Bills Digest No. 99-100 2003-04
Medical Indemnity (IBNR Indemnity) Contribution Amendment Bill
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
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the appointment of a provisional liquidation to the United
Medical Protection group of companies (associated with this was the
fact that medical defence organisation s (MDO s) have made
insufficient provisioning for incurred but not reported claims
(IBNR s)),(2) and
large increases in the price paid by doctors for medical
Since 2002 the Federal and State Governments
have put in place a raft of measures designed to solve the medical
indemnity crisis. At the Federal level, eight different medical
indemnity related pieces of legislation have been passed by Federal
Parliament to address the crisis. In October 2003, following his
appointment as Health Minister, the Hon Tony Abbott announced the
establishment of the Medical Indemnity Policy Review Panel (the
Panel). The Panel was set up to develop further strategies to
address key issues emerging from the crisis. On 10 December 2003,
the Panel made a series of recommendations to address some of the
outstanding medical indemnity issues. This Bill gives effect to
some of the Panel s recommendations.
In May 2002, a provisional liquidator was
appointed to United Medical Protection Limited/Australasian Medical
Insurance Limited (UMP/AMIL). At the time, UMP/AMIL provided
insurance cover to approximately 60 per cent of medical
practitioners in Australia.(3) The provisional
liquidator, Mr David Lombe, identified three major factors
contributing to the failure of UMP/AMIL:
the lack of reserving for long term liabilities and consequently
insufficient premium pricing and failure to account for incurred
but not reported risk
the lack of management experience within the organisation,
the adverse financial impact of the amalgamation which created
the UMP Group.(4)
At the time the provisional liquidator was
appointed, UMP/AMIL was in severe financial difficulties. UMP and
AMIL had a deficiency of net assets of $49.869 million and $38.6
million respectively.(5) In addition to this, UMP/AMIL
had an estimated IBNR liability of $455 million.(6)
Following the appointment of the provisional
liquidator, the State and Federal Governments implemented a series
of measures to help re-establish the UMP Group. The scheme whereby
the Federal Government agreed to pay for UMP/AMIL s unfunded IBNRs
was one such measure. When established, the scheme was to be funded
by imposing a levy (the IBNR levy ) on doctors who were members of
UMP/AMIL on 1 July 2000.(7)
Doctors became aware of the size of the IBNR
levy when they received the levy notices in August 2003.
Essentially doctors were required to pay 50% of the doctor s annual
subscription to UMP/AMIL for the financial year that commenced on 1
July 2000. This is in addition to their normal insurance premiums.
Once doctors were aware of the size of their liabilities under the
scheme, they expressed strong opposition to the proposal. At a time
when premium levels were already regarded as being unaffordable or
nearing unaffordable levels for some parts of the medical
profession, the doctors regarded the imposition of this levy as
Following significant medical opposition to
the IBNR levy, the Government, on 3 October 2003, agreed to an
eighteen month moratorium on IBNR levy payments in excess of $1000.
The Medical Indemnity Amendment Act 2003 and the
Medical Indemnity (IBNR Indemnity) Contribution Amendment Act
2003 implemented the IBNR levy moratorium.
At the time that the moratorium was announced,
the Government also stated that it would set up a policy review
process to further consider the medical indemnity issues, such as
the IBNR levy scheme.
The Medical Indemnity Policy Review Panel (the
Panel) considered and reported on this issue. It noted the
Latest advice from the Australian Government
Actuary suggests that while the aggregate IBNR for UMP as at 30
June 2003 is now $482 million in net present value terms, the levy
on doctors need only raise $261 million. The balance is made up of
Government funded payments under the High Cost Claims Scheme,
subsidies and exemptions.
The Panel considers that is appropriate for UMP
doctors to make a contribution towards the cost of the IBNR
liability incurred by UMP ..
If the levy is to be retained, the Panel suggests
that any contribution required from doctors should be set as a
small percentage of their current income rather than the premium
they paid in 2000-01. This would address the problems faced by
doctors who have reduced their workload or even left practice since
The Panel also suggests that if the levy is to be
retained the length of time a doctor should pay the levy should be
linked to the period they belonged to UMP before 30 June 2000.
