Bills Digest No. 173 2002-03
Health
Legislation Amendment (Private Health Insurance Reform) Bill
2003
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Health
Legislation Amendment (Private Health Insurance Reform) Bill
2003
Date Introduced:
6 March 2003
House: Senate
Portfolio: Health and Ageing
Commencement:
The Act, and Parts 2 and 3
and some of Part 4 of Schedule 1, commence on the day of Royal
Assent. Most of the Part 1 commences on Proclamation, or failing
that, six months after Royal Assent. Items 25-27 in Part 1 commence
on Proclamation, but are repealed if that day is not within six
months of Royal Assent.
To make a variety of changes to the regulation
of the private health insurance industry under the National
Health Act 1958 (the NHA) and the Private Health Insurance
Incentives Act 1998.
Background
Since coming to office in 1996, the current
government has made significant changes to the environment in which
private health insurance funds operate. The intention behind
changes such as the introduction of gap-cover, Lifetime Health
Cover and the 30% private health insurance rebate has been to make
private health insurance more attractive to consumers. More
recently, the government has turned its attention to the regulation
of the private health insurance industry. On 2 April 2002 the
Minister for Health and Ageing (the Minister) announced a
Governmental review of the rules and regulations governing private
health insurance.(1) The review is ongoing, however the
proposed legislation ( first stage of reforms ) emerges out of
recommendations made by the review to date.
In April 2003, the Health Minister, Senator
Kay Patterson announced the second stage of reforms associated with
the review.(2) According to the relevant media release,
the second stage of reforms will:
- require funds to disclose additional information on their
management expenses to allow consumers greater transparency and
give them the ability to compare the funds' performance
- provide incentives to manage disease prevention and health
promotion programs
- tackle supply costs (eg: prostheses), which are placing
pressure on premiums, and
- introduce a
default benefit arrangement for rural and regional private
hospitals where these hospitals provide the only services available
in their communities, replacing the "second tier" default benefit
currently available to hospitals unable to negotiate a contract
with a health fund.
The above reforms announced in the second
stage of the review are not dealt with in the current Bill. However
some of them will be implemented via disallowable Determination,
and thus open to parliamentary scrutiny. This Bills Digest deals
with the legislative components introduced as part of the
first stage of reforms in September
2002.(3)
An ongoing complaint made by the private
health insurance industry is the administrative burden associated
with changes to their rules and products and the lack of
flexibility they have in developing and delivering new products to
contributors.(5) Proposed in Part 1 Schedule 1 of
this Bill (particularly items 25-27) are
a series of changes designed to deal with these criticisms. The
Explanatory Memoranda for this Bill
states that the proposed changes are intended
to:(6)
remove the inefficiencies associated with
the existing rule change process, allowing RHBOs to be more
responsive to the needs of their members.
Under the current legislative
arrangements, health funds are required to notify the Secretary of
the Department of Health and Ageing (the Department) of changes to
their constitution, articles of association, rules and products.
All changes to private health insurance products and the rules
governing such products, including increases in excesses and
co-payments, additional restrictions on hospital benefits and
premium changes etc are subject to this requirement. In the case of
premium changes, the changes must be notified at least 14 days in
advance of when the change is proposed to take
effect.(7) For all other changes, health funds are
required to provide 60 days notice to the Secretary. Where the
Minister is of the opinion that a change:
- would or might result in a breach of this
Act or of a condition of registration of an
organisation
- imposes an unreasonable or inequitable
condition affecting the rights of any contributors, or
- might, having regard to the advice of the
Council, adversely affect the financial stability of a health
benefits fund
the Minister may disallow the change.
Similarly, the Minister may disallow a change increasing
premiums if he / she is of the opinion that the change would be contrary
to the public interest .
The Bill
proposes two substantial modifications to the existing
regulation of private health insurance funds and their
products.
The first involves the issue of
notification to the Secretary. This will now only be required for
where a health fund changes its rules, not where it changes its
constitution or articles of association. More importantly, the
prescribed period of advance notice will only apply to rules that
deal with premiums. Other rule changes must only be notified before
com[ing] into effect . In addition, the current requirement that
contributors be informed of any changes before they take
effect will now only apply to changes that are or could be
detrimental to the interests of all or any of its contributors .
The second proposed modification replaces the current detailed
examination of proposed rule changes against the National
Health Act 1958 (NHA) with a system of monitoring against
performance indicators. Each of these proposed modifications is
discussed in greater detail below.
In the Private Health Insurance
Ombudsman s (PHIO) latest quarterly bulletin, the PHIO notes that
the period of notice given to contributors of changes to fund rules
has in the past been inadequate and unreasonable .(8)
Many contributors have in the past been given as little as two
weeks notice of what are often detrimental (to the contributor)
changes. Given these concerns, the reduction of scrutiny of rule
changes proposed in this Bill may have
significant implications for contributors. The primary concern for
contributors is that without adequate notice of rule changes they
may be unable to upgrade their product or transfer to another funds
product and be locked into the reduced benefits for the standard
waiting periods.
