Bills Digest No. 71 2002-03
Medical Indemnity Bill 2002
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
Medical Indemnity Bill 2002
Medical Indemnity (IBNR
Indemnity) Contribution Bill 2002
Medical Indemnity (Enhanced
UMP Indemnity) Contribution Bill 2002
Medical Indemnity (Consequential
Amendments) Bill 2002
Date Introduced:
13 November 2002
House:
House of Representatives
Portfolio:
Health and Ageing
Commencement:
1 January 2003
Purpose
The purpose of the four bills is
to put into place measures to address the problems regarding medical indemnity
insurance.
Liability insurance protects the insured against the
consequences of being legally liable for injury or damage to third parties.
There are a number of types of liability insurance including personal
liability, public liability, professional indemnity, medical indemnity
and product liability.
The insurance market has recently experienced a number
of shocks including the collapse of HIH Insurance and the terrorist attacks
on the World Trade Centre towers on 11 September 2002.(1) These
large insurance shocks have contributed to the problems currently being
experienced in the medical indemnity insurance market.
Medical defence organisations (MDO's), state government
funds and commercial insurers provide medical indemnities to health professionals
such as doctors.(2)
MDO’s are not-for-profit mutual organisations. They are
established for the benefit of their members rather than for the financial
benefit of shareholders. MDO’s are not insurers. They do not issue insurance
contracts. They provide protection to their members in exchange for a
‘subscription’ income for membership into the organisation.
There are seven major medical defence organisations in
Australia; United Medical Protection, Medical Defence Association of Victoria,
Medical Indemnity Protection Society, Medical Defence Association of South
Australia, Medical Defence Association of Western Australia, Medical Protection
Society of Tasmania and Queensland Doctors Mutual Limited.(3)
Most MDO’s rely heavily on reinsurance to protect their
financial position. MDO’s can raise additional capital under their current
structural arrangements by charging increased subscriptions or ‘making
a call’ to members for an additional amount of money.
Since 1999, four of the main MDO’s have been required
to make a call on their members for additional funds.
The following events that relate to the medical indemnity
insurance market have occurred in recent months:
- A provisional liquidator was appointed to United Medical Protection
(UMP) and its wholly owned subsidiary Australian Medical Protection
Limited (AMIL) on 3 May 2002.(4)
- Collapse of UMP insurance would leave up to 60% of doctors in Australia
without professional indemnity cover.(5)
- There has been a large increase in the cost to medical practitioners
of subscribing to MDO’s.(6)
- MDO’s have not made sufficient provision for ‘incurred but not reported
claims’.
- One of the features of liability insurance is its ‘long tail’. This
means that there can be many years between when an injury occurs and
the time an insurer receives notice of a claim These claims are referred
to as incurred but not reported claims (IBNR’s). As IBNR’s are claims
that have occurred but have not been notified to the MDO, the MDO is
unable to assess the amount of money they will need in reserve to meet
the cost of these claims.
On 31 May 2002 the Government announced that it would
provide assistance to UMP/AMIL to cover payment for claims finalised and
incidents occurring between 29 April and 30 June (subsequently extended
to 31 December 2002) made under an existing or renewed policy.
On 23 October 2002 the Prime Minister announced that
the Government would implement the following additional set of measures
to address the medical indemnity crisis;
- An extension to the ‘claims made’ guarantee made by the Commonwealth
to UMP members from 31 December 2002 to 31 December 2003.
- This offer is contingent upon the New South Wales Supreme Court allowing
UMP and AMIL to continue in provisional liquidation and authorising
the Provisional Liquidator to accept the extension of the guarantee.(7)
- Government funding for incurred but not reported liability (IBNR)
of doctors that were MDO’s at 30 June 2000, where the IBNR’s are unfunded.
- Government reimbursement for medical indemnity providers (both MDO’s
and medical indemnity insurers) on a ‘per claim’ basis for 50 per cent
of the insurance payouts over $2 million for incidents notified on or
after 1 January 2003.
