Private Health Insurance (Prudential Supervision) Bill 2015 [and associated Bills]

Bills Digest no. 122 2014–15

PDF version  [816KB]

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.

Tarek Dale
Economics Section 
17 June 2015 

 

Contents

Purpose of the Private Health Insurance Bills Package
Structure and commencement of the package of Bills
Background
Committee consideration
Policy position of non-government parties/independents
Position of major interest groups
Financial implications
Statement of Compatibility with Human Rights
Key issues
Provisions—Private Health Insurance (Prudential Supervision) Bill 2015
Provisions—Private Health Insurance (Collapsed Insurer Levy) Amendment Bill 2015
Provisions—Private Health Insurance (Risk Equalisation Levy) Amendment Bill 2015
Provisions—Private Health Insurance Supervisory Levy Imposition Bill 2015
Provisions—Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Bill 2015

 

Date introduced:  27 May 2015
House:  House of Representatives
Portfolio:  Treasury
Commencement:  See page four of the Bills Digest.

Links: The links to the Bills, their Explanatory Memoranda and second reading speeches can be found on the Bills’ home pages for the Private Health Insurance (Prudential Supervision) Bill 2015, the Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Bill 2015, the Private Health Insurance Supervisory Levy Imposition Bill 2015, the Private Health Insurance (Risk Equalisation Levy) Amendment Bill 2015 and the Private Health Insurance (Collapsed Insurer Levy) Amendment Bill 2015, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website.

Purpose of the Private Health Insurance Bills Package

The Bills which are the subject of this Bills Digest are part of a package of five Bills (Private Health Insurance Bills Package) which transfer prudential regulatory responsibility for the private health insurance industry from the current regulator, the Private Health Insurance Administration Council (PHIAC) to the Australian Prudential Regulation Authority (APRA).

The Bills covered by this Bills Digest are:

  • Private Health Insurance (Prudential Supervision) Bill 2015[1]
  • Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Bill 2015[2]
  • Private Health Insurance Supervisory Levy Imposition Bill 2015[3]
  • Private Health Insurance (Risk Equalisation Levy) Amendment Bill 2015[4] and
  • Private Health Insurance (Collapsed Insurer Levy) Amendment Bill 2015.[5]

Three Bills transfer responsibility for the administration and collection of levies from PHIAC to APRA: the Private Health Insurance Supervisory Levy Imposition Bill 2015, the Private Health Insurance (Risk Equalisation Levy) Amendment Bill 2015 and the Private Health Insurance (Collapsed Insurer Levy) Amendment Bill 2015.

While the majority of changes merely reflect the change in regulator, there are some changes to the legislation intended to ensure alignment with APRA’s existing legislation. The consultation period for the change has been relatively short, and some industry participants have noted concerns over a range of technical issues, with potential adverse consequences for private health insurers.

The Government has stated that the change will not have a fiscal or regulatory impact.

Structure and commencement of the package of Bills

This section outlines the changes provided for in the Private Health Insurance Bills Package, and their commencement dates.

Private Health Insurance (Prudential Supervision) Bill 2015

The Private Health Insurance (Prudential Supervision) Bill 2015 (the Prudential Bill) establishes the new legislative framework for APRA’s regulation of the private health insurance industry. If Royal Assent is received before 1 July 2015, the Bill commences on 1 July 2015. Otherwise it commences on a day to be fixed by proclamation in the six month period following Royal Assent, or the day after the end of that six month period.

Private Health Insurance Supervisory Levy Imposition Bill 2015

The Private Health Insurance Supervisory Levy Imposition Bill 2015 (the Supervisory Levy Bill) relates to the annual supervisory levy. It commences at the same time as the Prudential Bill.

Private Health Insurance (Risk Equalisation Levy) Amendment Bill 2015

The Private Health Insurance (Risk Equalisation Levy) Amendment Bill 2015 (the Risk Equalisation Bill) relates to the risk equalisation system for private health insurers. It also commences at the same time as the Prudential Bill.

Private Health Insurance (Collapsed Insurer Levy) Amendment Bill 2015

The Private Health Insurance (Collapsed Insurer Levy) Amendment Bill 2015 (Collapsed Insurer Levy Bill) relates to the collapsed insurer levy, which is designed to help policy holders when a fund collapses, by levying other industry entities.

