Bills Digest No. 70, 2004–05
Private Health Insurance Incentives Amendment Bill
2004
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
Private Health
Insurance Incentives Amendment Bill 2004
Date
Introduced: 18
November 2004
House: House of Representatives
Portfolio: Health and Ageing
Commencement:
Upon Royal
Assent
The Bill amends the Private
Health Insurance Incentives Act 1998 and the Income Tax
Assessment Act 1997 to provide an increase in the private
health insurance rebate from 30 per cent to 35 per cent for people
aged between 65 and 69 years, and to 40 per cent for people aged
over 70 years.
The Bill also makes a minor consequential
amendment to the National Health Act 1953 extending
protection from the application of Lifetime Health Cover,
established via the Health Legislation Amendment (Private
Health Insurance Reform) Act 2004, to persons issued with a
Gold Card from 1 July 2004 under the Military Rehabilitation
and Compensation Act 2004.
Prior to the 2004 election, the Government announced that from 1
April 2005 it would increase the private health insurance rebate
(PHI Rebate) for people aged over 65 years.
The current PHI Rebate reduces the cost of private health
insurance (PHI) premiums for Australians of all ages by 30 per
cent. The amendments contained in this Bill will further reduce the
cost of PHI for older Australians by increasing the rebate from 30
per cent to 35 per cent for policies covering at least one person
aged 65 to 69 years, and to 40 per cent for policies covering at
least one person aged 70 years and older.
Announcing this change, the Prime Minister provided the
following explanation for increasing the rebate for people aged
over 65 years:
Many older Australians have contributed to private
health insurance for most of their adult lives. They have
contributed during their younger years while enjoying good health.
Now, when they need private health insurance cover most, it is
important that premiums remain affordable. The Government believes
that older Australians, particularly those on fixed and low to
moderate retirement incomes, deserve a further reward for
contributions over the years of their health fund
membership.(1)
As with the existing 30 per cent PHI Rebate, the new increased
rebate for older Australians will not be income tested.
Prior to the election, the Government estimated the cost of the
new measures would be $445.5 million over four years. No further
estimate has been made available since this time. Following the
introduction of this Bill, the Minister for Health and Ageing said
that the measure would make PHI premiums $100 to $200 per year
cheaper for older Australians , though detailed costings have not
been released.(2)
It should be noted, however, that it is particularly difficult
to calculate an accurate estimate of the average cost of a PHI
premium due to the extremely wide variety of policy types (and
hence premiums) in the PHI market. The fact that the PHI Rebate is
available for all types of PHI cover, including hospital and
ancillary, makes it even more difficult to derive an estimate of
the average benefit to older Australians under the increased
rebate.
According to the Department of Treasury Pre-election
Economic and Fiscal Outlook document released prior to the
2004 election, the increased rebate for people aged over 65 years
will increase the overall cost of the PHI Rebate by $29 million in
2004-05.(3) When this figure is added to the forward
estimate of $2.495 billion provided in the 2004-05 federal budget,
the total cost of the PHI Rebate in 2004-05 comes to approximately
$2.525 billion. This is shown in the table below, which illustrates
expenditure (actual and projected) on the PHI Rebate from its
introduction in 1998-99 to the current financial
year.(4)
Existing rebate and other private health
insurance measures
The PHI Rebate was introduced on 1 January 1999 with the aim of
stemming the decline in private health insurance membership and
creating a better balance between the private and public health
sectors. The PHI Rebate replaced an existing income tested private
health insurance incentives measure, the Private Health Insurance
Incentive Scheme (PHIIS). The PHIIS had operated since 1 July 1997,
one of a series of related measures introduced over the last
decade, including the Medicare Levy Surcharge and Lifetime Health
Cover (LHC).
The proportion of Australians with private health insurance
hospital cover declined significantly following the introduction of
Medicare, from 50.0 per cent in June 1984 to 30.6 per cent in June
1998. From 1998, PHI coverage has risen to a high of 45.7 per cent
in September 2000, but since then has gradually declined, with the
exception of a small rise in the most recent quarter (up 0.1 per
cent to 43 per cent).
