements which will significantly reduce the resources required to maintain
eligibility. From 1 January 2019, private hospitals will be able to apply directly to the
Department of Health for recognition that they are eligible for second tier default benefits. This
will replace the existing industry-based second tier advisory committee. The length of a private
hospital's second tier eligibility approval will also be increased to align with the hospital's
independent hospital accreditation cycle. Private hospitals will also have confidence that
hospitals are being grouped consistently for the purposes of calculating and paying second tier
default benefits across the health insurance sector. The Department of Health will also work
with the Australian Commission on Safety and Quality in Health Care, the Australian Institute
of Health and Welfare and the private health insurance and private hospital sectors to further
streamline second tier administrative arrangements.
Private Hospitals choosing to apply for second tier eligibility will pay an application fee to
cover the cost of assessing their application.
Regulatory Costs
There are regulatory costs associated with some of the options (Reforms 1, 2, 4, 6 and 11).
Regulatory costs for these options are one-off costs, which primarily involve system changes
and changes to information provided to consumers (both verbal and written) (e.g. labelling of
products as "Gold, Silver, Bronze or Basic" and updating information to use standard clinical
definitions).
There are regulatory savings associated with Reform 6 as there will be savings from making the
provision of information to consumers technology neutral and allowing insurers to transmit
information via email.
Other options do not have regulatory impacts as:
they are voluntary for insurers to participate in:
o introducing travel and accommodation benefits into hospital treatment policies (Reform
5); and
o discounts for 18-29 year olds (Reform 8);
are changes to currently existing arrangements with no additional regulatory burden:
o changing maximum excess level amounts (Reform 10); and
o moving second tier assessment to the Department from industry (Reform 12); or
are wholly government funded with no regulatory impact
o options which establish committees (Reform 3 and 7).
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In relation to Prostheses List benefit reductions (Reform 9), the department has a RIS
exemption for making and amending the Prostheses Rules (OBPR RIS reference number
12116).
Detailed information about estimated regulatory costs is at Attachment A.
In summary:
Consumers will experience no regulatory cost.
Doctors will experience no regulatory cost.
Brokers will have a regulatory cost of $1.88 million annually over 10 years.
Insurers will have a regulatory cost of $3.27 million annually over 10 years.
Average annual regulatory costs (from business as usual)
Change in costs Business Community Individuals Total change in
($ million) organisations costs
Total, by sector $5.14 million $0 $0 $5.14 million
Cost offset Business Community Individuals Total, by source
($ million) organisations
Agency $0 $0 $0 $0
Are all new costs offset?
Yes, costs are offset X No, costs are not offset Deregulatory--no offsets required
Total (Change in costs - Cost offset) ($ million) = $5.14 million
The regulatory burden to business, community organisations and individuals has been
quantified using the Regulatory Burden Measurement framework. Offsets will be found
through identified regulatory savings and the portfolio's net regulatory objective will be met at
the end of year reporting period.
2. Maintain current arrangements (status quo)
While under this option arrangements would be the same and there would be no additional
regulatory burden on industry, it is also likely that there will be a continued decline in
participation and continued consumer complaints about information provision arrangements.
Assessment
If the current arrangements are maintained there is a risk that private health insurance
participation will decrease, putting pressure on premiums for remaining private health
insurance customers and increasing pressure on the public health system.
In order to be successful at achieving the objectives to ensure affordable and simpler private
health insurance, the reforms need to be implemented as a complete package. Taken as a
complete package, these reforms will have the greatest impact as they are complementary, with
some reforms focused on increasing affordability and product value, while other reforms are
focused on making information simpler and more transparent for consumers. Through
implementing Reforms 1-12, there would be changes to the current private health insurance
24
arrangements to contribute to the ongoing viability of the system. If successful, it will help to
mitigate the recent trend of a decline in private health insurance participation, assist in reducing
private health insurance premium rises, compared with what they would have been without the
reforms, and also result in improved access to information by consumers.
6 Consultation and implementation
Establishment of the Private Health Ministerial Advisory Committee
Extensive consultation has been undertaken in the development of the reforms outlined in this
RIS.
One of the key mechanisms for consultation with the sector has been through the PHMAC.
PHMAC was established to bring together key groups in the private health sector to work in
partnership on the development and implementation of possible reforms to private health
insurance.
PHMAC agreed to the establishment of working groups on a number of topics including
standard clinical definitions, information provision and second-tier and default benefits.
Additionally, PHMAC agreed to hold a rural private health insurance workshop that was
attended by some 32 participants from a range of stakeholder groups, including consumers,
doctors, hospitals and insurers, to discuss improving the value of private health for regional and
rural consumers.
Sector views
In general, the main concern of service providers is that people are covered for (i.e. receive a
benefit for) more services. Insurers are concerned with product price and consumers are
concerned with product affordability and transparency of information. The reform package
strikes a balance between these objectives.
While there are diverse sector views, the package is broadly supported by stakeholders, who
have been, and continue to be, consulted throughout the process. The table below lists the
consultation undertaken to date.
25
Consultation to date
Time period Activity
2015
8 November - 7 December 40,408 responses to the online consumer survey
November Eight stakeholder roundtables attended by approximately 117
organisations
December 181 written submission received
2016
8 September - present Establishment of the Private Health Ministerial Advisory
Committee, consisting of key representatives from major
organisations the private health sector
12 December Rural and regional private health insurance workshop attended
by 32 participants
2017
February-April Contracting and default benefits working group
February-April Information provision for consumers working group
March-April Clinical definitions working group
February, March, April, Private Health Ministerial Advisory Committee meetings
May, June, September and
November
October-December Risk equalisation working group
2018
8 February - present First meeting of Ministerial Advisory Committee on Out-of-
pocket Costs
13 February Private Health Ministerial Advisory Committee meeting
26 February Roundtable with small group of insurers, hospitals and
consumers to discuss mental health reform operational issues
27 February Minimum data set workshop
5-13 March Exposure draft of Private Health Insurance Legislation
Amendment Bill 2018 released for comment
20 March - present First meeting of the Improved Models of Care Working Group
Implementation
During the implementation phase, there will be continued consultation with affected parties
through the PHMAC, other committees (e.g. the Ministerial Advisory Committee on Out-of-
pocket Costs and Improved Models of Care Working Group and its sub-groups) and focus
groups/consumer testing.
The table8 below provides a guide to when the reforms will be implemented.
8
Available on the Department's website at http://www.health.gov.au/internet/main/publishing.nsf/Content/private-
health-insurance-reform-timeline.
26
Implementation timetable
Date Action
October 2017 Prostheses Rules made reducing benefits by $188 million
annually from 2018 and further $115 million in 2020
November to December Establish advisory committees on:
2017 • Mental health care and rehabilitation care
• Transparency of out-of-pocket costs.
Mental health waiting period Rules made.
February 2018 Reduced prostheses benefits come into effect.
March 2018 Legislation introduced to Parliament to support:
• Regional and rural travel and accommodation
benefits
• Discounts for young people
• Increased excesses
• Increased PHIO powers
• Changes to standard information provision
• Cost recovery for second tier eligibility.
April 2018 Mental health waiting period Rules come into effect.
June 2018 Legislation passed.
Rules made to:
• Give effect to Gold/Silver/Bronze/Basic and
• standardised clinical definitions
• Remove benefits for natural therapies
• Set detailed framework for second tier eligibility
• Increase Complaints Levy funding the PHIO.
October to December 2018 Advice to government from advisory committees on mental
health care and rehabilitation care and transparency of out-
of- pocket costs received.
January 2019 New second tier administrative arrangements begin.
April 2019 Upgraded privatehealth.gov.au begins.
Gold/Silver/Bronze/Basic and standardised clinical
definitions begin to operate.
Insurers can offer:
• Discounts for young people
• Increased excesses
and can no longer offer benefits for natural therapies
February 2020 Second tranche of reduced prostheses benefits come into
effect.
Establish clinical definitions review committee.
