BILLS DIGEST NO. 68, 2014–15              6 February 2015

Private Health Insurance Amendment Bill (No. 2) 2014

Mary Anne Neilsen
Law and Bills Digest Section 

Date introduced: 4 December 2014

House:  House of Representatives

Portfolio: Health

Commencement:  Schedule 1 of the Bill commences on 1 July 2015. However if the Bill receives Royal Assent on or after 1 July 2015, Schedule 1 will commence either on a day to be fixed by Proclamation or six months after Royal Assent, whichever occurs first. Schedule 2 commences on Royal Assent.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website.

Purpose of the Bill

The purpose of the Private Health Insurance Amendment Bill (No. 2) 2014 (the Bill) is to amend the Private Health Insurance Act 2007[1] (PHI Act) and the Ombudsman Act 1976 to implement a 2014–15 Government Budget measure that would transfer the functions of the Private Health Insurance Ombudsman (PHI Ombudsman) to the Office of the Commonwealth Ombudsman.[2]

The Bill also makes amendments to the PHI Act to ensure that provisions of that Act relating to the calculation of the Australian Government Rebate on private health insurance (the base premium measure) that were intended to be repealed by the Private Health Insurance Legislation Amendment Act 2014 will be taken never to have commenced.

Structure of the Bill

The Bill consists of two Schedules, Schedule 1 makes amendments relating to the transfer of the Private Health Insurance Ombudsman to the Office of the Commonwealth Ombudsman and Schedule 2 makes amendments removing references to the base premium measure in the PHI Act.

The Bills Digest deals only with Schedule 1 as the amendments in Schedule 2 are purely technical and necessary to overcome a problem caused by an unintended delay to the Royal Assent for the Private Health Insurance Legislation Amendment Act 2014. For further background on Schedule 2 the reader is referred to the Bill’s Explanatory Memorandum and to the Bills Digest for the Private Health Insurance Legislation Amendment Bill 2013.[3]

Background

Private Health Insurance Ombudsman

The PHI Ombudsman is a statutory government agency tasked under the PHI Act with protecting the interests of people covered by private health insurance.[4]

The role and functions of the Ombudsman are set out in Part 6-2 of the PHI Act. The office deals with inquiries and complaints about any aspect of private health insurance and acts as the umpire in dispute resolution at all levels within the private health industry. The Ombudsman provides advice to the industry, government and consumers and also publishes independent information about private health insurance and the performance of health funds, including the annual State of the Health Funds Report. The PHI Ombudsman is independent of the private health insurers, private and public hospitals and health service providers. The current PHI Ombudsman is Ms Samantha Gavel.

The PHI Ombudsman is funded by a levy collected from private health insurers under the Private Health Insurance Complaints Levy Act 1995[5] which fully recovers the cost of its funding. During 2013–14, the PHI Ombudsman received 3,427 complaints, the issues causing higher numbers of complaints were Oral Information, Hospital Exclusions and Restrictions, the Pre-Existing Condition Waiting Period, Cancellation and General Service Issues.[6]

As part of the 2014–15 Budget: Smaller Government - additional reductions in the number of Australian Government bodies, it was announced that the Office of the PHI Ombudsman would be merged with the Office of the Commonwealth Ombudsman from 1 July 2015. The stated rationale being that ‘these changes are expected to reduce duplication, improve coordination and increase efficiency in how public funds are used to deliver services to the community’.[7]

The Office of the Commonwealth Ombudsman

An ombudsman is an official, usually (but not always) appointed by the government or parliament, who is charged with representing the interests of the public by investigating and addressing complaints reported by individual citizens.