While, it is not possible to say with any certainty which of the
above measures is responsible for the rise in private health
insurance membership since 1999, it is worth noting that the
greatest increase came in the months immediately prior to the 1
July 2000 deadline for taking out a PHI policy under the LHC
legislation. PHI hospital coverage rose steeply (by 33 per cent)
between the March and the June quarters in 2000 (from 32.2 per cent
to 43.0 per cent). Under LHC, an uninsured person needed to take
out private health insurance (hospital cover) before this date in
order to have their premiums set at the base rate for the rest of
their lives. Some commentators have therefore emphasised the role
of the LHC stick in preference to the PHI Rebate carrot in causing
the rise in PHI membership since 2002.(5)
Currently, there are three ways of claiming the PHI Rebate: as a
direct payment, a reduced premium or as a tax offset.
The proposed amendments to the Private Health
Insurance Incentives Act 1998 will increase the direct payment
or reduced premium available to people aged 65-69 years (to 35 per
cent of the premium cost) and 70 years and over (to 40 per cent of
the premium cost) who hold private health insurance.
The proposed amendments to the Income Tax Assessment Act
1997 will increase the tax offset available to people aged
65-69 years (to 35 per cent of the premium cost) and 70 years and
over (to 40 per cent of the premium cost) who hold private health
insurance.
As with the current PHI Rebate, the higher rebate will be
available for hospital, ancillary and combined cover. It will apply
to the whole premium for PHI policies where one or more of the
individuals covered qualify for the age threshold.
Where a person is entitled to an increased rebate because
someone else on the policy is 65 or older, he or she will continue
to be entitled to the higher rebate if the older person leaves the
policy (for example, in the event of death, divorce or separation),
provided that the policy is not replaced by a couples or family
policy with another person (other than adding a dependent child).
This is savings provision is intended to ensure that a change in
family circumstances will not lead to overpayment and a debt to the
government. The savings provision will not apply where its
application would result in less rebate being payable.
The Government s announcement of the increased PHI Rebate for
people aged over 65 years was welcomed by a number of interest
groups within both the health and ageing sectors, including the
Australian Health Insurance Association (AHIA), the Australian
Medical Association (AMA), the Australian Private Hospitals
Association (APHA), Catholic Health Australia (CHA), and the
Council on the Ageing National Seniors Partnership (COTA NSP).
For example, AHIA Chief Executive Officer, Russell Schneider,
argued that the policy would be beneficial as it would reduce the
stress on public hospitals through increasing the possibility that
more people aged over 65 will be able to either keep their private
health insurance or afford to take out cover .(6) AMA
National President, Dr Bill Glasson said that the initiative would
give people over 65 with private health insurance greater access,
affordability and choice for their complex health
needs.(7) COTA NSP joint Chief Executive Officer, David
Deans, also welcomed the proposal to increase the rebate, arguing
that while people aged over 65 were more likely to require elective
procedures, many people in that age bracket were finding it harder
to afford PHI: [the increased rebate] lets them get that done
straight away rather than having to wait on a public waiting list
.(8)
In contrast, the policy to increase the rebate for over 65s was
criticised by other interest groups such as the Australian
Consumers Association (ACA) and the Doctors Reform Society (DRS).
Nicola Ballenden of the ACA argued that the measure would increase
PHI premiums and possibly result in a fall in numbers of people
insured, because benefits paid to older customers by PHI funds
exceed their contributions (meaning that health funds make a loss
on their over 65 customers which they need to recoup by charging
younger customers more ).(9) The DRS criticised the
measure as likely to lead to more doctors and nurses moving from
the already desperately understaffed public hospital system to the
private hospital system.(10)
Commentary on the Government s policy to increase the PHI Rebate
for those aged over 65 years has been wide-ranging, encompassing
broader debates about the efficacy, cost-effectiveness and
appropriateness of the existing PHI Rebate, and other measures
designed to shift the balance of the health sector more towards
private sources of finance and delivery in general. While such
debates are clearly important, they are beyond the scope of this
digest and so will not be covered in any depth. Instead, the digest
is specifically directed at an analysis of specific claims made in
relation to this Bill.
