BILLS DIGEST NO. 71, 2013–14              21 May 2014

Health Insurance Amendment (Extended Medicare Safety Net) Bill 2014

Amanda Biggs
Social Policy Section 

Date introduced: 26 March 2014

House:  House of Representatives

Portfolio: Health

Commencement: Schedule 1, Part 1 commences 1 January 2015. All of the remaining provisions commence on Royal Assent.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose of the Bill

The purpose of the Health Insurance Amendment (Extended Medicare Safety Net) Bill 2014 (the Bill) is firstly to amend the Health Insurance Act 1973 (the Act) to increase the general threshold of the Extended Medicare Safety Net (EMSN) to $2,000 from 1 January 2015 and secondly to amend the Act to remove a requirement that the Chief Executive of Medicare Australia must confirm in writing family composition.[1]

Background

Since 2004 the Extended Medicare Safety Net (EMSN) has provided additional Medicare benefits to families and individuals who incur high out of pocket costs for out-of-hospital Medicare services. Once expenditure on
out-of-hospital Medicare services exceeds an annual threshold, the Medicare benefit for out-of-hospital services increases to 80 per cent of out of pocket costs incurred for the remainder of the calendar year except for services where an ‘EMSN benefit cap’ applies. Out-of-hospital services include attendances by a general practitioner (GP) or specialist and many pathology and diagnostic imaging services.

There are two EMSN thresholds: a concessional threshold for Commonwealth concession card holders and recipients of Family Tax Benefit Part A (FTB-A), which is currently $624.10 and a general threshold for all others which is currently $1,248.70. Both thresholds are indexed to the Consumer Price Index (CPI) on 1 January each year.

EMSN benefits are paid in addition to the Medicare rebate and in addition to any benefits received under the Original Medicare Safety Net (OMSN). The OMSN is another benefit which applies when patients incur a set amount of ‘gap expenses’ for out-of-hospital services. Gap expenses are defined as the difference between the Medicare rebate (usually 85 per cent of the schedule fee) and the schedule fee. Once gap expenses exceed an annual amount patients receive 100 per cent reimbursement of the schedule fee for the remainder of the calendar year.[2]

However, it should be noted that since 2009, an EMSN benefit cap has applied to certain Medicare services. This means that for these services, Medicare pays the lower of the benefit cap or 80 per cent of any subsequent out of pocket costs for the remainder of the calendar year once the EMSN threshold is reached.[3]

The Bill proposes to lift the general threshold for qualifying for the EMSN from $1,248.70 to $2,000 from 1 January 2015. This would mean that an individual or family would need to incur an additional $751.30 in out of pocket expenses for out-of-hospital services in a year, before they would qualify for the EMSN benefit.

In addition, the Bill proposes to temporarily suspend the automatic indexation arrangements for the general threshold for the calendar year commencing 1 January 2015.

The Bill also proposes to remove the current requirement on the Chief Executive of Medicare that a request to a family registered for the EMSN to confirm family composition when they approach the EMSN threshold, must be in writing. Confirmation is required because while Medicare keeps track of individual’s Medicare expenses for the purposes of the EMSN, it is unable to do so for family members. The Bill proposes to remove the requirement that a request be made in writing, instead allowing the Chief Executive to determine the best method of contact. This change is consistent with an earlier change in 2012 that removed the requirement that a family confirm its composition in writing.[4]

The proposed changes to the general threshold were first announced in the 2013–14 Budget, by the former Labor Government, as a means of improving the sustainability of the EMSN.[5]

The Health Minister argues the changes to the general threshold that are proposed in this Bill are necessary ‘because of the fiscal situation bequeathed by the former Government’.[6]

Out of pocket expenses

In recent years, reports have warned that high out of pocket medical costs are placing a financial strain on consumers and impeding those on low incomes or with chronic conditions from accessing the clinical care they need.[7]

In 2011–12, out of pocket spending by Australians on health and medical services totalled $24.8 billion, or around $1,101 per person.[8] The largest proportion of out of pocket spending was on medications (over $9.6 billion), followed by dental services ($4.7 billion) and then medical services ($2.9 billion). Over the last decade, average out of pocket spending on health per year has grown at a faster rate than spending from other sources—6.1 per cent compared to 5.4 per cent.[9]