The substantive provisions in the Bill commence at the same time as the Prudential Bill. A minor amendment in Schedule 1, Part 2 commences on the later of the commencement date of the Prudential Bill, or Part 1 of Schedule 2 to the Norfolk Island Legislation Amendment Act 2015 (which will commence on 1 July 2016).[6]

Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Bill 2015

The Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Bill 2015 (the Consequential and Transitional Bill) makes a significant number of consequential amendments (particular to the Private Health Insurance Act 2007), and includes transitional provisions:

  • the majority of provisions commence on the same day as the Prudential Bill
  • transitional provisions in Schedule 2 commence the day after the Act receives Royal Assent and
  • a number of specific items making consequential amendments to other legislation only commence after other amendments have been made to existing legislation. These commence on whichever is later of the commencement date of the Prudential Bill and:
    • immediately after the commencement of item 10 of Schedule 1 to the Private Health Insurance Amendment Act 2015 (which will commence on 1 July 2015) (Schedule 1, item 178)[7]

    • immediately after the commencement of item 17 of Schedule 1 to the Private Health Insurance Amendment Act 2015 (which will commence on 1 July 2015) (Schedule 1, item 179)

    • immediately after the commencement of item 19 of Schedule 1 to the Private Health Insurance Amendment Act 2015 (which will commence on 1 July 2015) (Schedule 1, item 180)

    • the commencement of Part 1 of Schedule 2 to the Norfolk Island Legislation Amendment Act 2015 (which will commence on 1 July 2016) (Schedule 1, item 181) and

    • the commencement of Schedule 1 to the Acts and Instruments (Framework Reform) Act 2015 (a commencement date for which has not yet been proclaimed) (Schedule 1, item 182).[8]

Background

The Private Health Insurance Administration Council

The Private Health Insurance Administration Council (PHIAC) was established in 1989, initially under the National Health Act 1953, which required PHIAC to achieve a balance between four broad objectives:

  • fostering an efficient and competitive health insurance industry
  • protecting the interests of consumers
  • minimising the level of health insurance premiums and
  • ensuring the prudential safety of individual Registered Health Benefits Organisations.[9]

While the legislative framework was modified with the commencement of the Private Health Insurance Act 2007 (the PHI Act)[10] PHIAC remained the primary regulator for the private health insurance industry. However, its current objectives do not include ‘minimising the level of health insurance premiums’.[11] Its most recent annual report describes the different aspects of its role as regulator:

PHIAC is responsible for monitoring the prudential performance of ... private health insurers ... PHIAC administers entry and exit from the industry, oversights a range of industry transactions and calculates and distributes the Risk Equalisation Trust Fund ...

PHIAC also provides specialist advice to the Parliament through the Minister for Health, Senate Estimates Committee meetings, individual requests about the operations of the industry and the annual premium round.

Private health insurance is a key element in the Australian health industry and PHIAC plays an important role in protecting the interests of consumers by seeking to ensure that the industry operates efficiently.[12]

The National Commission of Audit

The National Commission of Audit (NCOA), commissioned by the current Government, undertook a wide-ranging review of Australia’s government bodies and regulatory frameworks. In its interim report, it recommended that a ‘Health Productivity and Performance Commission’ be formed through a merger of a number of agencies (or their components), including PHIAC.[13]

The 2014–15 Budget

In the 2014–15 Budget, the Government announced as part of its ‘Smaller Government’ policy, that it would ‘implement ... ceasing the Private Health Insurance Administration Council as a separate body, with the merger of private health insurance price monitoring functions into the Australian Competition and Consumer Commission, and the merger of health fund prudential regulation functions to the Australian Prudential Regulation Authority’.[14]

Committee consideration

Senate Economics Legislation Committee

The Bill has been referred to the Senate Economics Legislation Committee for inquiry and report by 15 June 2015. Details of the inquiry are available here.[15] At the time of writing the Committee had not yet reported.