The PHIO has indicated that the removal
of the 60-day notice requirement to the Department should improve
the capacity of funds to provide more notice of changes to
contributors.(9) The Australian Consumers Association
(ACA) takes a different approach to this issue. The ACA argues that
funds should be required to give policyholders notice of at least
30 days before minor changes take effect, and for major changes
(including premium increases) this period of notice should be at
least 60 days, thus offering formal protection of contributor s
rights rather than relying on
self-regulation.(10)
As mentioned above, the proposed
amendments will also substitute the current regulation of health
funds rules and products with a system of monitoring against a set
of performance indicators. These indicators, which are being
developed in consultation with industry,(11) will be
established by regulation rather than through explicit articulation
in the National Health Act 1953. Thus while neither
the Bill nor the Explanatory
Memorandum contains information as to what will be included in
these indicators, the Department s submission to the Senate Inquiry
into the Bill notes that the indicators
will include the following:
- measures of complaints to the Private
Health Insurance Ombudsman
- changes in premiums paid by age
cohort
- changes in the number of persons insured
in each age cohort
- changes in the number of episodes, and
episodes per one hundred members, in each age cohort
- changes in the nature of episodes,
and
- changes in benefits paid per member and
episode in each age cohort.(12)
While the Bill
proposes greater flexibility in rule changes, funds will need
to ensure that any rule changes they make do not breach the
provisions of the NHA, including community rating. Community rating
can be simply defined as the system requiring health funds to
charge the same prices (premiums) to different types of consumers.
Thus regardless of health status or risk, personal circumstances or
characteristics, past claims history etc, health funds must charge
consumers the same price. The only exception to this is Lifetime
Health Cover, which allows health funds to charge higher rates the
older a member (after the age of 30) is when they first join.
Currently, despite its wide use, the term community rating is not
defined in the NHA.(13) The Bill
defines the term, particularly by linking it with a revised
definition of improper discrimination.
In relation to improper discrimination,
there has been some concern within the industry that the proposed
inclusion of the term place of residence in the revised definition
will render the practice of setting different premiums for each
State and Territory illegal.(14) Currently, there are
different premiums for the same product in different States and
Territories. However, it is unlikely that the revised definition
will legally impact on this practice. The text of the relevant part
of the proposed definition of improper discrimination actually
reads:
Discrimination that is related to any other
characteristic of a person including place of
residence that is likely to result in an increased requirement
for profession services [emphasis added]
Since, as stated above, the current
differences between state premiums are a function of the different
overall costs of health care between states rather than the
characteristics of individuals, these differentials would not on
the face of it come within the definition of improper
discrimination.
Overall, given that the proposed
performance indicators mentioned above are yet to be publicly
released, the question of whether they will be able to adequately
regulate the products and rules of private health funds against
compliance with community rating and detect breaches of the Act is
difficult to assess. Moreover, the administrative burden on the
private health insurance industry and the Department under the
current regulatory arrangements must be weighed against the need to
appropriately regulate the industry and protect consumers from
breaches of the principle of community rating and the Act more
generally.
Alongside the above changes in the
regulation of health funds rules and products, the
Bill expands both the Minister s investigative
powers and the sanctions that can be applied to a fund breaching
the NHA. Whilst these changes are detailed in the Main Provisions
section of this Bills Digest, of particular importance are the
clarification and expansion of the powers of the Minister in
dealing with breaches by funds of legislated requirements,
community rating principles and inappropriate administrative
practices.
The proposed changes will allow the
Minister to seek, within a specified time frame, an explanation
from a health fund thought to be in breach of the NHA. The proposed
changes also clarify the range of regulatory options available to
the Minister following an explanation from a health fund. These are
detailed in new section 73BEC of the
Bill. New section 73BEG
clarifies the range of regulatory options open to the Minister
following an investigation of a health fund. Where the Minister is
satisfied that there has been a breach of the NHA, the Minister can
take the following action:
- request an enforceable
undertaking
- give a direction to the health
fund
- impose a
further condition of registration on that fund
- revoke the status of the health fund to
offer the 30% private health insurance rebate as a premium
reduction
- apply to the Federal Court for an order,
or
- take action to appoint an inspector, place
a health fund under administration or seek the winding up of a
health fund.
Other actions open to the Minister where
there has not been a breach of the NHA, but where he or she
considers the performance of the fund could be improved,
include:
- request an enforceable
undertaking
- give a direction to the health fund
or
- impose a further condition of registration
on the fund.
Further details of the conditions of the
above sanctions are provided in the Main Provisions section of this
Bills Digest.
There has been some debate in the
private health insurance industry over the broad ranging powers
that the proposed changes will give the Minister.(15) In
particular the apparent lack of limiting conditions on when a
Minister may launch an investigation into a fund and the broad
ranging investigative powers and associated sanctions available to
the Minister have raised particular concerns.
The proposed sanction of the removal of
the fund s ability to offer the 30 per cent private health
insurance rebate as an upfront premium reduction is of particular
interest. The rebate has been the source of significant controversy
since its introduction. While the rebate has contributed to lower
out of pocket expenses for those with private health insurance
there has been some debate over the contribution the introduction
of the rebate has made to the growth in membership of private
health insurance funds.(16) One concern associated with
the rebate is that there are no existing mechanisms to link the
rebate with increased efficiency in the industry. The
administrative costs of private health insurance funds have been
highlighted by a number of commentators and the
ALP.(17)
If this sanction were applied to a
health fund, its contributors would still be able to obtain the
private health insurance rebate through the taxation system.