- Provision for premium subsidies to obstetricians, neurosurgeons and
procedural GP’s who undertake medicare billable procedures.
- Access to the subsidy conditional upon practitioners attending incident
management and quality assurance programs.
- Cost recovery measures.
- For unfunded IBNR’s, there will be a levy imposed on the members.
- Measures to place providers of medical indemnity insurance on an appropriate
prudential and commercial footing that will involve an expanded role
for the Australian Prudential Regulatory Authority (APRA).
The four bills discussed in this digest put in place
the legislative arrangements to give effect to the majority of these measures
(prudential regulation by APRA is not covered by the current set of legislative
measures).
In a recent article in Australian Doctor(8)
written by Pamela Burton Legal Counsel for the Federal AMA, Ms Burton
wrote that:
‘The package is a significant step forward in the
short term but its goals are very limited in relation to the problem
of escalating claims and costs….
We have major problems still with aspects of the
package. It does not achieve the long term reforms needed to put medical
indemnity on a sound footing….
The Government’s choice to subsidise certain high-risk
groups within the profession does not address the increasingly unfordable
premiums of other groups.
The medical indemnity legislative package contains four
bills; Medical Indemnity Bill 2002, Medical Indemnity (IBNR Indemnity)
Contribution Bill 2002, Medical Indemnity (Enhanced UMP Indemnity) Contribution
Bill 2002 and the Medical Indemnity (Consequential Amendments) Bill 2002.
The major amendments are contained within the Medical
Indemnity Bill 2002 (MIB).
The Medical Indemnity (IBNR Indemnity) Contribution Bill
2002 and the Medical Indemnity (Enhanced UMP Indemnity) Contribution Bill
2002 are both taxation bills and form part of the cost recovery measures.
The separate taxation Bills are necessary to satisfy
the requirements of section 55 of the Constitution which states, in part:
Laws imposing taxation shall deal only with the imposition
of taxation, and any provision therein dealing with any other matter
shall be of no effect.
The Medical Indemnity (Consequential Amendments) Bill
2002 contains a series of consequential amendments to legislation necessary
to implement the Government’s measures.
Unless specifically mentioned, all reference to clauses
in the following discussion are references to the Medical Indemnity Bill
2002.
Proposed Part 1 of the Bill sets out the object
of the Bill and key definitions including ‘medical defence organisation’.
Included in the list of MDO’s are the seven major MDO’s operating in Australia
(as listed above).
Proposed Part 2 of the Bill sets out the regime
for Commonwealth indemnity arrangements.
Proposed Division 1 of Part 2 of the Bill deals
with Commonwealth payments that are to be made for unfunded IBNR’s made
by doctors. Essentially this division provides that if MDO’s do not have
sufficient money to fund their IBNR’s, the Commonwealth will pay money
to the MDO’s to fund payment of the claims.
Under proposed Division 1 all MDO’s will be participating
MDO’s and hence entitled to Commonwealth payment for incurred but not
report claims unless the Minister determines that the MDO is not a participating
MDO (clause 12).
The legislation states that the Minister will consider
a number of factors before making a determination that an MDO is non participating,
but essentially, if the MDO has sufficient funds to pay their incurred
but not reported liabilities, the Minister can make a determination that
the MDO is non participating (clause 13). The effect of this determination
will be that the MDO will not be entitled to funding.(9)
Under proposed Division 1 claims relating to incidents
will be covered by the scheme where the incident meets the following criteria:
- the incident occurred before 30 June 2002
- the incident occurred in the course of the practice of a medical profession
by a person who was a member of a participating MDO at the time of the
incident
- the person had incident-occurring based cover with the MDO on 30 June
2002, and
- the incident was notified to the MDO after 30 June 2002 (clause
14).