Policy position of non-government parties/independents

The Australian Labor Party (ALP) Shadow Minister for Health, Catherine King, noted that the ALP would reserve its opinion until it had further scrutinised the Bills:

... Labor has some very serious concerns about these Bills and why they cannot simply be waved through. As such, Labor believes that these Bills will require, in the other place, much deeper scrutiny, and we will be seeking to have the proposal to abolish PHIAC referred to a committee, so that that proper scrutiny occurs and so that there can be evidence in relation to the impact this bill will have on consumers in particular ...[16]

However, Ms King also noted concerns around the timing of the Bills:

... whilst this intention has been around for a while, it has taken the government some time to bring these Bills on. Now we will be hitting the 1 July deadline very quickly.[17]

More broadly, Ms King noted concerns around the underlying rationale for the proposed shift in regulators:

The government cites as justification for these Bills its commitment to smaller government, an end to unnecessary duplication and claims that this will over time result in lower costs for industry while ensuring the private health insurance industry remains stable and well regulated. Immediately what leaps out at you from that explanation is the complete lack of any mention of the benefits of this for the 13.2 million Australians now covered by private health insurance. There is no suggestion, in fact, that this move will in any way lower premiums, improve services or achieve anything other than the abolition of a regulator dedicated to both sides of the equation—health insurers and health fund members.

... It must be remembered that this Bill is not in isolation, because the Abbott government is simultaneously moving to abolish the designated Private Health Insurance Ombudsman... Once the dedicated regulator is gone and the dedicated ombudsman is gone, it will only be a very small step for the minister to declare that it is now too difficult to keep tabs on health insurance, particularly in relation to health insurance premiums, so the annual oversight of premiums can be dropped and it is open slather for the health funds.

... Some of course might argue that we should just leave it to the market and they question why government should even have a role, especially now that Medibank Private is no longer government owned. Well, the facts are: private health insurance is very different from most other products because, by law, most of us who have private health insurance are required by government to take out this product, at quite considerable cost, or pay a substantial tax penalty. And then, in recognition of this cost, the same government which requires us to pay for this product spends well over $5 billion every year compensating us for that enforced expense. So, when a government forces millions of Australians to take up a very expensive product and then spends billions of dollars a year through the rebate compensating for this decision, this clearly requires detailed oversight to ensure both the taxpayer and the health fund members are getting value for money in that decision.[18]

The Shadow Minister also noted concerns in relation to industry concentration, and potential impacts on competition:

... now is not the time for the government to be removing the few powers it has to keep downward pressure on premiums or potentially to be restricting or narrowing the information that is available to consumers about how they might shop around. With just five health insurers holding 83 per cent of the market, private health insurance is a relatively concentrated market. Whilst some people change insurers each year, inertia and a fear of waiting periods tend to keep people with the same private health provider.[19]

An additional factor was the regulator’s role in addressing the complexity of the system, to improve consumer outcomes:

... PHIAC collates and disseminates financial and statistical data regarding health funds to enable consumers to make informed choices... It is a website that includes all private health insurers, not just those that pay fees to a private supplier of that information, where you will not get all of the information. So it is a really important service ...

Does anyone seriously think that a generic regulator of all insurance products can, in any way, provide the level of expertise needed to keep tabs on 40,000 different products? And all this comes at a minuscule administrative cost, which PHIAC estimates adds about 60c per person to the cost of an average premium. As PHIAC's CEO stated recently, in the context of a $3,000, $4,000 or $5,000 annual premium, 'That ain't a lot to ensure that people are protected.'

... And health insurance is not just another form of insurance. As mentioned earlier, it is an extremely complicated product, with 40,000 different premiums on offer, with a bewildering combination of excesses, inclusions and exclusions that insurers can charge, almost at will and often, despite some of the regulations, with very little notice. As the current CEO of PHIAC said, in what he billed as likely his valedictory address to the Health Insurance Restricted and Regional Membership Association of Australia in Canberra just last month: ‘The Australian version of private health insurance is a highly idiosyncratic beast, with curiosities such as community rating, risk equalisation, taxation surcharges, rebates and membership incentives, all interacting to form a cauldron of regulatory and commercial complexity. Private health insurance is a mystery for many Australians. They do not really have the capacity or the time to deeply understand the product, yet they know the day will likely come when they will depend on it. And of course, very often, that day is a day full of other stress as well—illness, injury, psychiatric disturbance, and the list goes on.’[20]

At the time of writing the policy positions of other non-government parties and independents were not yet known.

