Bills Digest No. 23  1998-99 Private Health Insurance Incentives Bill 1998


Numerical Index | Alphabetical Index

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
Contact Officer and Copyright Details

Passage History

Private Health Insurance Incentives Bill 1998

Date Introduced: 12 November 1998

House: House of Representatives

Portfolio: Health and Aged Care

Commencement: Upon Royal Assent

Purpose

The government has introduced a trilogy of bills, which combine to replace the current private health insurance incentives initiative with another incentives payment scheme aimed at reducing the decline in private health insurance membership and restoring the balance in the health system.

The incentive will be equal to 30% of the cost of private health insurance cover and will not be income tested.

The Private Health Insurance Incentives Bill 1998 (the Bill) introduces incentives in the form of either direct payments or reduced premiums.

This Bill is complimented by the introduction of the Taxation Laws Amendment (Private Health Insurance) Bill 1998, which provides an alternative incentive in the form of tax offsets (rebates).

The Private Health Insurance Incentives Amendment Bill 1998 completes the reform package by providing for the closing off of the current Private Health Insurance Incentives Scheme (PHIIS) and the repeal of the Private Health Insurance Incentives Act 1997 on 1 July 2000.

Background

The current PHIIS has operated from 1 July 1997. The benefit is provided by way of either reduced premiums or tax offset. The scheme is income tested and is therefore not available to singles with incomes above $35,000 nor couples or families with combined incomes in excess of $70,000. The threshold is increased for those with dependent children.

The current incentive amount is dependent upon the type of policy held, but a guide to the benefits available would be $250.00 to a couple with hospital and ancillary cover and $450.00 for families.

There have been dramatic changes in the proportion of the population covered by private health insurance over the last decade or so. In relation to hospital cover, at 30 June 1984, 50.0% of the population had private health cover. In 1998 coverage had fallen to 30.6%.

In 1996 the coverage was 33.6% and in 1997 31.9%. The 1998 figures showed a continued decline in membership to 30.6% but the rate of decline had apparently slowed.

Main Provisions

Private Health Insurance Incentives Bill 1998

1. Chapter 2 - The incentive payments scheme

1.1 Summary

Chapter 2 establishes a scheme under which people who, or whose employers on their behalf, pay premiums under an appropriate private health insurance policy are entitled to an incentive payment. The payment generally represents the greater of 30% of the amount of premium paid or an incentive amount which is specified in table form in Chapter 4.

1.2 Part 2 - Entitlement to, and calculation of, payments

1.2.1 Entitlement

New section 4-5 states that a person is entitled to a payment under Chapter 2 if:

  • the person has paid a premium under an appropriate private health insurance policy; or
  • an employer has paid, as a fringe benefit, a premium for the person under an appropriate private health insurance policy.

A person is not entitled to a payment under the Chapter if the premium paid by the person has already been reduced pursuant to the premiums reduction scheme set out in Chapter 3. New section 4-5(2)

The terms appropriate private health insurance policy and fringe benefit are defined in Chapter 4, new section 20-5.

1.2.2 Calculation

New section 4-10 determines the amount payable under Chapter 2. Basically the amount payable is the greater of:

  • 30% of the amount of the premium paid by the person or by the person's employer as a fringe benefit on behalf of the person for the financial year; or
  • the incentive amount for the policy for the financial year.

It should be noted that if a person was not registered or eligible to apply for registration before 1 January 1999 under the Private Health Insurance Incentives Act 1997 in respect of a policy for the financial year that began on 1 July 1998, the amount payable is 30% of the amount of the premium paid by the person or the person's employer.

New subsection 4-10(7) states that the amount payable under the Chapter is reduced by the amount of any tax offset received by the person.

1.3 Part 3 - Claims for payments under the incentive payments scheme

Pursuant to new section 6-5 payment for entitlement under new section 4-5 is conditional upon the making of a proper claim for payment of the amount.