According to the Department of Health and Ageing submission to the
Senate Inquiry, the removal of the 30 per cent rebate status would
be reserved for the most severe breaches of community rating
obligations and the NHA, and would only be applied where other
interventions (such as enforceable undertakings or directions) are
not achievable or appropriate. It is worth noting the removal of a
fund s status to offer the rebate as a premium reduction could
severely impact on that fund s capacity to compete with other funds
and maintain its membership. It is possible that such a sanction
would compromise the stability of the fund.
Also proposed in this
Bill are expanded powers for the PHIO. The PHIO
is a statutory body whose main role is to provide an independent
complaints and advisory service for private health insurance
contributors. Medical practitioners, hospitals and RHBOs can also
approach the PHIO in relation to problems regarding health
insurance arrangements.(18) The current functions of the
PHIO are set out in section 82ZRC of the NHA. These functions
include the ability to:
- deal with complaints and publish aggregate
information on complaints
- conduct investigations, and
- make recommendations about regulatory
practices, and/or industry practices relative to registered health
insurance funds.
Some commentators have noted that the
PHIO has limited powers compared with the Commonwealth
ombudsman.(19) The Health Legislation Amendment Act
(No.2) 1998 expanded the PHIO s powers to include mediation.
However the PHIO s annual report for that same year noted that the
PHIO continued to lack(20)
The necessary powers to be fully effective
in complaints which cannot be settled by agreement.
The PHIO has, under current
arrangements, little legislative remedy where a health fund does
not follow its recommendations, although the fund may refer matters
to other bodies such as the ACCC. According to
Gath, the PHIO is currently equipped with an
ineffective set of regulatory and enforcement powers .
(21)
The Bill
proposes to expand the powers of the PHIO so that the
Ombudsman will have greater authority in dealing with complaints
and disputes. In particular new sanctions are proposed for health
funds who fail to comply with requests from the PHIO. The passage
of this Bill will mean that the PHIO can
require reports from health funds, hospitals and doctors on action
taken on recommendations made by it. While the
Bill does not increase the power of the PHIO to
make funds comply with recommendations made by the Ombudsman, the
power of the PHIO to report to the Minister provides a clear avenue
for action to be taken.
The Bill
proposes the establishment of an annual State of the Health
Funds report. The aim of this report will be to provide some
comparative information on the performance of health funds. The
report will be compiled by the PHIO and negotiations about the
format and content of the report are currently being negotiated
between the PHIO, the Private Health Insurance Administrative
Council (PHIAC)(22) and health funds. It is expected
that the report will cover three broad areas. These
include:
- Financial status of funds.
Such information could include market
share, prudential requirements, management expenses and benefits
paid. Some of this information is included already in the
Operations of the Registered Health Benefits Organisations
Annual Report produced by PHIAC, and the Standard
and Poor s Australian Health Insurance Report. The Standard and
Poor s report provides further details on contribution income,
contributions as a percentage of market share, operating results,
reserves, benefits paid and expense
ratio.(23)
- General service indicators.
Included in this category may be member
retention rates, the level of complaints and disputes, internal
complaints handling and accessibility of information about the fund
and its products.
- Product information.
Potentially included within the report
will be information regarding the different products offered by
each fund. In addition, information such as the average price per
person covered, the average benefit paid per person etc may be
included. Given the variability of fund products and the need for
the PHIO not to make recommendations about products this latter
type of information is perhaps the most contentious of the
information that may be incorporated into the report.
The provision of a comprehensive report
by the industry Ombudsman may help to re-focus attention on the
products of health funds and their service delivery. Currently much
of the public debate about private health insurance is concentrated
solely on premiums and ignores the actual products.
Lifetime Health Cover (LHC) was
introduced in July 2000 and is considered by many analysts to be
the most successful of the Federal Government s initiatives to
increase private health insurance membership.(24) The
introduction of LHC has meant that health funds are able to charge
different premiums according to the age at which a person first
took out private hospital cover. From July 2000, people who delay
taking out hospital cover will pay a 2 per cent
loading(25) on top of their premium for every year they
are aged over 30 when they first take out hospital cover. For
example, a 50 year old taking out cover in April 2001 would pay 40%
more for cover than if they had taken it out a year earlier. Of
course, private hospital cover is not compulsory, but a person
earning over $50 000 a year who does not have such cover must pay
the annual 1.5% Medicare surcharge.
In response to concerns that it is
difficult for funds to run advertising and marketing campaigns that
focus consumers attention on LHC,(26) the
Bill proposes the establishment of a single LHC
birthday. This will mean that irrespective of when a person s
actual birthday occurs, people who join a health fund by the next
notional birth-date will be deemed to have met the LHC requirement
for their age.
There are a number of terms that are
frequently used in the NHA and the Main Provisions section of this
Digest. For use of reference, the NHA definitions are listed
below.
Organisation a society, body or group
of persons, whether incorporated or unincorporated, which conducts
a health benefits fund
Registered organisation (RO) an
organisation registered under Part VI of the NHA.
Registered health benefits
organisation (RHBO) an organisation registered under Part VI
of the NHA for the purpose of conducting a health benefits
fund.