Evaluation
These reforms aim to:
mitigate the recent trend of a decline in private health insurance participation. This will be
measured from quarterly reports by the Australian Prudential Regulation Authority;
reduce private health premium rises, compared with what they would have been without the
reforms. The reforms aim to keep average premium increases below 4.0 per cent in each
year between 2018 and 2020, maintain membership levels at 55 per cent and above. Data
from the yearly premium rounds will demonstrate the success of this. For example, in the
recent 2018 premium round, there was the lowest average weighted premium increase in
almost 17 years, at 3.95 percent; and
27
improve access to information by consumers. This will be measured by a reduction in
complaints to the Private Health Insurance Ombudsman about complexity and costs of
insurance.
28
Attachment A - Estimated Regulatory Cost
Private Health Insurers
IT system update costs (Reforms 1, 2, 4, 6, 11)
Private health insurers will require updates to their IT systems to be able to support
the changes to product categories and information provision.
The Department of Health understands that the majority of the 37 insurers are
supported by 3 system developers, and that 4 insurers have their own in-house system
developers.
The estimated cost for IT system updates is $46.25 million.
This figure was based on each of the 37 insurers incurring a cost of $1.25 million for
these IT changes based on similar updates made by the industry for other required
changes.
Staff training costs (Reforms 1, 2, 4, 6, 11)
The estimated cost for staff training is $1.92 million. This figure is based on:
there being 2 large, 3 medium and 32 small insurers;
staff receiving an estimated 6 hours of training each;
each large insurer would train 1,200 staff;
each medium insurer would train 400 staff;
each small insurer would train 5 staff;
staff wage cost is $68.79/hour9; and
develop training materials: 2 weeks per insurer for 1 person (8 hours/day at
$126/hour - based on $150,000 annual salary plus on-costs). Total cost per insurer
is $10,080.
Table 1: Cost of training by insurer size
Size Cost of Training per Insurer Total Cost of Training
Large $505,368 $1,010,736
Medium $175,176 $525,528
Small $12,144 $388,598
Total $1,924,862
Re-design of private health insurance products (Reforms 1, 2, 4, 6, 11)
The estimated cost to re-design private health insurance products is $5.8 million. This
figure was based on:
there being 2 large, 3 medium and 32 small insurers;
a large insurer would require a team of 3 actuaries and 10 marketing specialists;
a medium insurer would require a team of 2 actuaries and 8 marketing specialists;
a small insurer would require a team of 1 actuary and 4 marketing specialists;
9
Regulatory Burden Measurement Framework Guidance Note: Appendix 2 Default work-related and
non-work-related labour rates.
29
the cost of each actuary and marketing specialist at $168/hour ($96/hour plus
$72/hour for on-costs - based on $200,000 annual salary); and
each actuarial team and marketing team would be required for 4 weeks.
Table 2: Cost of product design by insurer size
Size Actuarial Team Marketing Team Total Cost
Large $161,280 $537,600 $698,880
Medium $161,280 $645,120 $806,400
Small $860,160 $3,440,640 $4,300,800
Total $1,182,720 $4,623,360 $5,806,080
Standard Information Statement updates (Reforms 1, 2, 4, 6, 11)
The estimated cost to update the Standard Information Statement is $137,580. This
figure is based on:
updating 2000 products; and
1 hour per product at a rate of $68.79/hour.
Website updates (Reforms 1, 2, 4, 6, 11)
The estimated cost for insurers to update their websites is $2.5 million. This figure is
based on:
large and medium size insurers updating their websites in-house using existing
web teams. Team of 4 people for 4 weeks ($126/hour - based on $150,000 annual
salary plus on-costs) = $80,640 per insurer; and
small size insurer will need to outsource the work to update their websites. This is
a higher cost but generally lower complexity product offering and therefore the
estimate is 80% of the cost of large and medium insurers. 80% of $80,640 =
$64,512 per insurer (the cost for small insurers is based on data from the 2017
premium round).
Table 3: Cost of website updates by insurer size
Size Cost of website updates per insurer Total Cost of website updates
Large $80,640 $161,280
Medium $80,640 $241,920
Small $64,512 $2,064,384
Total $2,467,584
Updating promotional/marketing material (Reforms 1, 2, 4, 6, 11)
The estimated cost for updating and re-printing brochures is $420,000. This figure is
based on:
large insurers updating and re-printing 10,000,000 brochures at $0.01/brochure10;
medium insurers updating and re-printing 1,000,000 brochures at $0.02/brochure;
and
small insurers updating and re-printing 100,000 brochures at $0.05/brochure.
10
Based on information from the Department of Health's Communication Branch.
30
Information provision (Reforms 1, 2, 4, 6, 11)
The estimated savings for the standard information statement, lifetime health cover
and tax statement mail outs is $29.3 million. This figure is based on:
a cost of $2 per letter, $0 per email (based on advice that the cost of sending an
email is negligible);
an administration cost (fixed) for each insurer per mail out to set up email
distribution ($2752 per insurer per mail out - 1 person for 40 hours at
$68.79/hour);
an estimate of 75% of private health insurance policy holders (75% of
9.75 million11 individuals) receive information via mail ($14.6 million per mail
out);
an estimate of 25% of private health insurance policy holders already receiving
this information via email ($101,824 administration cost);
an estimate of an additional 50% of policy holders will choose to receive this
information via email (cost per mail out will be reduced to $4.9 million);
an estimate of 25% of policy holders will continue to receive this information via
mail ($101,824 administration cost); and
information is required to be sent to 9.75 million individuals for each mail out
(standard information statement, lifetime health cover and tax statement).
In relation to changes to coverage of natural therapies, a mail out will be required for
general treatment policy holders to inform them of a change that is or might be
detrimental.12 The estimated cost for this mail out is $4.98 million. This figure is
based on:
an estimated 25% of policy holders will receive this information via mail and 75%
of policy holders will receive this information via email;
2.44 million people will receive this information via mail (25% of 9.75 million
individuals);
a cost of $2 per letter, $0 per email (based on advice that the cost of sending an
email is negligible); and
an administration cost (fixed) for each insurer to set up email distribution ($2752
per insurer - 1 person for 40 hours at $68.79/hour).
Ongoing costs
No ongoing costs are required.
11
Australian Prudential Regulation Authority, quarterly statistics, June 2017. This figure only includes
adults that have a private health insurance policy for the purpose of a mail out.
12
A private health insurer must ensure that, if a proposed change to the insurer's rules:
a) is or might be detrimental to the interests of an insured person; and
b) will require an update to the standard information statements for a complying health insurance
product of the insurer;
an adult insured under each complying health insurance policy in the product:
c) is informed about the proposed change a reasonable time before the change takes effect; and
d) is given the updated standard information statement for the product subgroup that the policy
belongs to as soon as practicable after the statement is updated.
31
Estimated annual regulatory costs over 10 years
Table 4: Summary of regulatory costs for insurers
Size Cost/Saving Cost over 10 years
IT system changes $46,250,000 $4,625,000
Training staff $1,924,862 $192,486
Re-design of products $5,806,080 $580,608
Standard Information Statement $137,580 $13,758
Website updates $2,467,584 $246,758
Updating marketing material $420,000 $42,000
Information provision -$24,273,176 -$2,427,318
Total $32,732,930 $3,273,293
Brokers
IT system update costs (Reforms 1, 2, 4, 6, 11)
Brokers will require updates to their IT systems to be able to support the changes to
product categories and information provision required to be implemented by insurers.
The estimated cost for IT system updates is $17.5 million.
This figure was based on each of the 14 brokers incurring a similar cost of
$1.25 million for IT changes based on similar updates made by the industry for other
changes.
Staff training costs (Reforms 1, 2, 4, 6, 11)
The estimated cost for staff training is $310,343. This figure is based on:
there being 3 large and 11 small brokers;
staff receiving an estimated 6 hours of training each;
each large broker will train 100 staff;
each small broker will train 10 staff;
staff wage cost is $68.79/hour;
develop training materials: 2 weeks per broker for 1 person (8 hours/day at
$126/hour - based on $150,000 annual salary plus on-costs). Total cost per broker
is $10,080.