New section 6-10 sets out the requirements which must be followed in order for the claim to be a proper claim. These include lodging the appropriate form, together with all information required by the form with the Health Insurance Commission ("HIC") in the financial or following financial year in which payment of the premium was made.

1.4 Part 4 - Notification requirements and information to be provided to the HIC

Under new section 8-5 where an event or circumstance occurs, including a change in premium, which affects a person's entitlement to a payment, the person must notify the HIC, in writing, within 30 days.

Pursuant to new section 8-10 the HIC may, in writing, require a health fund to provide certain information relevant to the operation of Chapter 2 about a person who is covered by an appropriate private health insurance policy or paid premiums under such policy.

Under new subsection 8-10(4) criminal responsibility attaches to any failure to provide notification or information required by Part 4.

2. Chapter 3 - The premium reduction scheme

2.1 Summary

The premiums reduction scheme contained in Chapter 3 of the Bill permits a person who is covered by an appropriate health insurance policy to register with the person's participating health fund in order to obtain a reduction in the premiums payable under the policy. The premium reduction is generally the greater of 30% of the amount of premium payable or an incentive amount which is specified in table form in Chapter 4.

2.2 Part 5 - Participation in the premiums reduction scheme

2.2.1 Eligibility

New section 10-5 states that a person is eligible to participate in the premiums reduction scheme if:

  • the policy is an approved private health insurance policy; and
  • the health fund is a participating fund; and
  • the person is eligible to apply for registration under the scheme.

The terms health fund, private health insurance policy and participating fund are defined in Chapter 4, new section 20-5

2.2.2 Participation

To participate in the premium reduction scheme a person must apply to the health fund that issued the policy to be registered by the HIC in respect of the policy for that year. The HIC must in turn give notice of registration to the health fund. New section 11-5

The application for registration must be in a form approved by the Minister and specify certain details. New section 11-15

If a detail in an application for registration changes in a way that would affect the incentive amount for the policy, notification must be given to the health fund within 30 days. Failure to do so attracts a criminal penalty. New section 11-30

2.2.3 Effect of the premiums reduction scheme on insurance premiums

Under new section 12-5 the amount of premium is reduced by the greater of:

  • 30% of the amount of the premium payable for the financial year; or
  • the incentive amount for the policy for the financial year.

A reduction of premium is not allowable if an amount has been received under Chapter 2 in respect of the payment. New subsection 12-5(4)

In working out the reduction of premium under Chapter 3 any part of the amount of premium payable that relates to a period before 1 January 1999 is to be disregarded. New subsection 12-5(5)

2.3 Part 6 - Reimbursement of health funds

2.3.1 Participating funds

Part 6 concerns health fund participation in the premiums reduction scheme and the manner in which the Commonwealth reimburses a fund for the reductions in premiums that they make under the scheme.

A health fund must make an application to the Minister no later than 2 months before the start of the financial year to become a participating fund. If a fund becomes registered during a financial year, the application must be made as soon as practicable after the fund was registered. New section 14-10

A health fund that was for the financial year that began on 1 July 1998, a participating fund for the purposes of the Private Health Insurance Incentives Act 1997, will be taken to be a participating fund for that year for the purposes of the Bill. New section 14-5

2.3.2 Reimbursement

A health fund may claim reimbursement from the HIC on a monthly basis for the sum of the amounts by which premiums for that month were reduced because of the operation of the premiums reduction scheme. New sections 15-5 and 15-15

2.3.3 Audits by the Health Insurance Commission

Pursuant to new section 16-5 the HIC may at any time, audit the accounts and records of a health fund that is, or has been, a participating health fund. The audit must only relate to accounts and records dealing with the premiums reduction scheme.

3. Chapter 4 - Provisions applying both to the incentive payments scheme and the premiums reduction scheme

3.1 Summary

Chapter 4 contains general provisions that relate to both the incentive payments and premium reduction schemes. It deals with recovery of debts owed by either individuals or health funds, secrecy provisions and includes a dictionary of defined terms.