Item 3 amends the definition of 'improper
discrimination' in section 66 of the NHA. The definition will now
effectively incorporate the anti-discrimination provisions of
existing section 73ABA and paragraph (m) of Schedule 1, plus the
additional criteria of any other characteristic of a person
including place of residence (forth dot point below). The place of residence issue is
discussed in the Background section of this Digest. 'Improper discrimination' will now be
discrimination that is related to any of the following:
- the suffering by a person from a chronic disease, illness or
other medical condition or from a disease, illness or medical
condition of a particular kind
- the gender, race or sexual orientation of a person
- the age of a person, except to the extent that the person s age
may be taken into account under section 73BAAA and Schedule
2(27)
- any other characteristic of a person (including but not limited
to matters such as place of residence, occupation, leisure
pursuits) that is likely to result in an increased requirement for
professional services
- the frequency of the rendering of professional services to a
person
- the amount, or extent, of the benefits to which a person
becomes, or has become, entitled during a period, and
- any matter prescribed for the purposes of this paragraph.
The
Explanatory Memorandum to the Bill comments that the amendment is designed
to(28)
Update the
definition of improper discrimination so the term can be used to
clarify the principles of community rating in the NHA (which)
prohibits RHBOs from discriminating against contributors in
relation to access to private health insurance and the use of
private health insurance products, except in specified
circumstances.
Item 7 inserts new section 67B.
This new section is actually a slightly modified existing section
74B.(29) It requires a RO to 'conduct its health
insurance business in accordance with' the provisions set out in
new paragraphs(a)-(e). A failure to do constitutes
a breach of the NHA, which may result in various regulatory actions
by the Minister (see for example new section
73BEG).
Item 8 replaces existing
subsections 73(2A)-(2B) with a new subsection
73(2A). This prohibits the PHIAC from granting an
organisation registration as a RBHO if 'the constitution or rules
of the organization permit improper discrimination'.
Item 10 inserts new
sections 73AAF-AAK into Division 3 of Part VI. Division 3 deals
with the conditions of registration for organisations as
RHBOs. The main effect of the item is organisations are explicitly required to
conform to principles of community rating.
The
Explanatory Memorandum comments that:(30)
[the principle
of] community rating underpins the equitable access to private
health insurance for all Australians. It prohibits RHBOs from
discriminating against contributors in relation to access to
private health insurance and the use of private health insurance
products, except in specified circumstances .[item 10] will clarify
the monitoring and enforcement of the community rating principles.
Taken in conjunction with the changes to the monitoring and
enforcement regime, this will provide RHBOs with increased
flexibility in the conduct of their health insurance business,
without requiring Departmental oversight.
New section 73AAF
simply provides that
registration is subject to the conditions set out in Division 3 and
Schedule 1 of the NHA. In part, it replaces existing subsection
73BA(1), which is repealed by item 16.
New section 73AAG
provides that the Minister may
determine guidelines on loyalty bonus schemes(31) that
RHBOs may offer. This new section essentially replaces equivalent
provisions in existing subsections 73BA(2A)-(5), which are again
repealed by item 16. The Minister s determination
is a disallowable instrument.
New subsection 73AAH(1)
requires the constitution,
rules and actions of a RHBO must be 'at all times consistent with
the principles of community rating'. Under new subsection
73AAH(2)-(3), any improper discrimination would breach
73AAH(1), including where an RHBO s constitution
or rules permitted an activity by the RHBO that would be improper
discrimination under section 66. The Explanatory
Memorandum states that:(32)
previously,
community rating requirements had to be derived from a range of
provisions within the NHA. The amendments in this
Bill make it easier for RHBOs to identify their
obligations and to ensure compliance.
New section 73AAI
prohibits ROs from refusing to
sign up new members or cancelling existing membership where this
would constitute improper discrimination. However, ROs may refuse
to sign up a person in relation to '[permanently] closed health
insurance product'. The Explanatory Memorandum
comments:(33)
The ability to
close health insurance products to new or transferring contributors
will enable RHBOs to:
- manage
their products more effectively, in particular to reduce losses on
products that have low or no returns due to changes in the broader
health industry, and
- enable
RHBOs to manage those products without disadvantaging members who
are contributing to them.
New section 73AAI
applies to both hospital and
ancillary cover.
New section 73AAJ
prohibits RHBOs from improperly
discriminating against any contributor or class or contributors in
deciding on whether benefits are payable, and if so, the amount.
Note that the Explanatory Memorandum comments that the
non-discrimination condition in new section 73AAJ
does not apply to ancillary cover (as opposed to hospital cover
tables). However, it is not obvious from the Bill that this is so presumably the meaning of
benefit in new section 73AAJ excludes ancillary
cover benefits.
New section 73AAK
allows 'restricted membership
organizations' a limited exemption to the community rating
conditions contained in new sections 73AAH-AAJ.
Essentially, the exemption allows them to continue to restrict
eligibility by reference to:
- employment or former employment in a profession, trade,
industry or calling
- employment or former employment by a particular employer or by
an employer included in a particular class of employers, and
- membership or former membership of a particular profession,
professional association or union.
Existing
section 73B allows the Minister to revoke, change or impose
conditions under which an organisation is registered. Items
13-15 amend various parts of section 73B and will
collectively allow the Minister to apply a revocation etc to
multiple organisations at the same time.
Item 20 replaces existing Division 5 of Part VI
with a new version. Current Division 5 is headed 'Directions by the
Minister' but is to be renamed Enforcement and remedies'. The
Explanatory Memorandum comments:
This new
Division is a major reform in the regulation of the private health
insurance industry. New Division 5 will result in increased
regulatory flexibility by:
- enabling monitoring of RHBO
activities via performance indicators, rather than the assessment
of rules that currently takes place in accordance with section 78
of the NHA;
- clarifying the Minister's
investigation powers; and
- establishing a range of
responses and sanctions that the Minister may take to appropriately
deal with breaches or potential breaches of the NHA.