Table 5: Cost of training by broker size
Size Cost of training per broker Total cost of training
Large $51,354 $154,062
Small $14,207 $156,281
Total $310,343
Website updates (Reforms 1, 2, 4, 6, 11)
The estimated cost for brokers to update their websites is $0.95 million. This figure is
based on:
32
large size brokers updating their websites in-house using existing web teams.
Team of 4 people for 4 weeks ($126 per hour - based on $150,000 annual salary
plus on-costs) = $80,640 per broker; and
small size brokers will need to outsource the work to update their websites. This is
a higher cost but generally lower complexity product offering and therefore the
estimate is 80% of the cost of large brokers. 80% of $80,640 = $64,512 per
broker.
Table 6: Cost of website updates by broker size
Size Cost of website updates per broker Total cost of website updates
Large $80,640 $241,920
Small $64,512 $709,632
Total $951,552
Ongoing costs
No ongoing costs are required.
Estimated annual regulatory costs over 10 years
Table 7: Summary of regulatory costs for brokers
Size Cost/Saving Cost over 10 years
IT system changes $17,500,000 $1,750,000
Training staff $310,343 $31,034
Website updates $951,552 $95,155
Total $18,761,895 $1,876,190
Summary of Estimated Regulatory Cost
Table 8: Summary of regulatory costs for insurers and brokers
Size Cost/Saving Cost over 10 years
Private Health Insurers $32,645,168 $3,264,517
Brokers $18,761,895 $1,876,190
Total $51,494,826 $5,149,483
33
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny)
Act 2011
PRIVATE HEALTH INSURANCE LEGISLATION AMENDMENT BILL 2018
The Private Health Insurance Legislation Amendment Bill 2018 (the Bill) is
compatible with the human rights and freedoms recognised or declared in the
international instruments listed in section 3 of the Human Rights (Parliamentary
Scrutiny) Act 2011.
Overview of the Bill
This Bill amends the Private Insurance Act 2007 (the Act), the Ombudsman Act 1976
and the Age Discrimination Act 2004 in relation to a range of matters, including in
supporting the implementation of reforms designed to improve the value of private
health insurance, strengthening the powers of the Private Health Insurance
Ombudsman and making policy information easier to understand.
In October 2017 the Government announced a number of reforms to private health
insurance. This legislation supports the following reforms:
Improving the value of private health insurance
The Bill contains three measures designed to improve the value of private health
insurance either in the form of lower premiums and/or improved cover for certain
benefits.
1. Increased to maximum excess levels
The amendments in Schedule 1 will allow consumers to purchase products
with increased maximum voluntary excess levels which are eligible for the
Medicare levy surcharge exemption. Additional related changes will be
applied in separate Bills containing amendments to A New Tax System
(Medicare Levy Surcharge - Fringe Benefits) Act 1999 and the Medicare Levy
Act 1986.
2. Age-based discounting for hospital cover products
The amendments in Schedule 2 will enable insurers to voluntarily offer
products that provide additional premium discounts under a new age-based
discount framework. It is intended that, in line with the announced policy, the
Private Health Insurance (Complying Products) Rules will be amended to
permit insurers to offer discounts to persons aged 18 to 29 years when they
become insured under a policy that offers aged-based discounts. An
amendment to the Age Discrimination Act 2004 has also been included to
allow for these discounts to be made available to younger people.
3. Improved cover for travel/accommodation for hospital treatment
The amendments in Schedule 5, Part 1, enable insurers to provide benefits for
travel and/or accommodation under hospital treatment. People living in
regional and remote Australia who need to travel to access treatment that is not
available in their local region will benefit most from this measure.
34
Making private health insurance easier to understand
The amendments in Schedule 5, Part 2 support the introduction of the private health
information statement which will replace the standard information statement.
Consumers will be involved in developing the format of the private health information
statement to ensure that the policy details provided in the statement are more
meaningful and simpler to understand.
Strengthening the powers of the Private Health Insurance Ombudsman
Under amendments the Ombudsman Act 1976 contained in Schedule 3 the complaint
handling and investigative functions of the Private Health Ombudsman (PHIO) will
be augmented by formal powers to conduct inspections and audits at the premises of a
private health insurer or private health insurance broker. Offence provisions have
been established to support the use of these powers.
Second Tier administrative reforms
The Bill also includes amendments in Schedule 5, Part 3 establishing a legislative
framework for the Minister to assess and determine whether or not to include a private
hospital in a class of hospitals eligible for second-tier default benefits.
Under the new arrangements, a hospital can apply to the Minister to be included in a
defined class. If a hospital satisfies the assessment criteria, it is included in a class for
the period determined by the Minister. If the Minister considers that the hospital has
ceased to meet the assessment criteria, she or he may revoke its inclusion in the class.
This decision may be reviewed by the Administrative Appeals Tribunal (AAT). A
decision not to include a hospital in a class may also be reviewed by the AAT.
Closed and terminated products
The amendments in Schedule 5, part 4 allow insurers to terminate products as well as
close them to new policy-holders. While this may limit choice in access to health
services for people who hold a terminating product and do not wish to transfer to a
new product, these people will still be eligible to receive the benefits of universal
health care under the Australian public health system and may continue to access the
private health system as privately self-funded patients.
Addressing benefit limitation period inclusive policies
The amendments in Schedule 4 improve consumer transparency by removing the use
of benefit limitation periods in private health insurance policies. They effectively
deem benefit limitation period inclusive policies to be compliant for the period from
1 April 2007 until 30 June 2018 for the purposes of the Act and all Commonwealth
primary or subordinate legislation (other than some specified enforcement
provisions). It also waives any associated debts or repayments to the Commonwealth
owed by insurers or policy-holders.
The amendments validate benefit limitation inclusive policies covering psychiatric
treatment until 31 March 2018 is in line with the Government's commitment to
provide better access to psychiatric treatment under private health insurance from
1 April 2018.
Human rights implications
The Bill engages, or has the potential to engage, the following human rights:
35
Right to health - Article 12 of the International Covenant on Economic, Social
and Cultural Rights (ICESCR);
Right to privacy and reputation - Article 7 of the International Covenant on
Civil and Political Rights (ICCPR);
Right to a fair trial/fair hearing - Article 14 of the ICCPR; and
Right to the presumption of innocence - Article 14 (2) of the ICCPR.
The right to health
The right to health - the right to the enjoyment of the highest attainable standard of
physical and mental health is contained in article 12(1) of the International Covenant
on Economic, Social and Cultural Rights to which Australia is a signatory. Article
12(2)(d) provides for " steps to be taken by the States Parties to the present Covenant
to achieve the full realization of this right shall include those necessary for ... the
creation of conditions which would assure to all medical service and medical attention
in the event of sickness."
Schedules 1 and 2 provides various mechanisms designed to improve private health
insurance participation rates, these include increased maximum voluntary excess
levels (schedule 1) and age-based discounting (schedule 2). These measures are
intended to increase the uptake of private health insurance. Although older or less
healthy people may now be at a relative disadvantage in terms of paying higher
premiums for the same product, it is also recognised that viability and sustainability of
the private health insurance system relies on a broad membership base.
Schedule 5, part 1 allows private health insurers to offer travel and accommodation
benefits under hospital treatment cover, is intended to benefit persons in rural and
regional Australia to assist them in accessing hospital treatments that are not available
locally.
In summary, the amendments in this Bill do not derogate a person's right to health
and to the extent that they improve the uptake of private health insurance (Schedules
1, 2 and 4) they are intended to promote access to health services.
Right to not be subjected to arbitrary or unlawful interference with privacy
These rights are contained in article 17 of the International Covenant on Civil and
Political Rights (ICCPR) to which Australia is a signatory. This article prohibits the
unlawful or arbitrary interference with a person's privacy.
This Bill engages the right to privacy, the items in Schedule 3 amends the
Ombudsman Act 1976 (the Act) by inserting a new division 3A in Part IID of the Act.