The office of the Commonwealth Ombudsman was established by the Ombudsman Act, and is administered by the Prime Minister.[8] The office commenced operation on 1 July 1977. Over time the responsibilities of the Ombudsman have expanded to cover:

•       complaints about the Australian Federal Police (AFP) - 1981

•       complaints about freedom of information - 1982

•       Defence Force Ombudsman role - 1983

•       compliance auditing of AFP and National Crime Authority (now Australian Crime Commission (ACC)) telecommunication intercept records - 1988

•       Australian Capital Territory Ombudsman - 1989

•       Taxation Ombudsman role - 1995

•       monitoring controlled (covert) operations by the AFP and ACC and other agencies - 2001

•       auditing the use of surveillance devices by the AFP and ACC - 2004

•       assessing and reporting on the detention of long-term (two years or more) immigration detainees - 2005

•       Immigration Ombudsman role - 2005

•       complaints about Commonwealth service providers - 2005

•       Postal Industry Ombudsman role - 2006

•       compliance auditing of access to stored communications by the AFP, ACC, Australian Commission for Law Enforcement Integrity and other enforcement agencies (such as the Australian Taxation Office and the Australian Customs Service), and the use of surveillance devices by state law enforcement agencies under Commonwealth legislation - 2006

•       Law Enforcement Ombudsman role, with a specific responsibility to review the adequacy and comprehensiveness of the AFP complaint-handling system – 2006 and

•       public interest disclosure oversight, education and promotion - 2013.[9]

The Commonwealth Ombudsman is also the Defence Force, Immigration, Law Enforcement, Taxation,[10] Postal Industry, ACT and Overseas Students Ombudsman.

The Bill if passed would mean that the Commonwealth Ombudsman would also be the PHI Ombudsman.

Committee consideration

To date, the Bill has not been referred to a Parliamentary Committee.

Senate Standing Committee for the Scrutiny of Bills

At the time of writing, the Committee has not reported on the Bill.

Policy position of non-government parties/independents

At the time of writing there has been no reported view of the Bill by the Labor Party, or by other non-government parties and independents.

During Senate Estimates questioning Labor Senator Jan McLucas did not indicate a strong position on the budget measure, although she queried the actual savings that it would generate to Government and expressed frustration that under the proposed arrangements, the PHI Ombudsman would attend Estimates Committees under the Prime Minister and Cabinet portfolio rather than the more relevant Health portfolio. The Senator also suggested that funds be allocated for advertising the changes to ensure that consumers are advised that in future, complaints about private health insurance should be addressed to the Office of the Commonwealth Ombudsman.[11]

Position of major interest groups

To date there appears to have been no public comment on the Bill. The Bill was briefly discussed at Senate Estimates hearings for the Health portfolio but the discussion did not appear to be controversial in nature. During questioning an officer with the Department of Health indicated that there had been no consultation with the PHI Ombudsman prior to the Budget announcement, nor any consultations with the major stakeholders either prior to or since the announcement.[12]

Financial implications

The Explanatory Memorandum states that transfer of functions of the PHI Ombudsman is estimated to result in net savings to industry of approximately $0.6 million over three years. Any savings will be reflected in levies payable by the private health insurance industry.[13]

The financial implications therefore are that the savings are for the private health insurance industry. There are no expressed financial savings to government.

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[14]

Parliamentary Joint Committee on Human Rights

At the time of writing, the Committee has not reported on the Bill.

Key issues and provisions

Schedule 1—Private Health Insurance Ombudsman

Amendments to the Ombudsman Act 1976: New Part IID

Central to the Bill is item 5 of Schedule 1 which adds a new Part IID to the Ombudsman Act. It establishes the Office of the PHI Ombudsman within the Commonwealth Ombudsman’s office and provides for the functions and powers of the PHI Ombudsman. The proposed scheme set out in the Bill retains in most respects the scheme that currently applies to the PHI Ombudsman (as set in Part 6-2 of the PHI Act and which is to be repealed by item 15 in Schedule 1 of the Bill).

As new Part IID consists mainly of existing provisions transferred from the PHI Act it is not necessary to provide a full explanation in the Bills Digest. Rather, a short outline is provided below highlighting where the provisions in new Part IID differ to those in the PHI Act.

New Part IID consists of eight Divisions which are summarised below.

Part IID Division 1—Preliminary (proposed sections 20, 20A and 20B)

Proposed section 20 provides that the principal object of Part IID is to establish the office of and set out the powers and functions of the PHI Ombudsman.

Part IID Division 2—Establishment and functions of the Private Health insurance Ombudsman (proposed sections 20C and 20D)

Proposed section 20C establishes the office of the PHI Ombudsman. Proposed subsection 20C(2) is a new and key provision providing that the person who holds the office of the Commonwealth Ombudsman also holds the office of the PHI Ombudsman. In other words there is to be no separate position of PHI Ombudsman.