New section 73BEA
provides that regulations may
be made to establish performance indicators to be used by the
Minister 'in monitoring the operations of ROs. The indicators must
be framed as specified in new subsection 73BEA(2),
including so as to 'alert the Minister to any practice that may be
contrary to government health policy and therefore require a
regulatory response'.
New section 73BEB
allows the Minister, if he /
she believes that an RHBO may be in breach of the Act, to require
the RHBO to provide an explanation of operations with respect to
the area of concern. If the RHBO is unable to provide an
explanation within the timeframe specified by the Minister, it may
request additional time. The Minister may refuse this request, but
must give reasons for this.
If the
Minister is 'satisfied' with the explanation, the matter ends. If
not satisfied, the Minister has a range of responses available to
him or her, and the Minister must advise the RHBO that they intend
to take one or more of these.
Whether
or not the Minister is satisfied that the RHBO has breached the
NHA, the Minister may:
- institute a new
Subdivision B investigation
- request the RHBO to commit
to a new Subdivision C enforceable
undertaking
- give the RHBO a direction
in accordance with new Subdivision D,
and
- impose a further condition
of registration on the RHBO under section 73B.
If the
Minister is satisfied that a RHBO has breached the NHA, in addition
to the options above, the Minister may
- if the RHBO has breached
the principles of community rating or failed to comply with a
new section 73BEJ Ministerial direction, revoke
the status of the RHBO to offer the 30% rebate on
premiums
- apply to the Federal Court
for an order under new subdivision F, which
includes provision for a fine, and
- take action under Part VIA,
which allows for the appointment of an inspector, application to
the Federal Court for the RHBO to be placed under administration or
to be wound up.
New Subdivision B
(new sections
73BED-BEG) deals with investigations.
New section 73BED
replaces the existing power in
section 75 for the examination of the records and associated
material of an RHBO. The power is now given to the Minister rather
than the Departmental Secretary. The Minister may require evidence
to be given on oath or affirmation by a person who is or has been
an officer, employee or agent of an RO (as is the case in existing
section 75).
New section 73BEE
covers penalties and related
matters for failing to comply with the requirements of new
section 73BED. A failure to give the relevant information
/ evidence, including on oath or affirmation if required, attracts
a fine of up to 10 penalty units ($1 100): new subsections
73BEE(1)-(2). The new subsection
73BEE(1)-(2) offences are ones of strict liability. In
addition, a person knowingly giving false or misleading information
is subject to imprisonment of up to 6 months: new
subsection 73BEE(5).
Under
new subsection 73BEE(4), if a
person is required to provide information under new section
73BED, that information is required even if the answer to
the question, or the production of the document, might tend to
incriminate the person or make the person liable to a penalty.
However, that information cannot be used in evidence in any
proceedings against the person providing the evidence, except for a
prosecution for giving false or misleading information.
Where an
investigation raises questions about the financial strength or
governance of a RO, the Minister may direct the PHIAC to take over
the investigation: new paragraph 73BEF(4). The
Explanatory Memorandum comments
that:(34)
this amendment
does not detract from the independence of the PHIAC [but if the
concern is of] a prudential element or effect it is important that
it may be handled by the entity which has been specifically
established and empowered to deal with such matters.
New section 73BEG
sets out the Minister s powers
upon completion of an investigation. If the Minister is satisfied
that there is a breach of the NHA, he / she must advise the
organisation of the 'nature of the breach' and of the action they
intend to take. The range of actions include:
- request the RHBO to commit
to a new Subdivision C enforceable
undertaking
- give the RHBO a direction
in accordance with new Subdivision D
- impose a further condition
of registration on the RHBO under new section
73B
- revoke the status of the
RHBO to offer the 30% rebate on premiums
- apply to the Federal Court
for an order under new Subdivision F, which
includes provision for a fine, and
- take action under Part VIA,
which allows for the appointment of an inspector, application to
the Federal Court for the RHBO to be placed under administration or
to be wound up.
In
situations where the Minister is not satisfied that there has been
a breach of the NHA, but he / she considers the performance of a
RHBO 'can be improved', the Minister may:
- request an enforceable
undertaking in accordance with new Subdivision C,
or
- give a direction to the
RHBO in accordance with new Subdivision D,
or
- impose a further condition
of registration on the RHBO under section
73B.
New Subdivision C (sections
73BEH-BEI) deals with enforceable
undertakings.
Under
new section 73BEH the Minister may accept
undertakings from RHBOs that will either improve the performance of
RHBOs, or if Minister considers the organisation has breached the
NHA, that the undertaking is likely to ensure the RHBO will cease
to be in breach. A RHBO may withdraw from or vary the undertaking
if the Minister consents. A refusal by the Minister regarding an
application to withdraw or vary is reviewable by the Administrative
Appeals Tribunal (AAT) (new subsection
105AB(4AAA)).
Should
the Minister consider that the RHBO has breached a new
Subdivision C undertaking, he /she may apply to the
Federal Court for an order of compliance and, if there has been a
breach of the NHA, any other order that is appropriate :
new section 73BEI.
New Subdivision D
deals with Ministerial
directions.