Under
the proposed arrangement the MDO (or insurer) will make the payment initially
and then will be reimbursed by the Commonwealth in accordance with clause
16 or if the insurer or MDO or insurer is in external administration
under proposed clause 17.
The Commonwealth may pay all or only a percentage of
the claim. The amount of the payment made by the Commonwealth to the MDO
or insurer will be determined by multiplying the ‘adjusted amount’ (clause
21) paid by the insurer with the ‘unfunded IBNR factor’ (clauses
21-23). The unfunded IBNR factors is an amount determined by the Minister
and is calculated by considering the extent to which the MDO had sufficient
available assets to cover its IBNR exposure.
There are a number of exceptions where IBNR payments
will not be made, including where the incident or all of the incidents
to which the claims relate occurred whilst treating a public patient in
a public hospital (clause 19). If some of the incidents related
to treatment of a public patient in a public hospital the Commonwealth
will not pay for that part of the claim which can be attributed to the
public hospital services (clause 20).
Proposed Division 2 sets out the arrangements
for the high cost claim indemnity scheme. Essentially this Division provides
that the Commonwealth will pay for 50 per cent of the insurance payouts
over $2 million by MDO or insurers up to the limit of the insurance.
Clauses 29 and 30 provide that the Commonwealth
will make a payment to the MDO or insurer where;
- a claim has arisen from an incident that has occurred in Australia
(or an external territory) in the course of practice of the medical
profession
- the claim was notified to an MDO or an insurer after 1 January 2003
- the amount to be paid is greater than $2 million or an amount set
by the regulations (the ‘high cost claim threshold’), and
- the MDO has paid the amount or is liable to pay the amount.
There are a number of exceptions to the payment being
made including where the claim relates to an incident that occurred during
the course of treatment of a public patient in a public hospital (clause
32). If part of the claim relates to treatment of a public patient
in a public hospital, the Commonwealth will pay only in relation to that
part of the claim that arose from the private sector treatment.
Proposed Division 3 sets out the administrative
arrangements for the two schemes including application procedures (clause
36), date for payment of a claims (clause 37), recording keeping
by MDO’s (clauses 39 and 40), information gathering powers of the
Health Insurance Commission (HIC) (clause 38) and procedures for
the recovery of overpayments (clauses 41-42).
Proposed Division 4 sets out the arrangements
for the medical indemnity subsidy scheme. Under this scheme, the Minister
will be entitled to formulate a scheme to make payments to medical practitioners
to help them meet the cost of purchasing medical indemnity insurance.
The legislation does not identify the practitioners that will receive
the subsidy nor does it specify the amount of the subsidy. The bill provides
that these details will be determined by the Minister (clause 43).
The Prime Minister, in his announcement on 23 October 2002 stated that
the premium subsidy would be provided to obstetricians, neurosurgeons
and GP-proceduralists.
The Bill sets out arrangements for the funding of the
new arrangements.
Proposed Division 6 states that the Consolidated
Revenue Fund is appropriated for the purposes of paying the IBNR indemnities,
high cost claim indemnities and subsidies under clause 43.
Arrangements for the funding of the IBNR scheme are contained
within proposed Part 3 Division 1 and the Medical Indemnity (IBNR
Indemnity) Contribution Bill 2002 (MIICB).
The IBNR arrangements will be subsidised by requiring
that all members of MDO’s to make a payment each financial year if:
- They are members of participating MDO’s
- They were ordinarily resident in Australia or an external Territory
on 30 June 2000, and
- They have not been exempted under section 52 (clause 51).
The IBNR contribution is imposed as a tax on doctors.
(clause 4 MIICB)
Under the Bill, the indemnity contribution payable by
the doctor is a percentage of the doctor's annual subscription to the
MDO (clause 54 and clause 6 MIICB).
In his announcement of 31 May 2002 the Prime Minister
stated that UMP members would be levied to pay for the cost of the guarantee
that was provided by the Government. UMP members will however only be
required to pay this levy if UMP goes into liquidation and has to call
against the guarantee.