The main explanation provided by the Government in support of
the increased rebate measure is that it further rewards older
Australians, particularly those on fixed and low to moderate
retirement incomes, for their years of health fund membership by
making PHI more affordable. While it is probably the case that,
initially, PHI will become more affordable for people aged over 65,
the issue of affordability is complicated by a number of factors,
including:
-
the fact that while people aged over 65 account for only around
12 per cent of those with PHI hospital membership, but they receive
approximately 44 per cent of hospital benefits paid by PHI funds
due to their heavier use of healthcare services.(11) If
the new increased rebate led to an increase in coverage among
people aged over 65, this could have an inflationary effect on the
cost of providing PHI, and hence lead to premium increases. This in
turn could have the effect of causing younger people to abandon
their PHI coverage, which would also be likely to put further
financial pressure on PHI funds. Some commentators have argued that
this may also lead to the value of the increased rebate to over 65s
being eroded by higher premiums.(12)
-
at the same time, it is possible that the LHC regulations which,
as noted above, penalise those over 30 who did not take out PHI
before July 2000, will make it less likely that over 65s who are
not insured will take up PHI. This is due to the fact that the LHC
penalties would be likely to erode the benefits obtained from
taking out PHI and hence becoming eligible for the increased
rebate.
-
while it is the case that the increased rebate will provide for
a greater reward for older Australians than under the existing
rebate, the available evidence indicates that this reward is most
likely to be concentrated among people in higher income brackets as
they are more likely than those in lower income brackets to have
PHI. While it is difficult to provide accurate information on PHI
membership by income level, the Australian Council of Social
Services (ACOSS) has published survey data indicating that 84 per
cent of those aged over 65 years who have incomes over $100,000 are
covered by PHI, while only 23 per cent of persons with an income
below $20,000 are covered by PHI. These figures indicate that the
benefits of any increase in the rebate for older Australians may,
on the whole, go principally to those on higher
incomes.(13)
- there is also evidence that people in rural and regional areas
have substantially lower PHI coverage than those living in capital
cities. A 2003 report using unpublished ABS data suggested that
this meant that people in rural and regional areas received an
estimated $100 million less of the PHI Rebate than if funds were
allocated on a per capita basis.(14)
While the Government has not responded directly to commentary
such as the above, the Minister for Health and Ageing has stated
that he does not believe that increased rebate will lead to a vast
increase in the number of people aged over 65 who take out
PHI.(15) As such, both the Minister and the Prime
Minister have both indicated that they regard the increased rebate
more as reward for those who already hold PHI, than a measure aimed
at increasing PHI coverage.(16) This would indicate that
the Government does not view as likely the possibility that the
increased rebate will have an inflationary impact on the PHI
market. The Prime Minister has also challenged the view that the
reward from the increased rebate will be concentrated among those
on higher incomes by stating that there is a very high number of
people on low incomes over the age of 65 who take out private
health insurance .(17)
The formal position of the ALP on the measures proposed in the
Bill has not been announced. Following the announcement of the
Government s intention to increase the PHI Rebate for over 65s, the
Opposition Leader Mark Latham indicated that Labor would oppose the
measures, stating that any additional health funding should be
spent on the public system, rather than on private
healthcare.(18) However, recent media reports have
indicated that, while Labor continues to have misgivings, it may
support the Bill on the grounds that the Government could be
considered to have received a mandate to introduce the measure
following its election victory.(19)
The Australian Democrats health spokeswoman Senator Lyn Allison,
and Australian Progressive Alliance Senator Meg Lees and Greens
Senator Kerry Nettle have each criticised the increased rebate
measure on the grounds that it wastes money that they believe
should be put into the public healthcare system. Each has also
indicated that they would oppose the Bill.