The division contains provisions to allow the Private Health Insurance Ombudsman
(the PHIO) to enter the premises of a private health insurer or private health insurance
broker and conduct inspections and audits or investigations.
These powers relate to premises which may be considered to form part of a person's
workplace or home (to the extent that it constitutes a premises in which the work of a
private health insurer or broker is carried out) within the scope of Article 17. The
36
exercise of the inspection and audit powers is constrained to cases where entry to
premises is pursuant to a PHIO complaint or investigation.
An authorised PHIO officer cannot enter premises unless their identity card is shown
to the occupier of the premises prior to entry (section 20ZHA). This provides for the
transparent utilisation of the PHIO's inspection powers and mitigates arbitrariness and
risk of abuse.
In respect of the power to inspect documents of a private health insurer or private
health insurance broker, the PHIO is bound to observe the requirements of the Privacy
Act 1988. The Ombudsman's Privacy Policy covers in detail its personal information
handling practices and provides further transparency of Ombudsman operations. The
Policy gives effect to the Australian Privacy Principles contained in the Privacy Act
1988. In summary, the provisions of the Bill are neither arbitrary nor unlawful where
they engage the right to privacy.
Fair trial and fair hearing rights
Fair trial and fair hearing rights are contained in article 14 of ICCPR. This article
provides a guarantee of respect for the principle of 'equality of arms', which requires
that all parties to a proceeding must have a reasonable opportunity of presenting their
case under conditions that do not disadvantage them against other parties to the
proceedings. Those charged with a criminal offence have the rights set out in Article
14(2) to (7), including the presumption of innocence and the guarantees set out in
Article 14(2).
Schedule 3 amends the Ombudsman Act 1976 by inserting a new division 3A in Part
IID of the Act. The division creates a two fault-based offences (subsection 20ZHB(1)
applies in the context of inspections and audits; and 20ZHB(2) applies in the context
of investigation commenced under section 20TA)) for an occupier or person in charge
of such premises to fail to provide reasonable facilities and assistance.
In summary, a person who is the subject of an offence to which subsection 20ZHB(1)
or 20 ZHB(2) applies, has a right to a fair hearing before a competent, independent
and impartial court, this position is therefore compatible with the right to a fair
hearing under Article 14(1) of the ICCPR.
Right to the presumption of innocence - Article 14(2)
Article 14(2) of the ICCPR provides that everyone charged with a criminal offence
shall have the right to be presumed innocent until proven guilty according to law. The
right to presumption of innocence is also a fundamental common law principle.
When 'strict liability' applies to an offence, the prosecution is only required to prove
the physical elements of an offence, not the fault elements, beyond reasonable doubt
in order for the defendant to be found guilty. The defence of honest and reasonable
mistake of fact is available to the defendant (see section 9.2 of the Criminal Code).
Strict liability is used in circumstances where there is public interest in ensuring that
statutory schemes are observed and it can reasonably be expected that the person was
aware of their duties and obligations. Strict liability offences can be considered a
37
limitation of the presumption of innocence because the defendant can be found guilty
without the prosecution being required to prove fault.
Strict liability offences will not necessarily be inconsistent with the presumption of
innocence provided that removal of the presumption of innocence pursues a legitimate
objective and is reasonable, necessary and proportionate to achieving that objective.
Whether a strict liability provision impermissibly limits the right to the presumption
of innocence will depend on the circumstances of the case and the particular
justification for an offence being a strict liability offence.
Schedule 3 amends the Ombudsman Act 1976, and includes the creation of a strict
liability offence (subsection 20ZIA(4)). Persons who are former staff members or
other people engaged by the Private Health Insurance Ombudsman and have been
delegated with inspection powers are required to return their identity cards within 14
day of ceasing employment with the PHIO.
This strict liability offence provision has been created to reflect the strong public
interest in maintaining public confidence in the PHIO. It serves the purpose of
mitigating a risk of former PHIO officials falsely impersonating public officials or
misusing public power, and they are reasonable and proportionate in achieving that
outcome.
In the main, the offence provision applies to former PHIO officials, who can
reasonably be expected to understand the conditions of their employment including
the return of public property upon cessation of employment. The strict liability
offence is not punishable by imprisonment. It is punishable by a fine of up to
1 penalty units. It is a defence if the defendant can prove the identity card was lost or
stolen.
The strict liability offence in the Bill acts as a deterrent to behaviour that would
compromise the integrity of the functions of the PHIO's office. They are compatible
with Article 14(2) of the ICCPR, as they pursue a legitimate objective.
Conclusion
The Bill is compatible with human rights because it promotes the right to health, and
to the extent that it may limit human rights, those limitations are reasonable, necessary
and proportionate.
The Honourable Greg Hunt MP, the Minister for Health
38
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny)
Act 2011
A NEW TAX SYSTEM (MEDICARE LEVY SURCHARGE - FRINGE
BENEFITS) AMENDMENT (EXCESS LEVELS FOR HEALTH INSURANCE
POLICIES) BILL 2018
A New Tax System (Medicare Levy Surcharge--Fringe Benefits) Amendment
(Excess Levels for Private Health Insurance Policies) Bill 2018 (the Bill) is
compatible with the human rights and freedoms recognised or declared in the
international instruments listed in section 3 of the Human Rights (Parliamentary
Scrutiny) Act 2011.
Overview of the Bill
This Bill is part of a package of three bills each containing necessary amendments
relevant to implementing reforms relating to increased maximum voluntary excess
levels for private hospital cover.
This Bill deals solely with taxation-related aspects of this reform and amends the
A New Tax System (Medicare Levy Surcharge--Fringe Benefits) Act 1999. The
amendments ensure that individuals purchasing private health insurance products with
increased maximum voluntary excess levels will be eligible for the Medicare Levy
Surcharge exemption.
Conclusion
This Bill is compatible with human rights as it does not raise any human rights issues.
The Honourable Greg Hunt MP, the Minister for Health
39
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny)
Act 2011
MEDICARE LEVY AMENDMENT (EXCESS LEVELS FOR PRIVATE
HEALTH INSURANCE POLICIES) BILL 2018
Medicare Levy Amendment (Excess Levels for Private Health Insurance Policies) Bill
2018 (the Bill) is compatible with the human rights and freedoms recognised or
declared in the international instruments listed in section 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011.
Overview of the Bill
This Bill is part of a package of three bills each containing necessary amendments
relevant to implementing reforms relating to increased maximum voluntary excess
levels for private hospital cover.
This Bill deals solely with taxation-related aspects of this reform and amends the
A New Tax System (Medicare Levy Surcharge--Fringe Benefits) Act 1999. The
amendments ensure that individuals purchasing private health insurance products with
increased maximum voluntary excess levels will be eligible for the Medicare Levy
Surcharge exemption.
Conclusion
This Bill is compatible with human rights as it does not raise any human rights issues.
The Honourable Greg Hunt MP, the Minister for Health
40
PRIVATE HEALTH INSURANCE LEGISLATION AMENDMENT BILL 2018
NOTES ON CLAUSES
Clause 1 - Short Title
This clause provides that the Bill, once enacted, may be cited as the Private Health
Insurance Legislation Amendment Act 2018.
Clause 2 - Commencement
This clause sets out when the Private Health Insurance Legislation Amendment Bill
2018 and various provisions within it commence.
Schedules 1 and 2 commence on 1 April 2019, aligning with the new premium year
and in the case of Schedule 1 the amendments apply in relation to 2018-19 and later
income years.
Schedule 3 commences 1 July 2018
Schedule 4 commences the day after this Act receives Royal Assent
Schedule 5, parts 1 and 2 commences 1 April 2019 to align with the next premium
year.
Schedule 5, part 3, commences 1 January 2019.
Schedule 5, part 4, commences the day after this Act receives Royal Assent.