While the national level of bulk billing, where the doctor accepts the Medicare schedule fee as full payment for the service and so the patient pays nothing, is high, particularly among GPs, rates vary across jurisdictions and type of service. For example, rates of bulk billing among specialists are generally lower than rates for GP services. Nationally in 2012–13, 81.1 per cent of GP services were bulk billed, compared to 28.7 per cent of specialist services. The average patient contribution (where the patient incurs a cost because the doctor charges above the Medicare schedule fee) was highest for out-of-hospital obstetrics ($205.49) and lowest for Practice Nurse services provided in general practice ($1.13).[10]

A recent report from NSW Health found that 15 per cent of patients in NSW skipped a medical appointment, medical test or medication due to cost, and 23 per cent reported spending more than $1,000 a year on their health care out of pocket.[11] Internationally, Australia ranks fifth highest for out of pocket spending on health care among OECD countries.[12]

Recent measures affecting affordability

In recent years, measures to improve the sustainability of government health expenditure have been introduced. These measures have resulted in a shift of some health costs away from government and onto the health consumer.

Introduction of capping of EMSN benefits

In 2009, the Government released a review of the EMSN it had commissioned from the Centre for Health Economics Research and Evaluation (CHERE) at the University of Technology Sydney.[13] The review found the EMSN had made out-of-hospital services more affordable for some people, such as cancer patients, but not others. Rather than reduced costs for patients, the review found the EMSN prompted some providers to lift fees, diluting the benefits to patients. Growth in EMSN spending by government was much higher than growth in general Medicare expenditure.

Further, the review found that more EMSN benefits were flowing to the most socially advantaged areas (those with highest incomes), with few benefits going to the least advantaged areas. In addition, the review found that the EMSN had contributed to higher provider fees in some specialties.

This prompted the Government to introduce a cap on certain EMSN benefits. Initially caps were limited to obstetric and assisted reproductive technology (ART) services where the concentration of EMSN benefits was highest. Since then caps have been extended to some 500 out-of-hospital services, including all consultations, all obstetrics and ART services, and some surgical procedures.[14]

A review of capping arrangements released in 2011, found that capping had put the EMSN on a more sustainable footing by reducing EMSN expenditure to $311.8 million in 2010, down from $538.6 million in 2009. Following capping, two per cent fewer people received a benefit from the EMSN in 2010 compared to 2009.[15]

However, more recent data suggests that the decline in EMSN expenditure has not been sustained, with expenditure increasing to $369.0 million in 2011. This increase in EMSN expenditure was attributed to growth in EMSN benefits for operations and anaesthetic services provided out-of-hospital.[16]

More recent data on the number of people receiving an EMSN benefit has not been identified.

Means testing the private health insurance rebate and other health insurance changes

In 2012, the private health insurance rebate paid by the Australian Government to purchasers of private health insurance was means tested. Individuals and households on incomes above a certain threshold had the amount of their rebate proportionally reduced. At the same time, the Medicare Levy surcharge on higher income earners who decline to purchase private hospital cover was increased.[17] This was forecast to generate savings of $2.78 billion over the forward estimates.[18]

From 1 April 2014, the level of the rebate paid by Australian Government will be linked to a new weighted average ratio, to be determined by calculating the difference between growth in the Consumer Price Index (CPI) against the industry-wide average premium increase. Indexation of the rebate linked to CPI increases is forecast to save the Government nearly $700 million over the forward estimates. One effect of indexation over time is that while Government outlays on the rebate will fall, consumers will receive a declining amount of rebate as each year their rebate amount will be adjusted by a lower adjustment factor linked to CPI.[19]

In another recent change, the proportion of the rebate linked to the Lifetime Health Cover (LHC) loading has been removed. LHC is two per cent loading applied on top of the commercial premium for private hospital cover which applies for every year over 30 that a person delays taking out private hospital cover. From 1 July 2013, the component of the premium that comprises the loading no longer attracts a rebate. This measure is forecast to generate savings of $386.3 million over the forward estimates.[20]