Position of major interest groups

Private Healthcare Australia

In a submission to the Senate Economics Committee, industry organisation Private Healthcare Australia was highly critical of both the substance of the proposal, and the consultation process undertaken by Government. Its submission stated:

We note that the PHIAC-APRA transition is a "machinery of government” change with no intended impact on the industry, apart from reducing the impost on the industry.

Throughout the consultation process regarding the PHIAC-APRA transition, the industry has maintained a strong position that our preference is to retain the status quo. This position has been backed by all stakeholders, including APRA.

APRA has, however, asked for legislative changes to ensure "consistency'' with other industries that it regulates. Wherever possible, and for the most part, the private health insurance industry has compromised and accepted APRA's "consistency" positions. Unfortunately, the drive for "consistency" with other industries regulated by APRA is likely to result in an increase in red tape for the private health insurance (PHI) industry.[21]

The Private Healthcare Australia submission provided details of a number of concerns with the Bills as introduced. Its main concerns related to:

1) Data provision and confidentiality;

2) Continued transparency of prudential decisions;

3) Increased regulation, including new custodial penalties related to information;

4) Increased scope for confusion; and

5) Important questions unanswered.[22]

Data provision and confidentiality

In relation to data provision and confidentiality, Private Healthcare Australia stated that:

We believe there should be a simple legislative provision to ensure that the regulator continues to provide detailed quarterly data provided for over 25 years to the individual health funds and Private Healthcare Australia, while ensuring this data remains confidential and unable to be the subject of any Freedom of Information requests ...

APRA's proposals are a fundamental change to longstanding, accepted practice (over 25 years). The Private Health Insurance Act 2007 (PHI Act) was drafted to permit existing practice to continue (with some specific exclusions that are not relevant to data provision). We believe that APRA's current interpretation of the PHI Act is overly narrow.

Please introduce a simple legislative provision to ensure this longstanding practice continues and that the data shared continues to be confidential [emphasis in original].[23]

Reduced transparency of prudential decisions–reduction in AAT reviewable decisions

Private Healthcare Australia also argued that:

The number of decisions that are [Administrative Appeals Tribunal] AAT reviewable has decreased while regulatory powers have increased. As stated in our submissions to date, we believe that all existing decisions that are AAT reviewable should remain so and new regulatory powers should be AAT reviewable ... Please reinstate the current AAT reviewability of decisions [emphasis in original].[24]

Increased regulation, including new custodial penalties

Private Healthcare Australia stated that:

... the Financial Sector (Collection of Data) Act introduces custodial sentences, of up to 5 years, for certain offences relating to information, including sections 13B and 17D ... We do not understand why these new custodial sentences have been introduced to a compliant industry that has had no major failures to the detriment of consumers. We would like to see these additional penalties removed from the PHI industry..

At a minimum, ensure section 13B and its new custodial sentence for disclosing an APRA regulatory standard does not apply to private health insurers - the provision reduces transparency [emphasis in original].[25]

Additional Scope for Confusion Between APRA/Health/Treasury roles

Private Healthcare Australia also argued that:

Some of the APRA Rules deal with areas that we have been informed come under the Department of Health’s (DoH) responsibility. To have an area of DoH responsibility dealt with by an APRA Rule introduces unnecessary scope for confusion. We need to be careful to ensure that policy lines are clear and respected to avoid unnecessary overlap that doesn't correspond with APRA's prudential supervision role.

For example, we are concerned that clause 85(4) of the [Prudential Bill] requires APRA to consult with the Health Secretary. However, newly inserted words provide that failure to consult does not affect the validity of APRA's rules.

This introduces significant uncertainty for the industry, which is now subject to three separate regulatory regimes that have the potential to interact in new and complex ways.[26]

Important questions unanswered

Private Healthcare Australia’s submission also identified a number of areas where further clarification would be beneficial, including in relation to:

  • standard operating procedures
  • risk equalisation
  • impost reduction for industry and
  • industry’s work on streamlining rules.[27]

Australian Dental Association

The Australian Dental Association (ADA) cautioned against passing the Bills without further consideration. A press release by ADA stated:

The Australian Dental Association (ADA) urges the Australian Parliament to spend more time scrutinising the Private Health Insurance Bills currently before them to ensure that regulators are empowered to help consumers make informed choices about their private health insurance.[28]

The statement particularly highlighted the implications for market efficiency, and hence consumer protection, of removing an important source of information. Dr Rick Olive, President of the ADA, stated:

Markets only operate well for consumers if there is easily accessible and transparent information about the products available. Private health insurance has lacked adequate transparency in the details of policies for consumers, yet premiums continue to rise year after year. Whether or not the Australian Government likes more or less regulation, it must develop the right kind of regulation in the interests of consumers. Should the Bills as they stand pass, consumers stand to have even less information to help them make informed choices.

