Bills Digest no. 152 2008–09
Fairer Private Health Insurance Incentives Bill
2009
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
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Date
introduced: 27 May
2009
House: House of Representatives
Portfolio: Treasury
Commencement:
Sections 1 3 on Royal
Assent; Schedule 1 on 1 July 2010, or the day on which two other
related Acts receive Royal Assent, whichever is the
latest.
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
This Bill is one of three Bills
which propose changes to various Acts in order to implement a 2009
10 Budget initiative changing private health insurance incentives
and penalties.[1] The
other two Bills are Fairer Private Health Insurance Incentives
(Medicare Levy Surcharge) Bill 2009 and Fairer Private Health
Insurance Incentives (Medicare Levy Surcharge Fringe Benefits) Bill
2009.[2] The Bills propose the introduction
of three new Private Health Insurance Incentive Tiers, so that
those on higher incomes receive a lower private health insurance
rebate when they purchase a complying health insurance policy, and
face a higher Medicare levy surcharge if they opt out of private
health cover.
This Bill proposes amendments to five Acts: the Income Tax
Assessment Act 1936, Income Tax Assessment Act 1997,
Private Health Insurance Act 2007, Taxation
Administration Act 1953 and Taxation (Interest on
Overpayments and Early Payments) Act 1983. Specifically, this
Bill proposes:
- to introduce three new income tiers (to be indexed annually)
for the purpose of assessing the amount of the private health
insurance rebate payable to those above certain income levels
- to allow the Commissioner of Taxation to require the provision
of certain information, and
- to allow for the recovery of payments that are recoverable as
debts due to the Commonwealth and pay interest on overpayments
Private health insurance helps fund the purchase of private
health and medical services, allowing individuals to choose their
own doctor and sometimes access health services more quickly. While
Medicare provides for free treatment in public hospitals, patients
are not able to choose their own doctor and may have to go on a
waiting list for their treatment.
Medicare also subsidises the cost of medical services provided
in a private hospital for example, it covers 75 per cent of the
schedule fee for a private patient in a private hospital.[3] But the patient will be
liable for any gap between the amount Medicare reimburses and what
the doctor charges. Private health insurance can help fund this gap
and can also be used to help pay for ancillary services not
normally covered by Medicare, such as dental treatment,
chiropractic, physiotherapy, prostheses or optical
services.[4]
When Medicare was first introduced in 1984, membership of
private health insurance funds began to fall, so that by 1998 only
30.4 per cent of the population was covered by private health
insurance.[5] The
former Howard Government sought to reverse this trend when it
introduced a suite of measures designed to encourage private health
insurance uptake. Since their introduction, private health
insurance coverage has climbed to a high of 44.6 per cent of the
population, or 9.7 million Australians.[6]
The measures introduced under the former Government have been
characterised as carrots and sticks . Those on higher incomes, who
opt not to take out private health insurance face the penalty of
the Medicare levy surcharge an additional 1 per cent levy on their
taxable income. Those who delay in taking out private cover after
the age of 30 face higher premiums under the Lifetime Health Cover
provisions. Meanwhile, those who purchase private health insurance
are rewarded with a rebate a discount on their private health
insurance premiums. The rebate is currently set at 30 per cent for
those aged up to 65 years of age, 35 per cent for those aged
between 65 70 and 40 per cent for those aged over 70. [7]
Although the introduction of the private health insurance rebate
in 1999 was opposed by Labor, in the lead up to the 2007 federal
election Labor committed to retaining the rebate.[8]
The Government has now announced it intends to rebalance support
for private health insurance, so that from July 2010 those on
higher incomes receive less carrot and more stick to take out
private cover.[9] The
Government intends to redistribute the benefits under the rebate so
that these are fairer , as well as ensure that private health
insurance remains sustainable into the future.[10] The cost to Government of the
rebate has grown from $1.4 billion in 1999 2000 to $3.8 billion in
2008 09.[11] The
proposed measures are expected to generate $1.9 billion in savings
over four years.[12]
This Bill proposes amendments that will introduce three new
income tiers indexed annually that will be used to calculate the
amount of the rebate to which those assessed as being in these
tiers are entitled. The effect of this is to means test the private
health insurance rebate.[13] The income tiers and amount of rebate will be set as
follows:
- Tier 1 those on annual incomes over $75 000 for singles
and over $150 000 for couples will receive a 20 per cent
rebate[14]
- Tier 2 those on incomes over $90 000 for singles and
$180 000 for families will receive a rebate of 10 per cent,
and
- Tier 3 those with incomes over $120 000 for singles and
$240 000 for families will receive no rebate.
Existing rebate arrangements for those on incomes below
$75 000 for singles and $150,000 for families will remain
unchanged.
The two accompanying Bills propose amendments to allow for the
Medicare levy surcharge to be increased from 1 per cent of taxable
income up to 1.5 per cent for those in the highest income bracket
when they decline to take out private health insurance.