The
Explanatory Memorandum comments that new section
73BEJ:(35)
increases the
flexibility of the sanctions available to the Minister to address
concerns in relation to improper discrimination. The power to make
a direction in relation to day-to-day operation of the RHBO is an
important tool in the protection of the principles of community
rating.
In cases
were the Minister considers that an organisation has given either
no or an unsatisfactory explanation under new Subdivision
A (previously discussed), the Minister may give a
direction requiring a RHBO to modify its constitution, rules or
day-to-day operations to 'assist in the prevention of improper
discrimination': new subsection 73BEJ(1). Similar
directions can be given whether or not, as a result of an
investigation, the Minister is of the view that the organisation
appears have breached the NHA (new subsections
73BEJ(2)(36) and (3)). A direction may include
requiring that the organisation 'reconsider' a previous decision on
a person's application to join that fund or a current member s
claim for benefits. A new section 73BEJ direction
is reviewable by the Administrative Appeals Tribunal (AAT) see
item 31.
New Subdivision E
deals with removal of
entitlement to offer rebate as a premium reduction.
Where the
Minister is satisfied that a RO has failed to comply with a
Ministerial direction or a community rating condition, new
section 73BEL allows them remove the eligibility (via
section 14A-1 of the Private Health Insurance Incentives Act
1998) of a RHBO to offer the Federal Government 30% rebate on
private health insurance to contributors as a premium reduction.
The Explanatory Memorandum comments
that:(37)
while the 30%
Rebate may be removed as a premium reduction from a particular
RHBO, the 30% Rebate will still be payable to contributors via the
taxation system or the HIC.
New Subdivision F
deals with the Minister's
powers to seek Federal Court sanctions.
Under
new section 73BEM, if the Minister is satisfied
that a RO has breached the NHA, the Minister may apply to the Court
for a number of orders. Notably, these include an order to pay
compensation to an affected individual, and / or an 'adverse
publicity order .
This later type of order
requires the relevant organization to:
- to disclose in a way, and to the person or persons, specified
in the order, such information to correct or counter the effect of
the breach as is so specified; and / or
- to publish, in the way specified in the order, an advertisement
to correct or counter the effect of the breach in the terms
specified in, or determined in accordance with, the order.
New section 73BEN
details the power of the Court
to make and enforce orders applied for under new section
73BEM. These include fining an officer(38) of
the relevant RO if the Court is satisfied on the balance of
probabilities that the officer failed to take reasonable steps to
prevent the occurrence of [the relevant breach of the NHA]. A fine
may be up to $10 000.
New section 73BEO
relocates existing subsection
74A(8) to prohibit RHBOs from using contributor s funds to cover
pecuniary penalties (ie fines) imposed on officers under
new section 73BEN. The officer (or presumably
their professional insurer) must pay the fine, not the employer
company. New section 73BEO does not detail a
specific penalty for breaching the prohibition.
Items 21-38 make a number of mainly consequential
amendments to the NHA, many of these are required because of
changes introduced by items 1-20.
Items 25-28 amend existing section 78 which details the
various notice obligations of an RO if it changes its constitution,
rules or articles of association. The Minister has the ability to
disallow any changes under certain circumstances (existing section
78(4)). Currently, if the Minister does not disallow the changes, a
registered organization must take all reasonable steps to notify
each affected contributor (ie member), explaining (in plain
English) the change before the change takes effect.
Under
item 25, the notification requirement to the
Secretary in (new subsection 78(1)) will only
apply to changes in the RHBO rules, not its constitution or
articles of association. A prescribed period of advance
notice will only apply to rules that deal with premiums - other
rule changes must only be notified before com[ing] into effect :
item 26. Under
item 28 (new subsection 78(7)), the RHBO must
notify contributors only where the rule change 'is, or could be
detrimental to the interest of all or any of its
contributors'.
Items 29-39 make various consequential
changes
Item 40 amends the Private Health Insurance Incentives Act
1998 by inserting
new paragraph 14A-1(1)(c). This will allow the Minister to remove the
ability of a RHBO to offer the 30% rebate as a premium reduction if
the RHBO fails to comply with:
- a direction given by the
Minister under new section 73BEJ, or
- the community rating
conditions contained in new sections
73AAH-73AAI.
As
previously mentioned, even if this power is used by the Minister,
the 30% rebate will still be payable to contributors in relation to
health insurance products offered by the particular RHBO, but only
via the taxation system or the Health Insurance
Commission.
Currently, complaints may be dealt in a
variety of ways. Two of the initial options are that (i) the PHIO
may choose to try and mediate between the relevant body / person
and the complainant, or (ii) the PHIO may ask the relevant body /
person to investigate the matter itself. If these do not produce a
satisfactory result, the PHIO may launch its own full
investigation, or refer the matter to other bodies, including the
ACCC.
Item 42 inserts new paragraph
82ZRC(c) so as to broaden the listed functions of the
PHIO. These will now include the ability to report and make
recommendations to the Minister following the investigation of a
complaint or an investigation of the practices and/or procedures of
RHBOs.
Item 43 inserts new subsection
82ZSAA(1) which allows the PHIO to request information
from an officer of an RHBO if a complaint has been received. The
request must be for the purpose of determining how best to deal
with the complaint. Currently the PHIO does not have this
ability.