Doctors who were members for only one year should only pay the levy
for a year, those who were members for two years should pay for two
years and so on up to a maximum period of six
The Bill gives effect to this
The primary concern of doctors during the
course of the medical indemnity crisis has been the high cost of
acquiring medical indemnities. State, Territory and Federal
Government s have worked towards bringing down the high cost of
indemnities by addressing some of the cost drivers (namely
frequency and size of damages payouts), through tort law
The Government has also looked to ease the
pressure on some of the more high cost areas of the medical
profession by putting in place a medical indemnity premium subsidy
scheme. Under the scheme, the Commonwealth agreed to subsidise the
cost of medical indemnity premiums for obstetricians, procedural
general practitioners, neurosurgeons and GP registrars undertaking
procedural training, who practise Medicare billable procedures in
their area of specialty.
The Panel considered this medical indemnity
subsidy scheme and stated that:
Under arrangements introduced in 2003 the
Government subsidises premiums for doctors in particular high risk
areas of practice as a proportion of the difference between costs
in that area and costs in a comparator area of practice. However,
many other doctors face very large indemnity costs relative to
income (as shown in Table 1 above) and yet receive no
The Panel suggests that the Government should
introduce a new medical indemnity Premium Support Scheme to provide
assistance to insurers for them to support affordability across
specialties The current subsidy scheme would be abolished, with
funding folded into the new scheme. Special arrangements should
ensure that no currently subsidised doctor receives less support
under the new arrangements.
This assistance should be conditional on action by
insurers to have more acceptable premium income bands within
specialties, thus addressing the issue of affordability for low
income part-time doctors ..
The benefit of this new Premium Support Scheme is
that it is handled by the insurers, who reduce premiums payable by
doctors before they have to make a payment. Doctors would not need
to apply for subsidies.(9)
The Bills put in place necessary provisions so
that these recommendations can be implemented.
A further measure put in place by the
Government to reduce cost pressures on MDO s has been the High Cost
Claims Scheme. Under this scheme, the Commonwealth is to reimburse
medical indemnity providers, on a per claim basis, 50 per cent of
the insurance payout over $500 000.(10)
It has been argued that this scheme will
result in downward pressure on premiums by:
lowering the amount Medical Defence Organisations have to pay
reducing the amount of reinsurance MDO s will need to buy to
fund large claims, and
limiting MDO s exposure to large claims.
The Panel considered the High Cost Claims Scheme
and noted the following:
The Panel suggests that the Government should
provide increased support to the industry generally by reducing the
threshold at which the High Costs Claims Scheme begins to co-insure
claims from $500 000 to $300 000.(11)
This measure has been implemented through
The Panel has also recommended a number of
other changes. One of the key changes is the creation of the
Run-off Reinsurance Vehicle that will cover claims against doctors
who have retired, left private practice for more than three years,
or gone on maternity leave. The creation of this entity will be
dealt with in separate legislation.(12)
The second reading speech to the Bills states
The Government will contribute a combined total of
some $620 million over the next four years to meet medical
Anecdotal evidence indicates that the medical
profession and medical defence organisations support these
amendments. There has been little media coverage on these
The Medical Indemnity Amendment Bill 2004
(MIAB) and the Medical Indemnity (IBNR Indemnity) Contribution
Amendment Bill 2004 (MICA) put in place three key changes to the
Federal Government s medical indemnity arrangements. The Bills:
change the IBNR levy payment arrangements
introduce a single billing arrangement for doctors, and
put in place revised arrangements for the Premium Support
The Bills change the IBNR levy payment
arrangements. In particular the Bills change the name of IBNR levy
to UMP support payments (primarily through Schedule 3
MIAB), change the method of calculating the amount of the
UMP support payments, change the method of payment and collection
and puts in place new exemptions.
The proposed method used to calculate the
amount of the UMP Support Payment is set out in the Medical
Indemnity (IBNR Indemnity) Contribution Amendment Bill 2004.
Importantly, the eighteen month moratorium that commenced on 1 July
2003 will continue to apply. Once this moratorium ends, a doctor s
liabilities will be calculated using the following formula;
Doctors who were members of UMP at 30 June
2000 will pay whichever is the least of:
(a) their original IBNR
(b) 2 per cent of their
gross Medicare billable income, or
(c) $5,000 (item 23,
Schedule 1, MICA,).
Essentially, under this new arrangement, the
UMP support payment arrangements are linked directly to the doctor
s current financial circumstances, thereby making payments more
affordable for doctors. A key point regarding this new formula is
that under the new arrangement the annual amount a practitioner
will be required to pay will not exceed $5000.
The Health Insurance Commission (HIC) will
continue to be responsible for calculating the amount that each
practitioner is liable to pay each year.