Clause 3 - Schedule(s)
This clause provides that legislation that is specified in a Schedule to the Act is
amended or repealed as set out in the applicable items in the Schedule concerned, and
any other item has effect according to its terms
SCHEDULE 1 -- Increasing maximum excess levels
Amendments in this schedule increase the current maximum voluntary excess levels
that are permitted for a policy to exempt the holder from the Medicare levy surcharge,
and involve amendments to associated provisions in taxation legislation (A New Tax
System (Medicare Levy Surcharge--Fringe Benefits) Act 1999 and Medicare Levy
Act 1986) to apply the new maximum voluntary excesses levels which are specified in
the amendments to the Private Health Insurance Act 2007 as set out below.
Private Health Insurance Act 2007
Item 1
This insertion after Part 2-4 sets out the increased maximum voluntary excess levels
for complying health insurance products that relate to whether an individual is liable
to pay the Medicare Levy Surcharge. The increased levels of voluntary excess that
insurers can apply are: $750 in any 12 month period in relation to a policy which only
41
one person is insured, or $1,500 in any 12 month period in relation to any other
policy. This is outlined in Divisions 42 and 45.
Item 2
The item is an application provision which provides that the amendments made by
item 1 of Schedule 1 apply in relation to the 2018-19 and later income years.
SCHEDULE 2 - Age-based discounts for hospital cover
This Schedule will allow insurers to offer products which provide age-based
discounted cover, from 1 April 2019. It will not be mandatory for insurers to offer
discounted products.
The amendments alter the definition of "improper discrimination" in section 55-5 of
the PHI Act to allow age-based discounts in accordance with Private Health Insurance
(Complying Product) Rules (Complying Product Rules) made under section 66-5. It is
intended that, in line with the announced policy, the Complying Product Rules will be
amended to reflect the introduction of age-based discounts that insurers will be able to
offer people aged 18 to 29. The aged-based discounts will apply in addition to the
maximum discount percentage currently specified in the Complying Product Rules.
The Bill amends the Age Discrimination Act 2004 to allow for these discounts to be
made available to younger people.
Items 1 and 2
Item 1 repeals paragraph 55-5(2)(c) and substitutes the repealed paragraph with a
new paragraph which provides an additional exception to the improper discrimination
provisions that prevent insurers discriminating against people on the basis of their age.
The current exceptions provide for age based discrimination in the context of higher
premiums associated with the application of Lifetime Health Cover loadings under
Part 2-3 of the Act and higher premiums because a policy covers a dependent child
non-student. The new exception only applies in relation to the new age-based discount
arrangements to be established under new paragraph 66-5(3)(ea) inserted by item 2.
The parameters of age based discounts will be provided in the Private Health
Insurance (Complying Product) Rules.
Age Discrimination Act 2004
Items 3 to 4
These items will extend the existing age discrimination exemption provided to the
Private Health Insurance Act 2007 to new section 66-5(3)(ea) and the aged-based
discounting provisions in the Private Health Insurance (Complying Product) Rules to
permit insurers to offer an age based discount to encourage younger people to hold
private health insurance.
42
SCHEDULE 3 - Private Health Insurance Ombudsman's powers
This schedule amends the Ombudsman Act 1976 to empower the Private Health
Insurance Ombudsman (PHIO) to conduct inspections and audits at the premises of a
private health insurer or private health insurance broker and make recommendations
relating to their activities. The PHIO will also be subject to new reporting
requirements, including where the PHIO reports to the Minister on the use of the new
inspection powers, it must also notify the affected provider unless doing so would, or
could be reasonably expected to, prejudice the conduct of an investigation. The PHIO
will also be required to report annually on the use of the new powers.
Ombudsman Act 1976
Item 1
This item inserts a new Division 3A and Subdivision A in Part IID of the Act which
includes new subsection s20SA and 20SB. Subsection 20SA establishes the power to
conduct inspections and audits at the premises of a private health insurer or private
health insurer broker (broker). Subsection 20SB establishes new reporting
requirements for the PHIO and powers to make recommendations to private health
insurers or brokers following the exercise of powers under section 20SA.
Subsection 20SA empowers the PHIO to enter a premise that is: (i) a place occupied
by a private health insurer or broker; or (ii) a place occupied by a person
predominantly for the purpose of performing services for, or on behalf of private
health insurer or broker; or (iii) a place where the documents or other records relating
to a private health insurer or broker or the carrying on of health insurance business are
kept.
In accordance, with subparagraph 20SA(b) the PHIO's powers at these premises are
limited to inspecting any documents or other records to verify evidence provided in
relation to a complaint made under Part IID, Division 3 of the Act. The PHIO may
also take extracts from, or make copies of said document or other record. For the
purposes of Division 3, the subject of a complaint may involve a private health
insurer, a private health insurance provider or a health care provider.
Subsection 20SB provides for the PHIO to make recommendations to private health
insurers or brokers after exercising its powers of inspection or audit (subsection
20SB(1). They may recommend (subsection 20SB(2)) any or all of the following:
to a private health insurer, that they take a specific course of action or make
changes to its rules;
to a health care provider or private health insurance broker, that they take a
specific course of action.
Subsection 20SB(3) provides that the PHIO may by written notice given to the person
to whom the recommendation was made, or an officer of that person, require the
person to report to the PHIO, before action is taken to give effect to the
recommendation, on the action proposed to be taken. The notice must specify the
period within which the report is to be given. This provision mirrors the existing
functions and powers PHIO has in relation to investigations.
43
Subsections 20SB(4) and (5) establish new reporting obligations for the PHIO to
report and make recommendations to the Minister for Health following an inspection
or audit conducted under subsection 20SA. The PHIO may report to the Minister for
Health on the outcome of the inspection or audit (including any recommendations
made to a private health insurer or broker and any responses to those
recommendations. The PHIO may also report to the Minister for Health on any
recommendations to general changes in regulatory practice or industry practices
relating to the kind of issues raised as a result of the exercise of those powers.
Item 2
This item inserts a new subsection 20TA which follows from section 20T. Section
20TA establishes new powers to enter premises and inspect documents during the
conduct of investigations and apply in the context of investigations initiated by the
PHIO at his or her initiative (own motion), in all other respects the scope and nature
of these powers are intended to mirror the powers described at Item 1 for new
subsection 20SA.
An investigation initiated at the PHIO's own motion may be an investigation to a
private health insurer, a private health insurance broker or health care provider. The
inspection powers established under 20TA do not apply in the case of investigations
into health care providers.
Item 3
This item amends subsection 20ZG(6) in respect of the content of reports relating to
the operations of the PHIO during a period. The content requirements of such reports
are increased by the addition of new subparagraph 20ZG(6)(ca) requiring a summary
of the exercise of powers under new section 20SA.
Item 4
This item inserts new subsection 20ZHA and 20ZHB. Subsection 20ZHA is inserted
following section 20 ZH and applies in the context of inspection and audits at
premises mention in paragraph 20SA(a) and investigations under section 20T at
premises mentioned at paragraph 20TA(a). As a precondition before entry to such
premises, subsection 20ZHA(2) establishes a requirement on the PHIO to show the
PHIO's identity card to the occupier of the place or other suitable persons.
Subsection 20ZHB includes two offence provisions each with a penalty of maximum
30 penalty units in relation to new subsection 20SA and 20TA.
Subsection 20ZHB(1) creates an offence that applies where the occupier or person in
charge of the premises (mentioned in paragraph 20SA(a)) does not provide the PHIO
with reasonable facilities and assistance for the effective exercise of the PHIO powers
under subparagraph 20SA(b).
Subsection 20ZHB(2) creates an offence that applies where the occupier or person in
charge of the premises (mentioned in paragraph 20ST(a)) does not provide the PHIO
with reasonable facilities and assistance for the effective exercise of the PHIO powers
under subparagraph 20TA (b).
44
Item 5
This inserts a new subsection 20ZIA which follows section 20ZI. Under section
20ZIA the PHIO must issue an identity card to each officer who is authorised to
exercise document inspection powers (subparagraph 20SA(b) or 20TA(b)) The card
must be in the form approved by the PHIO (subsection 20ZIA(2)(a))and contain a
recent photograph (subsection 20ZIA(2)(b)). An inspector must carry the card at all
times when exercising their powers (subsection 20ZIA(3)).