Proposed section 20D outlines the functions of the PHI Ombudsman, which amongst other things include:

•       dealing with complaints

•       conducting investigations

•       publishing the State of the Health Funds Report

•       providing comparative information on the performance and service delivery of all private health insurers

•       reporting and making recommendations to the Minister for Health as a result of investigations and

•       reporting to the Minister for Health or the Health Department about the practices of particular private health insurers, brokers and health care providers.

The functions replicate the functions currently set out in section 238-5 of the PHI Act.

Part IID Division 3—Complaints (proposed sections 20E to 20S)

Division 3 details the complaint process and in most respects corresponds closely to the existing complaint mechanism in sections 241-1 to 241-65 of the PHI Act.

The same classes of individuals and organisations will be able to make complaints to the PHI Ombudsman (namely current or prospective policy holders, private health insurers and brokers and health care providers) and complaints may be made against the same classes of individuals and organisations (namely insurers, brokers and health care providers) (proposed sections 20E and 20F).

Complaints may be made on the same grounds (proposed section 20G) and the procedures for dealing with complaints are in most respects to be the same. The procedures include: conducting mediation, referring a complaint to the subject of the complaint or investigating the complaint. As is currently the case under the PHI Act, the PHI Ombudsman cannot undertake any of these actions without the agreement of the complainant. There are also provisions enabling the PHI Ombudsman to refer complaints to other bodies including the Australian Competition and Consumer Commission (ACCC). Referrals can also be made to the subject of a complaint (that is, a private health insurer, private health insurance broker or health care provider) and the PHI Ombudsman may request that body investigate the complaint and report back on the outcome (proposed section 20N). Whereas currently under section 241-40 of the PHI Act, the subject of a complaint may request additional time to report to the PHI Ombudsman, this facility is not included in new section 20N, the rationale being to provide consistency with the existing powers and administrative processes of the Commonwealth Ombudsman.[15]

A more notable difference regarding the complaint process is that currently there is provision for the Minister to intervene in circumstances where the PHI Ombudsman decides not to investigate a complaint. Under existing section 241-50 of the PHI Act the complainant may request that the Minister direct the PHI Ombudsman to continue investigations. If so directed, the PHI Ombudsman must continue the investigation and provide a report to the Minister. The Explanatory Memorandum does not comment on this omission from the Bill.

Part IID Division 4—Investigations (proposed sections 20T to 20W)

Division 4 contains provisions dealing with own motion investigations by the PHI Ombudsman (as distinct from investigations triggered by complaints). At his/her own initiative the PHI Ombudsman may investigate the practices and procedures of a private health insurer or a private health insurance broker (proposed subsection 20T(1). The PHI Ombudsman may also investigate a health care provider but only in circumstances where he/she is also investigating a private health insurer and where the investigation is to do with specified health insurance matters (proposed subsection 20T(2)).

The investigation process corresponds closely to the equivalent process set out in the PHI Act with one notable difference being that there is no longer a provision for investigations to be undertaken at the Minister’s request (see existing section 244-5 of the PHI Act). The Explanatory Memorandum does not give reason for this omission.

Other provisions in Division 4 (proposed sections 20U, 20V and 20W) deal with the reporting scheme following investigations and replicate equivalent provisions in the PHI Act. For example, the PHI Ombudsman may make recommendations to insurers, brokers, or health care providers that they take specific action and the Ombudsman may also require a report be given on the action proposed to be taken. Failure to report would be an offence under section 36 of the Ombudsman Act (item 13, Schedule 1 of the Bill). The PHI Ombudsman may also report to the Minister for Health on outcomes of own-motion investigations (proposed section 20R).

Part IID Division 5—Mediation (proposed sections 20X to 20ZC)

Division 5 sets out the rules regarding mediation and corresponds very closely to existing sections 247-1 to
247-25 in the PHI Act.

Proposed section 20X provides for the PHI Ombudsman to conduct mediation to settle a complaint or to resolve a matter being investigated at the initiative of the Ombudsman. Mediation may be voluntary or compulsory.