Phasing out of Net Medical Expenses Tax Offset

Recently the Parliament approved legislation to phase out the Net Medical Expenses Tax Offset (NMETO) by July 2019, and to restrict eligibility in the interim to only certain types of out of pocket expenses.[21]

Tax concessions or rebates for out of pocket medical expenses have been available for the last 50 years. Out of pocket medical expenses above an annual expenditure threshold can be claimed as a tax offset or rebate. From 2010, the rebate was set at 20 per cent of out of pocket medical expenses above $2,000.[22] From 2012–13, a means test has applied, so that those on taxable incomes above an income threshold ($84,000 for singles and $168,000 for families) were entitled to claim a lower rebate—ten per cent of expenses over $5,000. Those below the means test cut-off were still eligible for the 20 per cent rebate. However, with the passage of the Tax and Superannuation Laws Amendment (2014 Measures No. 1) Act 2014, restrictions on the type of expenses that can be claimed will be introduced and the rebate phased out entirely by July 2019. Only costs relating to disability aids, attendant care or aged care will be eligible to be claimed until July 2019, after which time the offset will cease.

Australian Tax Office statistics show that around 802,000 taxpayers received the NMETO in 2010–11, with claims totalling around $567 million. The measure is forecast to generate savings of $968 million over the forward estimates.[23]

Freezing of MBS indexation

Each service listed in the Medicare Benefits Schedule (MBS) has a Medicare schedule fee, on which the Medicare benefit is based. In general the Medicare benefit is 85 per cent of the schedule fee for out-of-hospital services, except for general practitioner services which attract a 100 per cent rebate. The schedule fees are indexed every November. Under bulk billing arrangements the doctor bills Medicare by accepting the schedule fee as full payment for the service and the patient pays nothing.

In the 2013–14 Budget, it was announced that annual indexation of the schedule fee would be deferred until July 2014, generating savings to Government of $644.4 million over four years.[24] This will effectively freeze the level of the Medicare benefit at 2013 levels for six months, but will not prevent doctors from raising their fees.[25] If a doctor raises their fee, the patient will face a higher gap payment because the rebate will not rise in line with the fee increase.

Together, these measures will result in a shift in cost burden from the Government to health consumers.

Committee consideration

Community Affairs Legislation Committee

The Bill has been referred to the Community Affairs Legislation Committee for inquiry and report by 16 June 2014 following a recommendation of the Selection of Bills Committee.[26] The Selection of Bills Committee asked the inquiry to scrutinise the implications of the Bill on Medicare card holders in the context of other proposed changes by the Government to private health insurance and Medicare.[27] So far, nine submissions have been received and made available on the website.

Policy position of non-government parties/independents

The Bill proposes to implement a measure announced by the former Labor Government, so it would be expected that Labor would not oppose the Bill. The Greens have previously raised concerns around out of pocket costs for health care and affordability issues, and moved a motion referring the issue to the Senate Standing Committee on Community Affairs for inquiry.[28] Therefore, it would seem likely that they would have concerns over this Bill.

The positions of cross bench Members and Senators are not yet known.

Position of major interest groups

When the changes to EMSN were announced in the last Budget, a number of stakeholders raised concerns. The Australian Medical Association (AMA) was concerned that the increase in the EMSN threshold will add to health care costs of families, ‘at a time when many Australians are facing huge cost of living pressures’. Commenting that ‘it is going to get harder for people to cover their health care costs’, the AMA warned: ‘Some people may choose to put off seeing their doctor’.[29] The Australian Healthcare and Hospitals Association (AHHA) described the EMSN savings measure as ‘disappointing’, stating that it will result in higher out of pocket costs for patients, widening the existing disparity in costs with other comparable countries.[30]

In its submission to the Community Affairs Legislation Committee inquiry, the Consumer’s Health Forum expresses concern that the Bill has the potential to negatively impact on patient affordability, and calls for the Federal Government to delay implementing any changes until the separate inquiry into out of pocket costs reports.[31]

Financial implications

The Explanatory Memorandum estimates the increasing of the general EMSN threshold will achieve budget savings of $105.6 million over four years.[32]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act.[33] The Government considers that the Bill is compatible with human rights as the extent that it may limit the human right to health is reasonable, necessary and proportionate.[34] The Parliamentary Joint Committee on Human Rights has deferred consideration of the Bill.[35]

Key issues and provisions

Schedule 1—Amendments to the Health Insurance Act 1973

Subsection 8(1A) of the Act defines a number of relevant terms applicable to Medicare benefits. Item 1 proposes to replace the current definition of the ‘extended general safety net-amount’ with a new amount of $2,000.