The Medical Indemnity Act 2002 and
associated regulations set out circumstances where a practitioner
may be exempt from having to pay the UMP support payment. This Bill
amends the current list of exemptions in the Medical Indemnity
Act 2000 so that doctors whose Medicare billable income is
less than $5000 and health professionals whose medical income is
less than $5000 will be exempt from paying the annual levy during
that income period (item 4, Schedule 1, MIAB).
The Bill reduces the maximum number of years
that a doctor will be required to make support payments from ten
years to six years (item 5, Schedule 1, MIAB).
Doctors who were members of UMP for less than six years before 2000
will only be required to make payments for the number of years that
are equal to the number of years they were members of UMP
(item 5, Schedule 1, MIAB).
Item 25 Schedule 2, MIAB sets
out the arrangements for collection of the UMP support payments.
Under the Bill it is proposed that the medical indemnity insurer or
the MDO for the medical practitioner be the collection body for the
UMP support payment (previously it was the HIC). Under the Bill,
where the medical indemnity insurer or MDO issues the invoice for
payment of a premium for medical indemnity cover, they will also be
required to include in that invoice a request for payment of the
UMP support payment. The medical practitioner will be required to
pay their UMP support payment to the medical indemnity insurer or
the MDO. The collection body will then remit this money to the HIC.
If the collection body does not remit the money to the HIC in the
time specified, the collection body will be required to pay a late
Schedule 4 MIAB makes
amendments to the medical indemnity premium subsidy scheme
arrangements. The amendments allow premium subsidies to be paid
directly to medical indemnity insurers or MDO s. This will mean
that doctors will be able to receive their premium subsidies
automatically through reduced premiums from the medical indemnity
insurer or MDO, rather than by applying to the HIC for a premium
The Government has indicated that it intends
to expand the range of practice areas within the medical profession
that will be entitled to the premium subsidy.
These Bills put in place legislative
arrangements to change the operation of some of the Federal
Government s measures for addressing the medical indemnity crisis.
In particular the Bills make changes to the IBNR levy scheme
(renamed UMP support payment) and the premium subsidy scheme.
These amendments reduce the size of the UMP
support payments and will facilitate the more direct payment of
premium subsidies to doctors.
Included in this legislative package have been the following
Acts; Medical Indemnity Act 2002, Medical Indemnity (Enhanced UMP
Indemnity) Contribution Act 2002, Medical Indemnity (Consequential
Amendments) Act 2002, Medical Indemnity Agreement (Financial
Assistance-Binding Commonwealth Obligations) Act 2002, Medical
Indemnity (IBNR Indemnity) Contribution Amendment Act 2003, Medical
Indemnity Amendment Act 2003, Medical Indemnity (Prudential
Supervision and Product Standards) Act 2003, Medical Indemnity
(Prudential Supervision and Product Standards) (Consequential
Amendments) Act 2003.
Historically, MDOs provided their members with claims incurred
cover. Under a claims incurred policy, doctors were insured against
injuries to patient brought about through conduct which took place
during the term of the policy. The patient s claim could be
notified to the MDO at any time; ie during the term of the policy
or once the policy has lapsed (for example, five years after the
policy has lapsed).
Incidents which occur during the term of the
policy, giving rise to a claim that is reported to the MDO after
the policy has lapsed are referred to as incurred but not reported
Gillian Harrex, Karen Johnston and Estelle Pearson, Medical
Indemnity in Australia; Presented to the Institute of Actuaries in
Australia; XIII General Insurance Seminar, Trowbrindge Consulting,
November 2001, p. 9.
United Medical Protection & Ors  NSWSC 1031, p. 21.
Further analysis of the collapse of UMP/AMIL can be found in this
judgement where Justice Austin considers the termination of the
appointment of the provisional liquidator and discontinuance of the
winding up proceedings for the UMP Group.
ibid., p. 14.
ibid., p. 19.
The legislation that put this scheme into place was the Medical
Indemnity Act 2002 and the Medical Indemnity (Enhanced UMP
Indemnity) Contribution Act 2002.
Medical Indemnity Policy Review Panel, Affordable, Secure and
Fair: Report to the Prime Minister, 10 December 2003, Canberra, p.
ibid., p. 14 15.
Note the initial level was $2 million and this amount was
revised down to $500,000 in October 2003.
Medical Indemnity Policy Review Panel, op. cit., p. 15.
Second Reading Speech, Medical Indemnity Amendment Bill 2004,
Medical Indemnity (IBNR Indemnity) Contribution Amendment Bill
5 March 2004
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