The Government also proposes to make a minor
consequential amendment to legislation concerning Lifetime Health
Cover. The proposed amendment to the National Health Act
1953 would extend protection from the application of LHC to
persons issued with a Veterans Affairs Gold Card from 1 July 2004
under the Military Rehabilitation and Compensation Act
2004.
The Gold Card is a health treatment card for eligible war
service veterans that provides for access to the full range of
medical, hospital, pharmaceutical, dental and allied health
services. A patient contribution is required for pharmaceutical
services and nursing home care. The Gold Card also provides for the
costs of transport to access treatment and medical services. It
provides the equivalent of top of the range private health
cover.
According to the Department of Veterans Affairs,
as of July 2004 there were 269,544 Australians with a Gold
Card.(20)
Under the Veterans' Entitlements Act 1986 (VEA), those entitled
to a Gold Card are veterans of Australia's defence force who:
-
served in Australia's defence force after World War II, who are
aged 70 or over and have qualifying service under section 7A of the
VEA,
-
are World War II veterans who served in Australia's defence
forces and mariners who served in Australia's merchant navy,
between 3 September 1939 and 29 October 1945, who are aged 70 years
or over, and have qualifying service from that conflict,
-
are returned ex-servicewomen of World War II, that is, who
served in Australia's Defence Force between 3 September 1939 and 29
October 1945 and who have qualifying service from that
conflict,
-
are ex-prisoners of war,
-
receive a disability pension at or above 100 per cent of the
general rate,
-
receive a disability pension at or above 50 per cent of the
general rate plus any amount of service pension,
-
receive a disability pension including an additional amount
under section 27 of the VEA for specific service-related
amputations or blindness in one eye,
-
receive a service pension and satisfy the treatment benefits
eligibility income and assets test,
-
receive a service pension and are permanently blind in both
eyes,
-
receive a disability pension for pulmonary tuberculosis before 2
November 1978, or
-
served in World War I.
The National Health Amendment (Lifetime
Health Cover) Bill 1999 passed the Senate on
27 September 1999. The main purpose of this measure was to
encourage more Australians to take out PHI at a younger age and to
maintain that insurance by establishing penalties in the form of
higher payments for those that did not take out PHI membership
before 1 July 2000. As noted above, this measure appears to have
been at least partially responsible for the increase in PHI
coverage that occurred in 2000, where it appears that people took
out PHI in large numbers to avoid penalty under LHC
arrangements.
This legislation introduced a major change to PHI
arrangements and, in particular, to community rating, by permitting
health funds to charge different premiums depending on the age at
which people take up private health insurance. Under the new
arrangements an uninsured person was able take out private health
insurance (hospital cover) at any time before 1 July 2000 and pay
the base rate (set at 30 years of age) for the rest of their lives
provided they remained insured.
Under existing LHC arrangements, special
provisions apply to people born prior to 1 July 1934. These enable
such people to join a health fund at any time and still pay the
base rate for the rest of their lives. The measure proposed in this
Bill extends this protection against the LHC provisions to Gold
Card holders. This means that Gold Card holders can join a health
fund at any time and still pay the base rate for the rest of their
lives.
The measure appears to be relatively
uncontroversial and has not attracted significant commentary from
opposition parties or interest groups.
Item 1 proposes to repeal subsections 4-10(5)
and (6) of the Private Health Insurance Incentives Act
1998 and substitutes new subsections 4-10(5) and (6), to
introduce the 35 per cent and 40 per cent PHI Rebate where the
choice is made to make a direct claim for the rebate from
Medicare offices.
Item 2 proposes to insert a new section 4-12,
to establish a savings provision. This is intended to ensure that,
where a person ( the first person ) is entitled to an increased
rebate because someone else on the policy is 65 or older, he or she
will continue to be entitled to the higher rebate if the older
person leaves the policy (for example, in the event of death,
divorce or separation), provided that the policy is not replaced by
a couples or family policy with another person (other than adding a
dependent child).