Item 2 proposes a clarification that the new amount only applies to medical expenses incurred on or after 1 January 2015.

Item 3 proposes a clarification that the new threshold amount not be indexed on 1 January 2015, as would be normally required under section 10A of the Act.

Other provisions

Subsection 10AE(1) of the Act deals with the process of confirming family composition when a registered family is approaching an EMSN threshold. Item 4 proposes to remove the phrase ‘in writing’ from the requirement the Chief Executive must request confirmation of family composition.

Concluding comments

The Bill proposes to increase the general threshold for benefits under the EMSN to $2,000 from 1 January 2015, in order to improve the sustainability of the safety net. The amendments will not apply to concessional patients and those eligible for FTB-A, whose EMSN threshold remains unaffected. The Bill also proposes to suspend indexation to the general threshold for the 2015 year and makes minor amendments to how the Chief Executive of Medicare may contact families who are about to reach the EMSN threshold.

The changes to the general threshold were announced in the last Budget. Savings of $105.6 million are forecast from this measure.

Many patients, particularly those on low incomes or with chronic conditions, are facing high out of pocket costs when they seek to access health care, with reports that some may be deferring treatment due to cost.

A number of recent measures will also negatively impact on health care affordability for many patients. This includes: the capping of benefits under the Extended Medicare Safety Net, the phasing out of the Net Medical Expenses Tax Offset, means testing the private health insurance rebate, removing the rebate for the Lifetime Health Cover loading and freezing MBS indexation.

The additional financial burden that will be shifted onto health consumers as a result of the increase to the EMSN threshold may therefore increase recent concerns over affordability issues.

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.

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[1].              Health Insurance Act 1973, accessed 2 May 2014.

[2].              The threshold amount for gap expenses is currently set at $430.90 in a calendar year. Department of Human Services (DHS), ‘Medicare Safety Net original threshold’, DHS website, accessed 20 May 2014.

[3].              See below for more detail of these caps.

[4].              Explanatory Memorandum, Health Insurance Amendment (Extended Medicare Safety Net) Bill 2014, p. 1, accessed 14 April 2014; Health Insurance Amendment (Extended Medicare Safety Net) Act 2012 removed the requirement that a family confirm its composition in writing.

[5].              Australian Government, Budget measures: budget paper no. 2: 2013–14, May 2013, p. 168, accessed 9 April 2014.

[6].              P Dutton, ‘Second reading speech: Health Insurance Amendment (Extended Medicare Safety Net) Bill 2014’, House of Representatives, Debates, 26 March 2014, p. 3133, accessed 14 April 2014.

[7].              R Harvey, Out-of-pocket payments for health care—finding a way forward, Briefing book, Parliamentary Library, Canberra, 2013, accessed 9 April 2014.

[8].              Australian Institute of Health and Welfare (AIHW), Health expenditure Australia 2011–12, AIHW, Canberra, 2013, Supplementary tables 3.10 and 3.11, accessed 9 April 2014.

[9].              Ibid., p. 44.

[10].              Department of Health, Annual Medicare Statistics, Table 1.1, accessed 6 May 2014. Anaesthetist services attracted the lowest rate of bulk billing, just 9.2 per cent.

[11].              Bureau of Health Information (NSW), Healthcare in focus 2013: how does NSW measure up?, NSW Health, Chatswood NSW, 2014, p. ii, accessed 11 April 2014.

[12].              OECD, OECD health data 2013—frequently requested health data, OECD, Geneva, November 2013, accessed 11 April 2014.

[13].              Centre for Health Economics Research and Evaluation (CHERE), Extended Medicare Safety Net: review report 2009, Department of Health and Ageing/CHERE, 2009, pp. v–vii, accessed 9 April 2014.