Proposed sections 20Y to 20ZA set out the procedures for compulsory mediation. Failure to attend compulsory mediation remains an offence in certain circumstances, although the penalty has been reduced from 30 to 10 penalty units. Mediation may be conducted by either the PHI Ombudsman or a person appointed by the Ombudsman (proposed section 20ZA).

As is currently the case, anything said by the parties in mediation is not admissible in any court (proposed section 20ZB).

Part IID Division 6—Information-gathering (proposed section 20ZD—20ZF)

Division 6 deals with the information gathering powers of the PHI Ombudsman. In several respects, these powers are considerably stronger than the existing powers under the PHI Act.

Proposed section 20ZE provides the PHI Ombudsman with the power to compel by written notice the production of information and PHI records relating to a complaint or investigation from any person the Ombudsman reasonably believes capable of giving them.[16] A person is not excused from giving such information or records on the grounds of self-incrimination, although the information is not admissible in evidence against that person. The equivalent existing provision is section 250-1 in the PHI Act, however the current limits on information gathering that require individual consent and which are set out in existing section 250-5 are not replicated in the Bill.

Currently under section 250-5 of the PHI Act the PHI Ombudsman in handling a complaint, is not able to request information about the complainant’s dealings with the subject of the complaint without the complainant’s consent. Similarly when undertaking an own-motion investigation, the Ombudsman is not able to request information or records from a health insurer relating to a particular policy holder without the consent of the individual. Similar limits apply when seeking information from health care providers or private health insurance brokers. These limits on the information gathering-power are not retained in proposed section 20ZE and the rationale for omission is not referred to in the main part of the Explanatory Memorandum. The Statement of Compatibility with Human Rights notes this difference and states it is there to ‘to better align with current Commonwealth Ombudsman’s information gathering-powers’.[17]

Another less significant difference between the existing and proposed provision is that currently a person is allowed to ask for an extension of time to present information to the Ombudsman with a corresponding obligation on the Ombudsman to provide reasons for refusal of such a request.

A further difference relates to the penalties for failing or refusing to provide information to the PHI Ombudsman. Currently the maximum penalty is 30 penalty units and is a strict liability offence, whereas proposed section 20ZE will rely on section 36 of the Ombudsman Act with a maximum penalty of $1,000 and/or three months imprisonment.[18] Section 36 is not an offence of strict liability, although the evidentiary burden will be upon the defendant to prove that they had a reasonable excuse for failing to comply. While the Explanatory Memorandum points to the omission of strict liability, it does not refer to the addition of the more serious penalty of imprisonment.

Proposed section 20ZD provides an alternative method of seeking documents and information and has no equivalent in the PHI Act. The PHI Ombudsman may obtain (as opposed to compel by written notice) such information, and make such inquiries, as he or she thinks fit for the purposes of dealing with complaints and investigations. The Government’s rationale for the introduction of proposed section 20ZD is to provide consistency with administrative procedures between the operations of the Commonwealth Ombudsman and the PHI Ombudsman and provide for a more graduated information gathering response.[19]

Proposed section 20ZF deals with the implications of providing information or PHI records to the PHI Ombudsman in response to a request or a notice and provides protections from penalties that may otherwise apply under other laws.

Part IID Division 7—Provisions relating to the Private Health Insurance Ombudsman (proposed section 20ZG)

Proposed section 20ZG sets out the PHI Ombudsman’s reporting obligations to the Minister. As is currently the case the PHI Ombudsman must give an annual report to the Minister but in addition he/she may also prepare additional reports covering only part of a year or in relation to a particular matter arising from the PHI Ombudsman’s functions and powers. Proposed subsection 20ZG(5) provides that reports (including the annual report) may be included in certain other reports prepared by the Commonwealth Ombudsman. Both the annual and additional reports are to be tabled in Parliament by the Minister according to the standard tabling requirements.[20] The specific content to be included in reports is set out in proposed subsection 20ZG(6).