It is an offence if a person who ceased to be an officer of the PHIO and does not
return their identity card to PHIO within 14 days after ceasing to be an officer. This
does not apply if the card was lost or destroyed (subsection 20ZIZ(4)).
Item 6
This item amends subsection 34(2C), which will enable for the PHIO to either
generally, or as provided by the instrument of delegation or instrument in writing,
delegate any and all of his or her powers or functions under the Act to a person. The
amendment to subsection 34(2C) is intended to provide the PHIO with flexibility to
delegate powers to suitable qualified officers, in cases where they do not come within
the scope of persons described at section 31 of that Act. This amendment also ensures
consistency with the other subject matter specific roles held by the Commonwealth
Ombudsman.
Item 7
This item amends subsection 34(2C) to prevent the PHIO from delegating his/her
responsibility to report to the Health Minister with respect to the requirements (at
Item 1) established under new subsection 20SB(4).
Item 8
This item is an application provision which provides that new Division 3A applies in
relation to a complaint made under Division 3 of Part IID of the Act on or after 1 July
2018.
Item 9
This item preserves the validity of any delegations in force that have been made under
subsection 34(2C) immediately before 1 July 2018.
SCHEDULE 4 - Transitional provisions relating to the treatment of certain
health insurance policies
Some private health insurers impose benefit limitation periods (during which an
insurer will pay minimum benefits for a treatment, and after which it will pay the full
benefits available under the policy) of 12, 24, or 36 months for hospital treatment.
The Government recognises that benefit limitation periods can be an area of confusion
for some private health insurance members. The Government is improving consumer
transparency by removing the use of benefit limitation periods in private health
insurance policies. This will assist in making private health insurance products easier
to understand for consumers.
45
Benefit limitation periods have been applied under the current Act since 2007 and
under previous Acts. The Bill ensures that consumers who have purchased benefit
limitation period inclusive policies since 2007:
do not need to repay premium rebates they have received;
are not retrospectively liable for the Medicare Levy Surcharge; and
are not liable for Lifetime Health Cover loadings.
The amendments in this Schedule seek to ensure that people who purchased benefit
limitation period inclusive private health insurance policies and insurers who sold
those products between 1 April 2007 and 30 June 2018 are effectively in the same
legal position, that they would have been in if the products had complied with the Act.
The amendments will effectively deem benefit limitation period inclusive policies to
be compliant for the period from 1 April 2007 until 30 June 2018 for the purposes of
the Act and all other Commonwealth primary or secondary legislation (other than
some specified enforcement provisions). It also waives any associated debts or
repayments owed to the Commonwealth by insurers or policy-holders.
The amendments validates benefit limitation period inclusive policies covering
psychiatric treatment until 31 March 2018 is in line with the Government's
commitment to provide better access to psychiatric treatment under private health
insurance from 1 April 2018.
The amendments will operate retrospectively from 1 April 2007 and until 30 June
2018 by which time insurers are expected to have updated their rules to remove
benefit limitation period inclusive polices. The Government will ensure that benefit
limitation periods will no longer be applied to any treatments under any hospital
policy from 1 July 2018.
Item 1 - Simplified outline of this Schedule
This item provides an outline. This includes that:
an irregular health insurance policy shall be treated as a complying health
insurance policy from 1 April 2007 to 30 June 2018;
that an irregular health insurance policy is a type of health insurance policy
that includes one or more benefit limitation periods inconsistent with the
waiting period requirements under Division 75 and portability requirements
under Division 78 of the Private Health Insurance Act 2007;
where an amount has been paid by the Commonwealth to a private health
insurer is otherwise to be repaid because of the irregular health insurance
policy that repayment is waived by the Commonwealth;
where a person was not entitled to an incentive payment and that amount is to
be repaid because of the irregular health insurance policy that repayment is
waived by the Commonwealth.
46
Item 2 - Definitions
This clause provides for a number of definitions, including:
benefit limitation periods has the meaning generally accepted within the health
insurance industry. This is to allow for all forms of benefit limitation periods to be
covered by the legislation, noting that across the industry the definition may vary
significantly.
Commonly (but not definitively) a benefit limitation period is a period (often of 12 or
24 months, but sometimes longer) during which a private health insurer will pay
minimum benefits for a treatment, and after which it will pay the full benefits
available under the policy.
This definition is only for the purpose of giving effect to the transitional arrangement
for validating irregular health insurance policies. The definition is not intended to
apply in any other context.
hospital substitute treatment has the same meaning as in the Private Health
Insurance Act 2007.
hospital treatment has the same meaning as in the Private Health Insurance Act
2007.
irregular health insurance policy has the meaning given by item 3.
private health insurer has been defined to ensure that any insurer that may have
been registered at any time between 1 April 2007 and 30 June 2018 are covered. As
such a private health insurer means any of the following:
an insurer that was a registered health benefits organization under the
National Health Act 1953 as it applied before the Private Health Insurance
Act 2007 came into effect;
an insurer that was registered under the Private Health Insurance Act 2007 as
it applied before the Private Health Insurance (Prudential Supervision) Act
2015 came into effect; and
an insurer that is or was registered under the Private Health Insurance
(Prudential Supervision) Act 2015.
Item 3 - Irregular health insurance policy
Subitem 3(1)
This subitem defines an irregular health insurance policy as an insurance policy at a
particular time from 1 April 2007 until 30 June 2018 that:
includes one or more benefit limitation periods; and
is not a complying health insurance policy (within the meaning of
section 63-10 of the Private Health Insurance Act 2007); and
would have been a complying health insurance policy (within the meaning of
section 63-10 of the Private Health Insurance Act 2007), if Division 75 and
Division 78 of the Private Health Insurance Act 2007 did not prevent the
policy from including those benefit limitation periods.
47
The definition operates to confine the operation of the legislation to health insurance
policies that had a benefit limitation period inconsistent with waiting period
requirements in Division 75 of the Private Health Insurance Act 2007 and the
portability requirements in Division 78 of the Private Health Insurance Act 2007.
The definition covers the period from the commencement of the Private Health
Insurance Act 2007 on 1 April 2007 through until 30 June 2018, after which time
policies with benefit limitations periods in excess of Divisions 75 and 78 will be
treated as unlawful. Insurer will have until 30 June 2018 to change their rules to
remove benefit limitation periods.
Subitem 3(2)
This subitem provides that subitem (1) has effect subject to subitem (3).
Subitem 3(3)
This subitem provides that for period 1 April 2018 to 30 June 2018 an irregular health
insurance policy is not an insurance policy that included one or more benefit
limitation periods that relate to hospital treatment or hospital-substitute treatment for
psychiatric care.
This provision operates to ensure that benefit limitation periods applying to
psychiatric treatment are removed from 31 March 2018, 2018 is in line with the
Government's commitment to provide better access to psychiatric treatment under
private health insurance from 1 April 2018.
Item 4 - Irregular health insurance policy to be treated as a complying health
insurance policy
Subitem 4(1)
This subitem provides that for the purposes of:
the Private Health Insurance Act 2007 (including associated secondary
legislation)(but subject to sub-clauses (2) and (3)); and
any other law of the Commonwealth (including primary and/or secondary
legislation)
an irregular health insurance policy is deemed to have been a complying health
insurance policy, in accordance with section 63-10 of the Private Health Insurance
Act 2007, during the period 1 April 2007 to 30 June 2018.
Commonwealth Acts covered by the operation of this clause include (but are not
limited to):
the Medicare Levy Act 1986
the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999
the Dental Benefits Act 2008
the Veteran's Entitlements Act 1986
the Private Health Insurance (Complaints Levy) Act 1995
the Health Insurance Act 1973
the National Health Act 1953, and
the Income Tax Assessment Act 1936.