The savings provision will not apply where its application would
result in less rebate being payable.
Item 3 proposes to repeal subsections 12-5(2A)
and (3) of the Private Health Insurance Incentives Act
1998 and substitutes new subsections 12-5(2A) and (3), to
introduce the 35 per cent and 40 per cent PHI Rebate where the
choice is made to receive the rebate as a premium reduction
through PHI funds.
Item 4 proposes to insert a new section 12-7,
to establish a savings provision. As with the savings provision
outlined in item 2, this is intended to ensure that, where a person
( the first person ) is entitled to an increased rebate because
someone else on the policy is 65 or older, he or she will continue
to be entitled to the higher rebate if the older person leaves the
policy (for example, in the event of death, divorce or separation),
provided that the policy is not replaced by a couples or family
policy with another person (other than adding a dependent
child).
The savings provision will not apply where its application would
result in less rebate being payable.
Item 5 proposes to repeal subsections 61-340(5)
and (6) of the Income Tax Assessment Act 1997 and
substitutes new subsections 61-340(5) and (6), to introduce the 35
per cent and 40 per cent PHI Rebate where the choice is made to
receive the rebate as a tax offset in annual tax
returns.
Item 6 proposes to insert a new section 61-342,
to establish a savings provision. As with the savings provision
outlined in items 2 and 4, this is intended to ensure that, where a
person ( the first person ) is entitled to an increased rebate
because someone else on the policy is 65 or older, he or she will
continue to be entitled to the higher rebate if the older person
leaves the policy (for example, in the event of death, divorce or
separation), provided that the policy is not replaced by a couples
or family policy with another person (other than adding a dependent
child).
The savings provision will not apply where its application would
result in less rebate being payable.
Item 7 proposes that amendments made by this
Schedule will apply on and from 1 April 2005.
Item 1 proposes to replace the reference in
paragraph 4(2)(a) of Schedule 2 of the National Health Act
1953 to under the Veterans Entitlement Act 1986 ,
with the amended definition in subclause 4(3) of Schedule 2 which
references Gold Cards issued under both the Veterans
Entitlement Act 1986 and the Military Rehabilitation and
Compensation Act 2004.
This will have the effect of extending protection from the
application of a Lifetime Health Cover loading to persons issued
with a Veterans Affairs Gold Card.
Item 2 proposes to replace the current
definition of Gold Card with a new definition which references Gold
Cards provided in accordance with both the Veterans Entitlement
Act 1986 or the Military Rehabilitation and Compensation
Act 2004.
Item 3 proposes to make the amendments in item
2 retrospective, thereby ensuring that anyone issued with a Gold
Card under the Military Rehabilitation and Compensation Act
2004 from 1 July 2004 is covered by the amendment,
and protected from the application of a Lifetime Health Cover
loading from this date.
Concluding Comments
As discussed above, the measures proposed by Schedule 1 of this
Bill have been the subject of wide-ranging public debate.
Commentary on the measure has involved discussion of:
-
broader questions about the efficacy, cost-effectiveness and
appropriateness of the existing PHI Rebate, and other measures
designed to shift the balance of the health sector more towards
private sources of finance and delivery in general; and
-
the specific claim by the Government that the increased rebate
for over 65s rewards older Australians for their years of health
fund membership by making PHI more affordable.
-
The increased rebate has been supported by a number of key
interest groups in both the health and ageing sectors on the
grounds that, by making PHI more affordable, the measure will
enable people aged over 65 to either take out health insurance or
retain their existing coverage. Some commentators have argued,
however, that the issue of affordability is complicated by a number
of factors, including:
-
the possibility that the introduction of more people aged over
65 to the PHI market, could have an inflationary effect on PHI
premiums. This is because while people in this age bracket account
for only 12 per cent of those covered by PHI, they receive around
44 per cent of benefits from PHI funds, due to their higher than
average use of healthcare services;
-
the possibility that Lifetime Health Cover (LHC) regulations may
make it less likely that over 65s who are not insured will take up
PHI due to the fact that the LHC penalties could erode the benefits
obtained from taking out PHI and hence becoming eligible for the
increased rebate; and
-
the possibility that the reward for older Australians derived
from the increased rebate is most likely to be concentrated among
people in higher income brackets and those in capital cities (i.e.
those more likely to be holders of PHI).