The measures proposed in this and the other two Bills were
announced in a joint media release from the Treasurer, Wayne Swan,
and the Minister for Health and Ageing, Nicola Roxon on 12 May
2009, as part of the 2009 10 Budget.[15]
The Bill has been referred to the Senate Economics Legislation
Committee, to report by 16 June 2009.
As the Rudd Government had previously committed to retain the
rebate, some have characterised the changes to the rebate as
amounting to a broken promise.[16] Some, such as the Australian Health Insurance
Association the industry group representing health insurers argue
that as a result of these changes significant numbers up to 1
million will abandon or downgrade their cover, and this will lead
to rises in private health insurance premiums as health insurers
seek to recoup higher costs.[17] They also claim that uninsured people will then
seek treatment in the public system adding further pressure to
public hospital waiting lists.[18]
Individual health insurers have expressed more divergent views.
Mark Fitzgibbon, the Managing Director of one of the for profit
health insurers, nib, argues that the negative impact on the
industry of the proposed changes will be mitigated by a number of
factors. These include the proposed increases to the Medicare levy
surcharge, the ongoing effect of Lifetime Health Cover
arrangements, proposed income tax cuts, price inelasticity of
demand amongst high income earners and the continuing crisis of
confidence in the public system.[19]
Some are concerned that the proposal is confusing and complex.
The Australian Private Hospitals Association (APHA) argues that
Treasury estimates that 99.7 per cent of people will retain their
private health insurance as a result of this measure, cannot be
trusted, due to the complexity of the proposed
arrangements.[20]
Others who have argued the rebate is poor policy, such as the
Australian Health Care Reform Alliance, have broadly welcomed the
proposed changes, albeit with some reservations. These include
concerns that the estimated savings could be more modest than
anticipated, and that any savings should be re-directed from
general revenue to the under-resourced public health
system.[21]
The Government argues that the proposed changes will have an
insignificant impact on public hospital admissions it estimates
that around 8 000 additional admissions to public hospitals
can be expected as a result of this measure. Further, the
Government argues, those on incomes below $75 000 for singles
and $150 000 for families will receive the same rebate as they
currently enjoy. [22]
The Opposition Leader, Malcolm Turnbull, has announced that the
Opposition will oppose the changes to the private health insurance
rebate. He proposes that the Government should retain the rebate in
its current form and instead seek to realise equivalent savings by
increasing the excise on tobacco products by 12.5 per cent.[23]
Independent Senators Nick Xenophon and Steve Fielding have
indicated they have concerns with the proposed changes. Senator
Xenophon has expressed concern over the potential impact on public
hospitals if changes to the rebate drive people out of the private
system.[24] Senator
Fielding has concerns over the impact on families.[25]
The Greens have indicated they have some misgivings about the
measure to means test the rebate, but propose to move an amendment
that would see savings from the measure redirected to the public
health system.[26]
The Government estimates that the combined effect of the
measures proposed in this and the two accompanying Bills will
result in net savings of $1.9 billion over four years.[27] This will comprise
savings through a reduction in the amount of Government expenditure
on the private health insurance rebate around $1.8 billion
according to Budget estimates and an increase in revenue through
the Medicare levy surcharge $145 million covering the same period.
At the same time the total cost to implement these proposed
measures is estimated to be around $69 million over five years.
[28]
The estimates of savings provided in the Explanatory Memorandum
differ slightly from the estimates of the measure provided in
Budget Paper no. 2; affecting savings forecast for the forward
years 2011 12 and 2012 13. The Budget estimates show savings of
$580.2 million and $605.8 million for each of these respective
years, while the Explanatory Memorandum estimates savings of $650.2
million and $680.8 million respectively.[29]
If the Budget figures are read to include the related revenue
figures, which appear on a separate line, this discrepancy
disappears.[30]
When a person is eligible
for the private health insurance rebate they can obtain the rebate
in one of three ways. The premium reduction scheme allows a private
health insurer to reduce the premium on the health policy.
Alternatively, individuals can claim the rebate as a tax offset
when lodging their annual income tax return under the incentive
payments scheme, or lastly an individual can claim the rebate
direct from a Medicare office. Item 1 inserts
new paragraphs 264BB(2)(ga) and
(gb) into the Income Tax Assessment Act
1936 to allow the Commissioner of Taxation to require a
private health insurer to provide additional information about
reductions in premium payments, the amount of such reductions and
the particulars of participants under the premium reduction
scheme.
Items 4, 6 9, insert new provisions to
subdivision 61-G, so that when a person claims the rebate as a tax
offset they are assessed as being either a tier 1, 2 or 3 income
earner and have their offset reduced accordingly. For tier 1 income
earners their offset is reduced by 10 per cent, for tier 2 income
earners their offset is reduced by 20 per cent, and for a tier 3
earner the tax offset is removed altogether.