48
This operates to treat irregular policies as complying health insurance policies across
all Commonwealth statutes between 1 April 2007 and 30 June 2018.
This means that a person who purchased an irregular health insurance policy will be
exempt from the Medicare Levy Surcharge and from any Lifetime Health Cover
loadings that they might have faced because they had not purchased a complying
health insurance policy.
Subitems 4(2) and (3)
These subitems provide that subitem 4(1) does not apply in relation to the
enforcement provisions of the Private Health Insurance Act 2007 set out in
Division 84 and Chapter 5.
This means that subitem 4(1) does not have the effect that a private health insurer will
not have committed an offence under section 84-1 by offering an irregular health
insurance policy, and it will remain open to the Minister for Health to seek remedies
in the Federal Court under section 84-15 of the Private Health Insurance Act 2007.
Subitem 4(2) also provides that subitem 4(1) does not apply in relation to the
jurisdiction or power conferred on the Federal Court by the application of Division 84
of the Private Health Insurance Act 2007.
Subitem 4(3) provides that subitem 4(1) does not apply for the purposes of any
enforcement action taken under Chapter 5 of the Private Health Insurance Act 2007,
and does not limit the exercise by the Federal Court of its jurisdiction and powers
under Chapter 5.
Subitem 4(4)
This sub-clause provides that subitem 4(1) does not preclude any common law action
that (apart from that sub-clause) could have been brought by the holder of an irregular
health insurance policy against a private health insurer.
Subitem 4(5)
This sub-clause provides that this clause has effect subject to the debt waiver
provisions in items 5 and 6.
Item 5 - Waiver - reimbursement of private health insurer
This item operates to waive any debts arising from payments to an insurer under the
Premium Reduction Scheme under Subdivision 279-A of the Private Health
Insurance Act 2007 that ought not have been made because the policy was an
irregular health insurance policy.
Clause 6 - Waiver - incentive payment
This item operates to waive any debts arising from payments to a person under the
Private Health Insurance Incentives Scheme under repealed Division 26 of the Private
Health Insurance Act 2007 that ought not have been made because the policy was an
irregular health insurance policy.
49
SCHEDULE 5 - Miscellaneous
Private Health Insurance Act 2007
Part 1 - Benefits for travel and accommodation
These amendments will allow insurers from 1 April 2019 to offer travel and
accommodation benefits under hospital treatment cover. Currently, insurers can only
offer travel and accommodation benefits under general treatment policies. Travel and
accommodation benefits under hospital treatment are eligible for risk equalisation
which provides an incentive for insurers to offer these benefits. Travel and
accommodation benefits offered under general treatment cover will remain not
eligible for risk equalisation. Travel and accommodation benefits under general
treatment cover can be capped by insurers but those under hospital treatment cannot
be capped.
It will not be mandatory for private health insurers to offer travel and accommodation
benefits under either hospital or general treatment products.
Item 1
This item repeals paragraph 55-5(2)(d) and substitutes a new paragraph to extend the
exceptions to the improper discrimination provisions that prevent insurers
discriminating against people on the basis of where a person lives to new
subsection 66-25 inserted by item 2.
Item 2
This item inserts a new subsection 66-25 providing that an insurer may choose to pay
different amounts of benefits under a hospital treatment or general treatment policy
based on the distance between the person's principal place of residence and the
facility where the treatment is provided.
Items 3 to 4
These items amend the meaning of 'hospital treatment' provided in subsection 121-5.
Item 3 inserts new subsection 121-5(2A) which states that hospital treatment also
includes benefits for travel or accommodation relating to treatment covered by the
existing subsections (1) or (2). Travel or accommodation benefits paid in respect of
treatment covered under a hospital treatment policy will therefore be eligible for risk
equalisation.
Item 4 amends subsection 121-5(4) by inserting a reference to new subsection
121-5(2A). This provision enables the Minister to exclude specified travel or
accommodation from the definition of hospital treatment in the Private Health
Insurance (Health Insurance Business) Rules.
Items 5 to 6
These items amend the meaning of 'general treatment' provided in subsection
121-10.
Item 5 inserts new subsection 121-10(2A) which states that general treatment can also
include benefits for travel or accommodation including for those related to hospital
50
treatment. General treatment travel or accommodation benefits are not eligible for risk
equalisation as provided in the Private Health Insurance (Risk Equalisation Policy)
Rules.
Item 6 amends subsection 121-10(3) by inserting a reference to new subsection 121-
10(2). This provision enables the Minister to exclude specified travel or
accommodation from the definition of general treatment in the Private Health
Insurance (Health Insurance Business) Rules.
Part 2 - Information requirements
A 'private health information statement' will replace the current 'standard information
statement' as the required method by which an insurer must provide information to
consumers.
The Standard Information Statements will be discontinued from 1 April 2019 and
insurers will be required to maintain up to date information about complying health
insurance products in the form of a 'private health information statement', the
requirements for which will be set out in the Private Health Insurance (Complying
Product) Rules.
Under existing arrangements, private health insurers are required to provide paper-
based standard information statements about complying health insurance products.
The 'private health information statement' is intended to be technology neutral, which
means that insurers have greater flexibility to communicate product information in
accordance with consumers' preferences (subject to any applicable requirements
specified in the Private Health Insurance (Complying Product) Rules.
These amendments do not alter existing policy in regards to an insurer's obligations to
provide information to consumers about complying health insurance products.
Item 7 to 30
These items substitute references to 'standard information statement' with 'private
health information statement' in all relevant provisions within Divisions 93 and 96
and the Dictionary at Schedule 1 of the Act
Part 3 - Benefit requirements according to class of hospital
Under existing arrangements, an industry-based Second Tier Advisory Committee is
responsible for receiving applications from private hospitals and determining their
eligibility to receive second-tier default benefits provided in schedule 5 of the Private
Health Insurance (Benefit Requirements) Rules.
These amendments establish a legislative framework for the Minister to assess and
determine whether or not to include a private hospital in a class of hospitals eligible
for second-tier default benefits.
Under the new arrangements, a person can apply to the Minister for a hospital to be
included in a class set out in the Private Health Insurance (Health Insurance Business)
Rules. The application must be accompanied by the application fee set out in the
Private Health Insurance (Health Insurance Business) Rules.
51
The Minister must consider the application to determine whether a hospital satisfies
the assessment criteria set out in the Private Health Insurance (Health Insurance
Business) Rules, and notify the applicant accordingly. A negative decision may be
reviewed by the Administrative Appeals Tribunal.
If a hospital satisfies the assessment criteria, it is included in a class for the period
determined by the Minister. If the Minister considers that the hospital has ceased to
meet the assessment criteria, she or he may revoke its inclusion in the class. This
decision may be reviewed by the Administrative Appeals Tribunal.
Item 31
This item alters existing arrangements by inserting new sections 121-8 to 121-8D into
the Private Health Insurance Act 2007.
Under the new arrangements, a person will make an application to the Minister for a
hospital to be included in a class set out in the Private Health Insurance (Health
Insurance Business) Rules (new subsection 121-8(1)) and the application must be in
the approved form (new subsection 121-8(2)(a) and accompanied by the relevant
application fee (new subsection 121-8(2)(b)) imposed under the Private Health
Insurance (Health Insurance Business) Rules.
The purpose of new subsection 121-8A is to establish (i) a time limit for the Minister
to decide on an application and, (ii) obligations to notify applicants about the outcome
of the application.
An application made in accordance with the requirements in new subsection 121-8(1)
is considered by the Minister in order to determine whether a hospital satisfies the
assessment criteria set out in the Private Health Insurance (Health Insurance Business)
Rules (new subsection 121-8A(1)). If a hospital satisfies the assessment criteria, the
Minister must within 60 days after the day the application is made, approve the
application and notify the hospital, in writing, of:
the hospital's inclusion in a class set out in the Rules; and
the day that the hospital is included in that class and the day that the hospital's
inclusion in that class ends.