[14].              Department of Health, Extended Medicare Safety Net – January 2014, Fact sheet, accessed 20 May 2014.

[15].              CHERE, Extended Medicare Safety Net: review of capping arrangements report 2011, Sydney, 2011, pp. 22–23, accessed 10 April 2014. In 2009, 0.98 million people received an EMSN benefit; in 2010 this had fallen to 0.96 million.

[16].              Department of Health and Ageing (DoHA), Annual report 2011–12, DoHA, Canberra, 2012, p. 113, accessed 10 April 2014.

[17].              Individuals and families on incomes below the thresholds retained the full rebate. The current income thresholds and rebate levels are detailed on the Private Health Insurance Ombudsman website.

[18].              A Biggs, Fairer Private Health Insurance Incentives Bill 2011, Bills digest, 20, 2011–12, Parliamentary Library, Canberra, 2011, p. 16, accessed 11 April 2014.

[19].              A Biggs, Private Health Insurance Legislation Amendment Bill 2013, Bills digest, 35, 2013–14, Parliamentary Library, Canberra, 2014, p. 4, accessed 11 April 2014. Growth in CPI is generally much lower than growth in premium increases.

[20].              A Biggs, Private Health Insurance Amendment (Lifetime Health Cover Loading and Other Measures) Bill 2012, Bills digest, 66, 2012–13, Parliamentary Library, Canberra, 2013, p. 7, accessed 11 April 2014.

[21].               K Swoboda, T Dale and A Biggs, Tax and Superannuation Laws Amendment (2014 Measures No. 1) Bill 2014, Bills digest, 58, 2013–14, Parliamentary Library, Canberra, 2014, p. 14, accessed 10 April 2014.

[22].              For taxation purposes, an out of pocket medical expense ‘is the cost of the medical expense incurred, minus available reimbursements’. The threshold is indexed annually. See S Ciobo, 'Second reading speech: Tax and Superannuation Laws Amendment (2014 Measures No. 1) Bill 2014’, House of Representatives, Debates, 26 February 2014, p. 873, accessed 19 May 2014.

[23].              K Swoboda, T Dale and A Biggs, op. cit., p. 15.

[24].              A Biggs, ‘Medicare’, Budget Review 2013–14, Research paper, Parliamentary Library, Canberra, 2013, accessed 11 April 2014.

[25].              Doctors are free to set their own fees.

[26].              Senate Standing Committee on Community Affairs, Health Insurance Amendment (Extended Medicare Safety Net) Bill 2014, accessed 20 May 2014.

[27].              Selection of Bills Committee, Report No. 4 of 2014, The Senate, Canberra, 27 March 2014, p. 8, accessed 11 April 2014.

[28].              The referral was made on 26 March 2014, the day before this Bill was introduced. The Committee is due to report on 16 July 2014. Senate Standing Committee on Community Affairs, ‘Out-of-pocket costs in Australian healthcare’, Australian Parliament website, accessed 14 April 2014.

[29].              Australian Medical Association (AMA), Government targets sick people to reduce budget deficit, media release, 14 May 2013, accessed 11 April 2014.

[30].              Australian Healthcare and Hospitals Association (AHHA), Health budget delivers some gains but fails to address key issues, media release, 15 May 2013, accessed 14 April 2014.

[31].              Consumers Health Forum of Australia, Submission to the Senate Standing Committee on Community Affairs, Inquiry into the Health Insurance Amendment (Extended Medicare Safety Net) Bill 2014, 30 April 2014, accessed 5 May 2014.

[32].              Explanatory Memorandum, Health Insurance Amendment (Extended Medicare Safety Net) Bill 2014, op. cit., p. 2.

[33].              The Statement of Compatibility with Human Rights can be found on pages 3–5 of the Explanatory Memorandum to the Bill.

[34].              Explanatory Memorandum, Health Insurance Amendment (Extended Medicare Safety Net) Bill 2014, op. cit., p. 5.

[35].              Parliamentary Joint Committee on Human Rights, Sixth report of the 44th Parliament, The Senate, 14 May 2014, accessed 19 May 2014.