Item 10 inserts new sections that define the
new single and family tiers 1, 2 and 3 thresholds. Proposed
section 61-230 inserts new private health insurance
singles thresholds; singles tier 1 threshold, to apply for the 2008
09 year of income is to be set at $70 000. Singles tier 2
threshold to apply for the 2010-11 year of income, is to be set at
$90 000, and singles tier 3 threshold to apply for the 2010 11
year of income is to be set at $120 000. All thresholds will
be indexed annually according to the indexation factor proposed at
item 15.
Readers should note, however, that the singles tier 1 threshold
of $70 000 this Bill proposes is different to the figure of
$75 000 cited in the Explanatory Memorandum and the Minister s
second reading speech. It is intended that the singles tier 1
threshold be consistent with the singles income threshold for the
Medicare levy surcharge, which is currently set at $70 000 for
singles ($140 000 for families). Allowing for indexation, it
is anticipated that the singles income threshold for the Medicare
levy surcharge will rise to $75 000 in the 2010 11 year of
income.[31]
Proposed section 61-235 specifies that the family
thresholds will be double the singles threshold for each tier; and
that for those with 2 or more dependants, their threshold will
increase by $1 500 for each dependent child.[32] Item 10 also
proposes new section 61-225 which includes a table
that explains how singles and families will be assessed as tiers 1,
2 or 3.
Items 11 15 propose to insert new indexation
provisions for the purpose of calculating the singles tier 1 and 2
thresholds in future years. Item 15
proposes new section 960-290 which specifies the
indexation process, including defining the quarterly index number
to be used in calculating annual indexation. The quarterly index
number is defined as the estimate of full-time adult average weekly
ordinary time earnings for the middle month of the quarter as
published by the Australian Statistician.
For calculating the singles tier 1 threshold in future years,
new section 960-290 proposes multiplying the
amount for the 2008 09 year of income (currently this is set at
$70 000) by the indexation factor, then rounding this amount
down in $1 000 increments. For the singles tier 2 or 3
thresholds, new section 960-290 proposes
multiplying the amount for the 2010 11 income year (that is, the
proposed tier 2 amount of $90 000 or the proposed tier 3
amount of $120 000) by the indexation factor, and rounding
this amount down in $1 000 increments. The reference year for
calculating the singles tier 1 threshold is set at 2007; for
singles tier 2 or 3 thresholds the reference year is 2009.
Items 27 31 propose to insert new provisions to
Division 23, that allow for a taxpayer s eligibility for the rebate
under the premium reduction scheme which is the premium discount
offered by private health insurers to be reduced by 10 per cent for
those assessed as being in tier 1, 20 per cent if they are assessed
as being in tier 2 or removed altogether if they are assessed as
being in tier 3.
Items 32-36 propose to insert new provisions to
Division 23, that allow for a taxpayer s eligibility to claim the
rebate under the incentive payment scheme which is claimed as a tax
offset to be reduced by 10 per cent for those assessed as being in
tier 1, 20 per cent if they are assessed as being in tier 2 or
removed altogether if they are assessed as being in tier 3.
Currently subdivision 282-A allows certain amounts to be
recoverable by the Commonwealth in certain circumstances, for
example, when there has been an overpayment. Item
38 inserts new subdivision 282-AA,
new sections 282-16 to 282-19 to allow the
recovery of certain amounts by the Commissioner of Taxation but
prevents double recovery (new subsection 282-17
(3)). The Commissioner will be responsible for the
recovery of premium reductions that exceed the amount allowable
under section 23-1 of the Act, and for the recovery of payments
that exceed the amount to which a person is entitled under section
26-1 of the Act. Note new subsection 282-1(1A)
will provide that if the private health insurer was not at fault
for causing the payment, then the amount will not be recoverable.
Interest can be charged on overdue unpaid debts to the Commonwealth
(new section 282-19).
Items
43-45 insert the new definitions in the Dictionary of a
tier 1, 2 and 3 earner into the Act as a consequence of the
amendments made to the Income Tax Assessment Act 1997 in
this Bill (item 10).
Items 46
and 47 make necessary amendments to the
Taxation Administration Act 1953 as a consequence of the
new functions of the Commissioner of Taxation and other amendments
made under the Bill.
Items
48-52 make provision for circumstances when the
Commissioner is required to pay interest as a consequence of a
taxpayer making an overpayment under new subdivision
282-AA of the PHIA 2007.
Concluding comments
This Bill is one of three seeking to give effect to a 2009 10
Budget announcement intended to rebalance private health insurance
arrangements. This specific Bill proposes amendments to a number of
Acts that will means test the private health insurance rebate which
is paid to those who purchase private health insurance. The Bill
proposes to establish 3 new tiers of income for the purposes of
calculating the amount of rebate to which those in these income
tiers will be entitled. Those in the two highest tiers tiers 2 and
3 who do not take out appropriate private health insurance will
have their rebate amount reduced by 10 per cent and 20 per cent
respectively.[33]
As the Opposition has indicated it opposes the measure, it will
require the support of the Greens and the Independents to pass the
Senate.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277
2514.
Amanda Biggs
5 June 2009
Bills Digest Service
Parliamentary Library
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