Some provisions in the equivalent Division in the PHI Act (Division 253) are not being transferred into this Bill, namely those dealing with the statutory appointment of the PHI Ombudsman and the establishment of the statutory agency of the PHI Ombudsman. This reflects the fact that the position and the agency are to be abolished.[21]

Part IID Division 8—Miscellaneous (proposed sections 20ZH to 20ZK)

Division 8 contains miscellaneous provisions some of which replicate existing provisions in the PHI Act including an offence of victimising a person for making a complaint to the PHI Ombudsman (proposed section 20ZH); the making of the PHI Ombudsman Rules (proposed section 20ZJ); and a provision enabling the PHI Ombudsman to require private health insurers to provide information about the functions of the PHI Ombudsman to their policy holders (proposed section 20ZI).

Proposed section 20ZK is new and significant, reflecting that the Commonwealth Ombudsman will also be the PHI Ombudsman. It identifies those additional provisions in the Ombudsman Act that will apply to the PHI Ombudsman including:

•       section 7 dealing with the procedures for making complaints to the Ombudsman

•       subsection 31(1) providing that staff will be persons engaged under the Public Service Act 1999

•       section 35 dealing with confidentiality obligations on officers and

•       section 36, an offence provision for refusing or failing to provide information to the Ombudsman, with a maximum penalty of $1,000 or imprisonment for three months.

For full details of the cross-referencing scheme the reader is referred to the explanations set out the Explanatory Memorandum.[22]

Other amendments to the Ombudsman Act 1976

Items 1 to 5 are amendments to the Ombudsman Act consequential to the amendments that transfer the PHI Ombudsman to the Office of the Commonwealth Ombudsman.

Item 1 amends the long title of the Ombudsman Act to include a reference to the PHI Ombudsman so that it reads:

An Act to provide for the appointment of a Commonwealth Ombudsman, a Defence Force Ombudsman, a Postal Industry Ombudsman, an Overseas Students Ombudsman, and a Private Health Insurance Ombudsman and to define their respective functions and powers.

The reference to the PHI Ombudsman reflects the Commonwealth Ombudsman’s new responsibilities to also act as the PHI Ombudsman.

Items 7 and 8 deal with delegation. Item 8 inserts proposed subsection 34(2C) which will enable the PHI Ombudsman to delegate to staff all powers and functions with the exception of the power to prepare reports to the Health Minister on outcomes of investigations under proposed sections 20R and 20V. Item 7 amends paragraph 34(1)(a) with the effect of prohibiting the Commonwealth Ombudsman from delegating his or her power to make PHI Ombudsman Rules. By way of comparison existing section 253-55 of the PHI Act allows the PHI Ombudsman to delegate all functions and powers.[23]

Item 10 amends the secrecy provisions in section 35 of the Ombudsman Act. As noted above, section 35 sets out the confidentiality obligations of staff and is to apply to the PHI Ombudsman and staff.[24] Proposed subsections 35(6B), 35(6C) and 35(6D) provide exceptions to these obligations by allowing for the sharing of information about private health insurers among certain government agencies including the Department of Health and the Department of Human Services. Section 323-10 in the PHI Act currently permits similar disclosures.

Private Health Insurance Act 2007

Items 14 to 24 are consequential mainly repealing provisions in the PHI Act as a result of abolishing the statutory office of PHI Ombudsman and merging the role into the Office of the Commonwealth Ombudsman.

Concluding comments

There has been negligible comment on the proposal in the Bill to merge the PHI Ombudsman into the position of Commonwealth Ombudsman. This may well be an indication of its non-controversial nature or possibly may also reflect that relevant stakeholders are focused on other more controversial Budget measures related to health. Indeed it would seem logical that stakeholders such as private health insurers should be happy with the change where the savings to be made will flow back to them in the form of a reduced levy rather than to Government.

Despite this apparent lack of interest, the Bill does raise some questions that Parliament may wish to consider.

Will the change affect the services of the PHI Ombudsman? The Government’s explanatory materials make much of the fact that there is to be no impact on services provided to private health insurance policy holders. The Annual Report on the work of the PHI Ombudsman and discussions at Senate Estimates give the impression of a busy and proactive office. Only small—12 full-time equivalent staff—it has an impressive publishing program and a good record of a fast and effective turn-around of complaints, handling some 3,427 complaints in
2013–14.[25] The abolition of the statutory office of PHI Ombudsman and merging the role into the Commonwealth Ombudsman’s position must surely have implications for the Commonwealth Ombudsman, who already has an onerous workload performing numerous other Ombudsman roles. It could be asked whether the merger may result in a less timely and rigorous approach to dealing with consumer complaints and investigating and reporting on matters of concern in the private health insurance industry.