Information may also be requested under
new subsections 82ZSAA(2)-(3) if the PHIO tries to
a mediate the matter, conduct its own investigation etc. The
complainant must agree that the request be made: new
subsection 82ZSAA(7). According the Explanatory
Memorandum, this is for privacy reasons. The RHBO must notify
the PHIO if they cannot supply the requested information within the
prescribed time: new subsection 82ZSAA(5). The
PHIO may extend the time for the request. The RHBO may apply to the
AAT for review if the PHIO does not agree to extend the time
(item 53: new subsection 105AB(6AC)).
New subsections 82ZSAA(8)(9) and
(11) deal with
penalties and related matters for failing to complying with the
PHIO's request for information under 82ZSAA. As
for new section 73BEE, failure to comply attracts
a fine of up to 10 penalty units ($1 100) and the offence is one of
strict liability. A person knowingly giving false or misleading
information in relation to a new subsection
82ZSAA(1)-(3) request is subject to imprisonment of up to
6 months.
Under
new subsection 82ZSAA(10), if an
officer of an RHBO is asked to provide information, that
information is required even if it might tend to incriminate the
person or make the person liable to a penalty. However, that
information cannot be used in evidence against the person providing
the evidence, unless in a prosecution for giving false or
misleading information.
Existing
section 82ZSD enables the PHIO to make recommendations after a RHBO
has undertaken a internal investigation under paragraph
82ZSB(1)(b) or where the PHIO has done its own
investigation under paragraph 82ZSB(2). Item 46
provides that the PHIO
may ask that a RHBO, hospital, day hospital facility or medical
practitioner advise him or her of the action(s) that it intends to
take in relation to a recommendation made by the PHIO. It also
provides for penalties a failure to comply with the request or
knowingly giving false or misleading information, with respective
penalties of 10 penalty units and up to 6 months
imprisonment.
Item 47 inserts new section 82ZSDA
to allow the PHIO to report and make recommendations to the
Minister on the outcome of an investigation. The report may
incorporate details of any response (or lack of) given by a RHBO to
the PHIO and include further recommendations to the Minister for
dealing with any issues or problems that have arisen from an
investigation.
New subsection 82ZSDA(2)
requires the PHIO to consult
with the RHBO before reporting to the Minister and invite the
organization to comment on criticisms to be made in the report. Any
comments must be included in the report to the Minister.
Existing
sections 82ZT-ZRTD enable the PHIO to conduct investigations into a
RBHO on its own initiative or by the direction of the Minister.
Item 50 gives it the power to obtain information
for this investigation as for item 43. Similarly,
item 51 mirrors item 46 by
amending existing section 82ZTC to strengthen the PHIO s power to
make a recommendation to a RHBO and request notification of action
taken in relation to the recommendation.
Item 52 performs a similar function to item
47, except that it relates to investigations done by the
PHIO on its own initiative or by Ministerial direction. As for
item 47, the PHIO will be required to consult with
the RHBO before reporting to the Minister, invite the organization
to comment on criticisms etc.
Items 55-57 amend the NHA
to enable the PHIO to produce a
proposed annual State of the Health Funds Report. Under
item 56, the Report is to be published in written
form and on the PHIO's website, as soon as practicable after the
end of each financial year, and will provide 'comparative
information on the performance and service delivery of all
registered organizations during that financial year': new
paragraph 82ZRC(ba). Item 57 will require
RHBOs to publicise, in written form and on its website , the
existence of the Report and to advise where copies of the Report
can be found.
An explanation of LHC is contained in the Background section to
this Digest.
Part 4 amends a range of LHC provisions contained
in Schedule 2 of the NHA. Schedule 2 currently requires a person to
take out private hospital cover before his/her 'Schedule 2
application day' to
avoid having to pay a LHC loading. In general, this day is a
person's 31st birthday. This rule differs for certain
refugees or persons overseas at the time when the changes were
made.(39)
Under
item 58, the amendments simply mean that the date
for calculating a persons age (if they fail to take out cover
before their 'Schedule 2 application day') under existing clause 1
of Schedule 2 of the NHA will be the previous 1 July. Thus if a
person who turned 40 on 30 November 2003 took out LHC cover on 1 December 2003, they would actually be considered to be
39 for the purposes of calculating the loading. This slightly
revised method for calculating age only applies to persons taking
out cover after item 58 commences.
Subject
to some conditions, persons may drop hospital cover for a
cumulative total of two years without this affecting whether they
will have to pay a premium loading once they take up cover again.
There are also limited circumstances in which dropping cover will
not count towards this two year limit. Items 60-61
introduce another circumstance. They amend subclauses 3(1)-(2) of
Schedule 2 to assist persons who are out of Australia for more than
a year and do not have cover during part or all this time. In such
cases, when they return to Australia and resume cover, those days out of
Australia for which they do not have cover will not
be considered as counting towards the two year period mentioned
above.
Item 62 inserts new subclauses
3(3)-(4) to clarify the position of Norfolk Island residents. For the purposes of the overseas
exemption to the 2 year period, item 62 states a
person residing in Norfolk Island is deemed to be overseas. A resident may
also stay in Australia for up to 90 continuous days and still be
deemed to be overseas.
Items 63 and 64 amend Schedule 2 to
provide that the holder of a Department of Veterans Affairs Gold
Card, or any persons within any class specified in regulations, are
deemed to have hospital cover for the period they hold that card.