If the Minister decides not to approve an application made in accordance with new
subsection 121-8(1) because the hospital does not satisfy the assessment criteria, the
Minister must within 60 days after the day the application is made, notify the hospital,
in writing, of that fact (subparagraph 121-8A(3)(a)) and provide reasons for the
decision (subparagraph 121-8A(3)(b)).
A private hospital included in a class as a result of an application approved under new
subsection 121-8A may be included in that class for a finite period of time under new
subsection 121-8B. This period commences on the day specified in the notice
referred to in subparagraph 121-8A(2)(b)(ii) and expires on the day specified in that
notice, unless it is revoked earlier.
Subsection 121-8C enables the Minister to revoke the inclusion of a private hospital
from a class set out in the Private Health Insurance (Health Insurance Business)
Rules, if the Minister considers that the hospital ceases to satisfy the assessment
52
criteria set out in the Rules (for example, the hospital may have failed to re-new or
lost its accreditation status as required under the assessment criteria).
The purpose of subsection 121-8D is to enable Private Health Insurance (Health
Insurance Business) Rules to be made for the following purposes:
(a) set out one or more classes of hospital for the purposes of Part 4-2 (Health
Insurance Business) and Division 72 (Benefit requirements for policies that cover
hospital treatment );
(b) impose an application fee for the purposes of section 121-8;
(c) set out assessment criteria for including a hospital in a particular class; and
(d) set out matters of a transitional nature relating to the current arrangements for
hospitals and the new application process provided for by section 121-8.
Item 32
This item amends the table at section 328-5 which provides a list of decisions that
may be reviewable by the Administrative Appeals Tribunal. This item extends the list
to include decisions made under new section 121-8A (where an application is not
approved) and new section 121-8C (where an approval is subsequently revoked).
Part 4 - Closed and terminated products
These amendments clarify that an insurer can not only close a product (by making it
no longer available to new policy-holders), but can also terminate a product nationally
or in a particular state by ceasing to make it available to any policy-holder.
Item 33
This item amends the community rating requirements in respect of closed and
terminated products. Subsection 55-10 is amended to provide that the community
rating principle does not prevent an insurer from: closing a product so that the product
is no longer made available to new policy-holders; or terminating a product so that the
product will no longer be available to anyone, even people who currently hold the
product.
Item 34 and 35
Item 34 amends subsection 78-1(1) to include a reference to new subparagraph 78-
1(5A) which is additional portability requirements included at item 35.
Item 35 amends the portability requirements by inserting new subparagraph 78-1(5A)
which follows subsection 78-1(5). The new subparagraph applies in the context of
transfers initiated by insurers in respect of people closed and terminating products.
Subparagraph 78-1(5A) establishes new obligations on insurers to adequately inform
insured adults of the planned termination of a product and the associated product
transfer. Insurers are required to provide written information to insured adults in
accordance with the requirements set out in the Private Health Insurance (Complying
Product) Rules. These obligations are intended to serve as safeguards to ensure people
have continuity of cover and do not need to re-serve waiting periods for hospital
treatment.
53
A NEW TAX SYSTEM (MEDICARE LEVY SURCHARGE - FRINGE
BENEFITS) AMENDMENT (EXCESS LEVELS FOR PRIVATE HEALTH
INSURANCE POLICES) BILL 2018
NOTES ON CLAUSES
Clause 1 - Short Title
This clause provides that the Bill, once enacted, may be cited as the A New Tax
System (Medicare Levy Surcharge--Fringe Benefits) Amendment (Excess Levels for
Private Health Insurance Policies) Act 2018.
Clause 2 - Commencement
This clause sets out when the A New Tax System (Medicare Levy Surcharge--Fringe
Benefits) Amendment (Excess Levels for Private Health Insurance Policies) Bill 2018
and various provisions with it commence. The commencement date is 1 April 2019.
Clause 3 - Schedule(s)
This clause provides that legislation that is specified in a Schedule to the Act is
amended or repealed as set out in the applicable items in the Schedule concerned, and
any other item has effect according to its terms.
Schedule 1 - Amendments
The amendments give effect to new maximum voluntary excess levels that are
permitted for a complying health insurance policy to exempt the holder from the
Medicare Levy Surcharge. They also remove transition provisions designed to deal
with the replacement in 2007 of the concept of "applicable benefit arrangements"
under the National Health Act 1953 with the concept of a "complying health
insurance policy" under the PHI Act.
The amendments also remove the grandfathering provision that provide an exemption
from the Medicare Levy Surcharge for individuals who had policies with excesses
greater than the maximum permitted excess who have been insured continuously since
May 2000 as long as their excess amount has not increased since that time. This
exemption from the Medicare levy surcharge will no longer be available.
A New Tax System (Medicare Levy Surcharge--Fringe Benefits) Act 1999
Item 1 - This item will amend the numbering of section 4 to omit the subsections as
all but sub-section 1 have been repealed over time.
Item 2
This item repeals paragraph 4(1)(b) of the Act that limits excess levels to $500 in any
12 month period in relation to a policy which only one person is insured, and $1000 in
any 12 month period in relation to any other policy. A new paragraph 4(1)(b) will
substitute for the repealed paragraph, and it will define the applicable excess levels by
referencing the applicable excess levels specified in section 45-1 of the Private Health
Insurance Act 2007.
54
Item 3
This item repeals subsection 4(2), (4) and (5). Subsection 4(2) is a grandfathering
provision that extended the Medicare levy surcharge exemption allowing individuals
who has been insured continuously since the end of May 2000 as long as their excess
amount had not increased in that time. As a result of the repealing of subsection 4(2),
certain individuals may become liable for the Medicare levy surcharge if they do not
transfer to a product with an excess no more than the new maximum levels.
Subsections 4(4)-(5) have been repealed as these provisions were made redundant by
the Private Health Insurance (Transitional Provisions and Consequential
Amendments) Act 2007 Part 3 section 10.
Item 4
This item is an application provision which provides that for taxation purposes, the
amendments made by items 2 and 3 in Schedule 1 apply in relation to the 2018-19 and
later income years.
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MEDICARE LEVY AMENDMENT (EXCESS LEVELS FOR PRIVATE
HEALTH INSURANCE POLICIES) BILL 2018
NOTES ON CLAUSES
Clause 1 - Short Title
This clause provides that the Bill, once enacted, may be cited as the Medicare Levy
Amendment (Excess Levels for Private Health Insurance Policies) Act 2018.
Clause 2 - Commencement
This clause sets out when the Medicare Levy Amendment (Excess Levels for Private
Health Insurance Policies) Bill 2018 and various provisions with it commence. The
commencement date is 1 April 2019.
Clause 3 - Schedule(s)
This clause provides that legislation that is specified in a Schedule to the Act is
amended or repealed as set out in the applicable items in the Schedule concerned, and
any other item has effect according to its terms.
Schedule 1 - Amendments
Medicare Levy Act 1986
Item 1
This item repeals paragraph 3(5)(b) that limits excess levels to $500 in any 12 month
period in relation to a policy which only one person is insured , and $1000 in any 12
month period in relation to any other policy. A new paragraph 3(5)(b) will substitute
for the repealed paragraph, and will define the maximum voluntary excess levels by
referencing the applicable excess levels specified in section 45-1 of the Private Health
Insurance Act 2007.
Item 2
This item repeals subsections 3(5A) (6) and (7). Subsection 3(5A) relates to a
grandfathering provision that extended the Medicare levy surcharge exemption
allowing an exemption for individuals on products with higher excesses who has been
insured continuously since May 2000 as long as their excess amount had not increased
since that time. As a result of the repealing of subsection 3(5A), certain individuals
may become liable for the Medicare levy surcharge if they do not transfer to a product
with an excess no more than the new maximum levels.
Subsections 3(6) and (7) are repealed as they were made redundant by the Private
Health Insurance (Transitional Provisions and Consequential Amendments) Act 2007
Part 3 section 10.
Item 3
This item is an application provision which provides that for taxation purposes, the
amendments made by items 1 and 2 in Schedule 1 apply in relation to the 2018-19 and
later income years.
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