Finally a more minor point relates to drafting in the Bill. As the Bills Digest has noted at several points there are differences between the provisions in the Bill and the existing provisions in the current PHI Act which are not fully explained in the Explanatory Memorandum. It may be that these differences fall under the general heading of providing consistency with the existing powers and administrative processes of the Commonwealth Ombudsman but further explanation would be useful. The Senate Scrutiny of Bills Committee is yet to report on the Bill and may assist with that clarification.

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.

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[1].              Private Health Insurance Act 2007, accessed 28 January 2015.

[2].              Australian Government, ‘Part 2: expense measures’, Budget measures: budget paper no. 2: 2014–15, Smaller Government - additional reductions in the number of Australian Government bodies, accessed 28 January 2015.

[3].              Explanatory Memorandum, Private Health Insurance Amendment Bill (No. 2) 2014; M Biggs, Private Health Insurance Legislation Amendment Bill 2013, Bills digest, 35, 2013–14, Parliamentary Library, Canberra, 2014, accessed 28 January 2015.

[4].              Private Health Insurance Ombudsman, Annual report 2013–14, p. 5, accessed 28 January 2015.

[5].              Private Health Insurance Complaints Levy Act 1995, accessed 28 January 2015.

[6].              Ibid., p. 6.

[7].              Explanatory Memorandum, op. cit., p. 1.

[8].              Ombudsman Act 1976, accessed 4 February 2015.

[9].              Commonwealth Ombudsman, ‘Our history’, Commonwealth Ombudsman website, accessed 28 January 2015.

[10].              Note that a Bill was introduced to Parliament on 4 December 2014 to move this role to the Inspector-General of Taxation. See: Parliament of Australia, ‘Tax and Superannuation Laws Amendment (2014 Measures No. 7) Bill 2014 homepage’, Australian Parliament website, accessed 4 February 2015.

[11].              Senate Community Affairs Legislation Committee, Official committee Hansard, 3 June 2014, p. 68, accessed 28 January 2015.

[12].              Ibid., p. 66.

[13].              Explanatory Memorandum, op. cit., p. 2.

[14].              The Statement of Compatibility with Human Rights can be found at pages 3–10 of the Explanatory Memorandum to the Bill.

[15].              Explanatory Memorandum, op. cit., p. 21.

[16].              The PHI records of the subject of a complaint or investigation include the constitution and rules of an insurer, internal training manuals and documents relevant to a private health insurance arrangement to which the subject is a party or that applies to the subject. To the extent that a complaint or investigation relates to the subject’s dealing with a particular person, PHI records also include the subject’s records relating to those dealings (see item 2 of Schedule 1).

[17].              Explanatory Memorandum, op. cit., p. 6.

[18].              Section 36, Ombudsman Act 1976, accessed 4 February 2015.

[19].              Explanatory Memorandum, op. cit., p. 29 and Statement of Compatibility with Human Rights, p. 7 of the Explanatory Memorandum.

[20].              Note that the Minister in this case would be the Prime Minister who is responsible for administering the Ombudsman Act, not the Health Minister.

[21].              To be repealed by item 15 of Schedule 1 of the Bill. See also new subsection 20C(2) above.

[22].              Explanatory Memorandum, op. cit., pp. 34–36.

[23].              Noting, however, that the Minister, not the PHI Ombudsman, currently makes the PHI Ombudsman Rules.

[24].              See proposed section 20ZK described above.

[25].              During Senate Estimates questioning in 2013 the PHI Ombudsman said: ‘So we have a very high rate. I think we resolve somewhere between 85 and 90 per cent of our complaints within 30 days, which we see as a very good measure, and we get good response to that from people through our customer survey. Particularly in this age of the internet, people do not want to be waiting around for answers on these sorts of things, so we really do focus on trying to process things in a timely way but obviously making sure that we look at it properly’. Senate Community Affairs Legislation Committee, Official committee Hansard, 20 November 2013, p. 174, accessed 28 January 2015.             