If a person losses their eligibility for a Gold Card, they have 2
years in which to take out hospital cover without incurring a LHC
loading.
Item 69 inserts a new paragraph
5(1)(e) to clarify that, for certain persons over 31 years
returning to Australia for the first time since turning 31, their
'Schedule 2 application day' is the later of:
- the first anniversary of
the day the person returned to Australia; or
- the first anniversary of
the day that this amendment comes into effect.
Items 68-71 make amendments to similarly allow new
arrivals to Australia (other than refugees) a year to take out
hospital cover without incurring a LHC loading.
This Bill
forms part of the on-going review of health insurance
regulation currently being undertaken by the Commonwealth
Government. The review will be continuing throughout 2003 and
further recommendations to the Minister and Cabinet regarding the
regulatory regime covering private health insurance can be
expected.
In the context of the Commonwealth
Government s significant changes to the private health insurance
industry, this Bill can be viewed as
another step towards reducing regulation within the sector.
Interestingly, reduced regulation has not corresponded with a
reduction in government subsidy for the industry.
- Senator the Hon Kay Patterson Minister for
Health and Ageing Government
to reform regulation of private health insurance Media
Release, 2 April 2003.
- Senator the Hon Kay Patterson Minister for
Health and Ageing,
Stage Two Reforms Drive Private Health Fund Efficiency,
Media Release, 3 April 2003.
- The Parliamentary Library publication,
The Regulation of Private Health Insurance Premiums
discusses some of the early non-legislative changes to the
regulation of private health premiums that were detailed in the
first stage of reforms released as part of the review.
- Organisations must be registered under Part
VI of the NHA in order to conduct a private health fund business
such organisations are RHBOs . In the Background section of the
Digest, the term RHBOs and health funds are interchangeable.
- Industry Commission, Private Health
Insurance, Report No. 57, 28 February 1997.
- At p.3.
- Health funds can apply to the Minister for a
lesser notification period: existing paragraph 78(1A)(ab).
- Private Health Insurance Ombudsman, Quarterly
Bulletin No
26 (1 January to 31 March 2003).
- PHIO submission to the Senate Community
Affairs Legislation Committee Inquiry into the Health Legislation
Amendment (Private Health Insurance Reform) Bill 2003.
- ACA submission to the Senate Community
Affairs Legislation Committee, Inquiry into the Health Legislation
Amendment (Private Health Insurance Reform) Bill 2003.
- Department of Health and Ageing Submission to
the Senate Community Affairs Legislation Committee, Inquiry into
the Health Legislation Amendment (Private Health Insurance Reform)
Bill 2003.
- ibid.
- In fact, the term only appears once, at
subsection 73BAA(3).
- See the Medibank Private, Medical Benefits
Fund of Australia, Australian Private Hospitals Association and
Australian Health Insurance Association
submissions to the Senate Community Affairs Legislation Committee,
Inquiry into the Health Legislation Amendment (Private Health
Insurance Reform) Bill 2003.
- See the Medibank Private and Australian Health Insurance Association submissions
to the Senate Community Affairs Legislation Committee, Inquiry into
the Health Legislation Amendment (Private Health Insurance Reform)
Bill 2003.
- See in particular Jim Butler Policy Change
and Private Health Insurance: did the cheapest policy do the trick?
Australian Health Review, 2002, 25(6): 33-41; Russell
Schneider Health managing risk in the private sector Australian
Health Review2002 29(6): 49-53.
- See in particular Stephen Smith, Shadow
Minister for Health and Ageing, Affordable
Health Care for Australians and the nation , Paper presented to
the Health Insurance Summit, 24 July 2002 Hilton Sydney; Joanne
Gray, An unhealthy prognosis , Australian Financial
Review, 27 February 2002.
- PHIAC, Annual
Report, Commonwealth of Australia, 2002.
- Shaun Gath, Enhanced Consumer Rights in
Private Health Care: have the Lawrence amendments delivered?
Journal of Law and Medicine 6(3): 241 252
- Private Health Insurance Complaints
Commissioner, Annual Report, Commonwealth of Australia, 1998, p.
7.
- Gath, op. cit.
- The Private Health Insurance Administration
Council is a body appointed by the Health Minister under Part VIAA
of the NHA to carry out various advisory, supervisory and
information functions.
- See PHIAC,
Operations of the Registered Health Benefits Organisations Annual
Report 2002 and Standard & Poor s Australian Health
Insurance Report 2002.
- Bulter, op cit.
- The maximum loading is 70%
- See Explanatory Memorandum at p.
16.
- These relate to Life Health Cover.
- At p. 20.
- The modification is the new paragraph
67B(a).
- At p. 21.
- See paragraph (ma) of Schedule 1 of the
NHA.
- At p. 22.
- At p. 22.
- At p. 28.
- At p. 29.
- New subsection 73BEJ(2)
applies where there appears to
be a breach of the [NHA] involving improper discrimination by the
organization .
- At p. 30.
- In most cases an officer will be a director
of the RO.
- Persons born before 1 July 1934 are exempt
from LHC loading.
Angus Martyn and Amanda Elliot
20 June 20003
Bills Digest Service
Information and Research Services
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is taken to ensure that the paper is accurate and balanced, the
paper is written using information publicly available at the time
of production. The views expressed are those of the author and
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(IRS). Advice on legislation or legal policy issues contained in
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ISSN 1328-8091
© Commonwealth of Australia 2003
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