The Government s position, however, is that the increased rebate
is unlikely to lead to a significant increase in numbers of people
aged over 65 with PHI. This indicates that the Government does not
regard the measure as likely to have an inflationary impact on the
PH market. The Government has also taken the position that
increased rebate will reward a broad cross-section of Australians
with PHI, not just those on high incomes.
The amendments to the National Health Act proposed by
Schedule 2 relate to the proposal to extend protection from the
application of LHC to persons issued with a Veterans Affairs Gold
Card from 1 July 2004 under the Military Rehabilitation and
Compensation Act 2004. As discussed above, the measure appears
to be relatively uncontroversial and has not attracted significant
commentary from opposition parties or interest groups.
-
Hon. J Howard, Government rewards older Australians who
contribute to private health insurance, media release, Prime
Minister of Australia, 22 August 2004.
-
Hon. T. Abbott, More help for older Australians, media
release, Minister for Health and Ageing, 18 November 2004.
-
Department of Treasury, Pre-election Economic and Fiscal
Outlook, Canberra, 2004.
-
The figures for 1998-99 to 2002-03 are sourced from the
Department of Health and Ageing s Annual Reports for those years;
the 2003-04 figure is from the 2004-05 Health and Ageing Portfolio
Budget Statement; the 2004-05 figure is the forward estimate
contained in the 2004-05 Health and Ageing Portfolio Budget
Statement ($2,495 billion), plus the anticipated cost of the higher
rebate for over 65s in 2004 05 ($29 million) contained in the
Department of Treasury s Pre-election Economic and Fiscal
Outlook.
-
M. Steketee, Private subsidy a public quandary , The
Australian, 11 April 2002.
-
S. Balogh, Health discount to woo ageing , Courier
Mail, 23 August 2004.
-
B. Glasson, Increased rebate will benefit older
Australians, media release, Australian Medical Association, 23
August 2004.
-
S. Balogh, op. cit.
-
N. Ballenden, Health insurance measure means higher
premiums, media release, Australian Consumers Association, 23
August 2004.
-
C. Costa, T. Woodruff and T. Schrader, Private health rebate
increase will take doctors from understaffed public hospitals,
media release, Doctors Reform Society, 22 August 2004.
-
Private Health Insurance Administration Council (PHIAC),
PHIAC A Reports, PHIAC, 2004.
-
See, for example, N. Ballenden, op. cit.
-
G. Macfie, New data shows private health insurance inequity ,
ACOSS Info 364, September 2004.
-
R. Dennis, Health spending in the bush: an analysis of the
geographic distribution of the private health insurance
rebate, The Australia Institute, September 2003.
-
T. Abbott, Interview with Matthew
Abraham and David Bevan ABC
891, ABC Radio, 23 August 2004.
-
See, for example J. Howard, Transcript of the Prime Minister
the Hon John Howard MP Joint Press Conference with Tony Abbott,
Minister for Health and Ageing, St George Private Hospital,
Kogarah, NSW, media release, Prime Minister, 22 August
2004.
-
Ibid.
-
E. Macdonald, Aged rebate in doubt as parties refuse support ,
Canberra Times, 24 August 2004.
-
J. Gillard, Governor-General to open Parliament tomorrow; Shadow
ministers comment on government agenda , AM, ABC Radio, 15
November 2004.
-
Department of Veterans Affairs (DVA), Treatment population
statistics June 2004, DVA, 2004.
Luke Buckmaster
3 December 2004
Bills Digest Service
Information and Research Services
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Australian Parliament using information available at the time of
production. The views expressed do not reflect an official position
of the Information and Research Service, nor do they constitute
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IRS staff are available to discuss the paper's
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ISSN 1328-8091
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