Arrangements for the funding of the UMP indemnity guarantee
are contained within proposed Division 2 of Part 3 and the Medical
Indemnity (Enhanced UMP Indemnity) Contribution Bill 2002 (MIECB).
A person is required to pay an enhanced UMP indemnity
contribution if:
- The person was a member of UMP on 1 July 2002 (clause 58)
- The year has been declared to be a contribution year (clause 58
and clause 5 MIECB)
- The person was ordinarily resident in Australia or an external Territory
on 1 July 2002 (clause 58), and
- They have not been exempted from making the payment (section 59).
The amount of the UMP indemnity contribution will be
equal to the Commonwealth payments made in the previous financial year
divided by the number of members of UMP on 1 July 2002 (clause 6 MIECB).
The UMP indemnity contribution will be imposed as a tax
on the doctors (clause 4 MIECB).
Proposed Division 3 of Part 3 sets out the administrative
arrangements for the collection of the medical indemnity contributions,
including deferring payment of the indemnity contribution (clause 62),
payments by instalments (clause 63), discounts for lump sum payments
(clause 64), and late payments penalties (clause 65).
The explanatory memorandum to the Medical Indemnity (Consequential
Amendments) Bill 2002 sets out that the key objectives of the Bill are
to:
- Amend the secrecy provision of the Health Insurance Act 1973
and the National Health Act 1953 to include reference to the
medical indemnity legislation
- Amend the definition of offences in the Health Insurance Commission
Act 1973 to allow the HIC to investigate offences against the medical
indemnity legislation, and
- Require the HIC to include in its annual report material on the operation
of the medical indemnity legislation.
The package of legislative reforms is designed to ease
the pressure being placed upon providers of medical indemnity. Principally
it targets incurred but not reported claims and high cost claims with
funding support being offered to medical indemnity providers who have
claims that fall within these two categories. The package also puts in
place the arrangements for the Government to provide subsidies to certain
sectors of the medical profession seeking medical indemnity cover. Whilst
the bills do contain some mechanisms to recover the cost of the proposed
measures, some parts of the package, it would appear, will be funded directly
from Commonwealth revenue.
The legislative package does not however contain measures
to monitor the effectiveness of the Government’s assistance in reducing
costs of medical indemnity, and the Bill does not contain any prudential
regulatory measures to address the operations of medical indemnity providers.
- A more detailed analysis of the insurance crises can be found in the
current issues brief by David Kehl, ‘Liability Insurance Premium Increases:
Causes and Possible Government Responses’, Current Issues Brief,
Department of the Parliamentary Library, March 2002:
http://www.aph.gov.au/library/pubs/CIB/2001-02/02cib10.pdf.
- Commercial insurers have recently left the medical indemnity market
and as a result there are now only MDO and government funding for medical
indmenities.
- Explanatory Memorandum, Medical Indemnity Bill 2002 (and others),
p. 4.
- Chris Field, ‘Medical Indemnity Agreement (Financial Assistance-Binding
Commonwealth Obligations) Bill 2002’, Bills Digest No 24, 2002–03,
Department of the Parliamentary Library: http://www.aph.gov.au/library/pubs/bd/2002-03/03bd024.htm,
p. 4.
- Explanatory Memorandum, Medical Indemnity Bill 2002 (and others),
p. 4.
- Explanatory Memorandum, Medical Indemnity Bill 2002 (and others),
p. 4.
- Members and creditors of UNP voted on 27 November 2002 to continue
with the provisional liquidation of the group for another 12 months.
- Pamela Burton, ‘AMA Impact Statement’ Australian Medicine, 18
November 2002, p. 18.
- The Australian Government Actuary will provide the Minister with a
written report which sets out whether the Actuary considers that the
MDO has unfunded IBNR’s. The Actuary must rely on information collected
by the HIC in relation to the MDO (clause 13).
Susan Dudley
3 December 2002
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
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