3.2 Part 7 - Recovery of payments and other miscellaneous provisions

3.2.1 Recovery

Briefly the following amounts are recoverable under new section 18-5 as debts due to the Commonwealth:

  • a payment made to a person under the incentives payment scheme to which the person was not entitled; and
  • so much of a payment that was made pursuant to a claim by a health fund in relation to a reduction in premiums that was not payable.

Where an amount is recoverable under the incentives payment scheme, including interest, the amount is recoverable from an individual or an individual's estate. New subsection 18-5(2)

Where an amount is recoverable in relation to the premium reduction scheme, including interest, the amount is recoverable from the health fund. Subsection 18-5(2)

An amount is recoverable whether or not any person has been convicted of an offence relating to the payment.

3.2.2 Miscellaneous provisions

A person is guilty of an offence and liable to imprisonment for a maximum of two years if they breach the secrecy provisions contained in new section 19-5.

Pursuant to new section 19-10 application may be made to the Administrative Appeals Tribunal for review of certain specified decisions, primarily concerning decisions by the Health Insurance Commission in relation to registration and claims.

3.3 Part 8 - Dictionary of defined expressions

Part 8 contains a dictionary of defined terms that are not previously dealt with in the Bill. Of particular relevance for the calculation provisions is the definition of incentive amount. For ease of reference the table appearing at section 20-10 is reproduced below.

Item

Number & kinds of people covered by the policy

Policy provides hospital cover but not ancillary cover

Policy provides ancillary cover but not hospital cover

Policy provides combined cover

1

3 or more people

$350.00

$100.00

$450.00

2

One dependent child and one other person

$350.00

$100.00

$450.00

3

2 people neither of whom is a dependent child

$200.00

$50.00

$250.00

4

One person

$100.00

$25.00

$125.00

 

Taxation Laws Amendment (Private Health Insurance) Bill 1998

1. Schedules 1 & 2 - Private health insurance tax offset

The amendments contained in Schedules 1 & 2 to the Taxation Laws Amendment (Private Health Insurance) Bill 1998 provide a refundable tax offset as an alternative form of incentive for persons who take out private health insurance.

The offset is designed to mirror the incentive payments scheme in this Bill.

Please refer to the Bills Digest in respect of the Taxation Laws Amendment (Private Health Insurance) Bill 1998 for further detail.

Private Health Insurance Incentives Amendment Bill 1998

Schedules 1 & 2 - Amendment and repeal of the Private Health Insurance Incentives Act 1997

Schedule 1 provides transitional provisions that permit the closing off of the current PHIIS and Schedule 2 provides for the repeal of the Private Health Insurance Incentives Act 1997 from 1 July 2000. This should permit finalisation of administrative matters associated with the current scheme.

Please refer to the Bills Digest in respect of the Private Health Insurance Incentives Amendment Bill 1998 for further detail.

Concluding Comments

Financial Impacts

Administrative costs

The HIC will be responsible for administering the direct payment and premium reduction option and will no longer be responsible for administering the current PHIIS. Administrative costs will increase due the inclusion of the direct payment option, the making of determinations in relation to eligibility of participating funds and the broader range of persons to whom the scheme is available.

The Australian Taxation Office will be responsible for administering the tax offset option and will incur additional costs in modifying the existing systems to facilitate the administration of the tax offset.

The expected administrative costs of the new scheme are:

1998-99
$m

1999-2000
$m

2000-01
$m

2001-02
$m

14.6

7.8

7.5

7.5

 

 

Budgetary impact

The budgetary impact resulting from the new measures is:

1999-2000
$bn

2000-01
$bn

2001-02
$bn

2002-03
$bn

-1.09

-1.18

-1.27

-1.36

The current PHIIS provides a subsidy of between 8% and 14% of the cost of private hospital insurance. This will increase to 30% upon the introduction of the new scheme. In addition the removal of the income test will ensure that the new scheme is accessible to a broader range of persons.

Contact Officer and Copyright Details

Lesley Lang
23 November 1998
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care 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 should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

IRS staff are available to discuss the paper's contents with Senators and Members
and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 1998

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1998.

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