We urge the Australian Parliament to heed the warnings we have provided in submissions and to take more time to scrutinise these Bills and consider more evidence on the potential impact on consumers. These Bills must be referred to a committee or be suitably amended.[29]

In a previous submission on the exposure legislation, ADA also noted similar concerns.[30]

Bupa Australia

In its submission to the Senate Economics Committee, Bupa Australia noted a number of specific concerns in relation to the Bills.[31] However, it also noted broader concerns on the length of the consultation period:

Bupa acknowledges that Treasury has done its best to provide industry with the opportunity to contribute feedback. Rather, Bupa has a general concern regarding the period of time afforded to industry consultation on the Bill package. The transfer of prudential supervision to APRA represents a substantial change for the industry. While it was announced as part of the 2014/15 Budget measures in May 2014, industry consultation on the legislative package commenced in mid January 2015. The timeframes have been extremely tight, which constrains a comprehensive and best practice review. For example, consultation on both the [Prudential Bill] and the remaining four Bills was less than 3 weeks consultation. Finally, the industry has not been provided with the proposed changes to the subordinate legislation that the Department of Health will continue to manage, but which require amendment due to the transition.[32]

In addition, it noted broader concerns over the proposed regulatory restructure. These concerns are discussed further under the heading ‘Key Issues’.

Bupa Australia also noted concerns that no clear reduction in regulation for industry had been identified, and it was possible that regulation might in some cases increase.[33]

hirmaa

hirmaa, a health insurance industry organisation which primarily represents not-for-profit insurers, provided a submission to the Senate Economics Committee Inquiry. It noted that throughout the consultation process following the exposure draft of the legislation, ‘hirmaa highlighted a limited number of areas that we considered needed review or further clarification and we are satisfied that our key concerns have been addressed in the Bills as presented to the Parliament’.[34]

Financial implications

The Explanatory Memorandum states that the package of Bills will have ‘nil’ financial impact.[35] While the initial ‘Smaller Government’ Budget measure specified savings of ‘$19.4 million over four years from 2014–15’ were expected from the entire measure, it appears that the incorporation of PHIAC into APRA is not expected to result in any net savings.[36]

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.

The Explanatory Memorandum discusses in particular:

  • the right to health
  • fair trial and fair hearing rights and
  • the right against arbitrary interference.[37]

The Government considers that the Bill is compatible.[38]

At the time of writing, the Parliamentary Joint Committee on Human Rights had not yet reported on the Bill.

Key issues

The package of Bills involves both a change in the regulator from APRA to PHIAC, but also a number of adjustments to the regulatory regime, through aligning the legislation with APRA’s existing framework. This means that some of the key issues are related to the organisational change, while others relate to specific legislative changes.

This section outlines some of the key issues associated with the change.

Regulatory impact

As noted above, the rationale for the change appears to be a reduction in the number of government entities, rather than a reduction in industry regulation. The Explanatory Memorandum notes that:

As the policy involves a machinery of government change, the Office of Best Practice Regulation considered that a Regulation Impact Statement was not required. The measure will not change the regulatory costs on business, community organisations or individuals and the compliance costs under the package are substantively the same as the costs under the PHI Act.[39]

Similarly, Bupa Australia commented:

Bupa is uncertain how the changes to the PHI industry regulators, [Private Health Industry Ombudsman] PHIO and PHIAC, will deliver cost savings to the Government or how efficient it is to move regulatory responsibility for the PHI industry from one Department and one Minister to three Departments and three Ministers. In fact it would seem to Bupa that the effect of both this Bill package and the merger of PHIO may be to create more distinctly separate governance arrangements for the industry with no discernible benefits for the industry or consumers.[40] (emphasis added)

Organisational change

The transfer of the dedicated regulator (PHIAC) into a prudential regulator with responsibility for multiple industries (APRA) inevitably involves a merger of different corporate cultures. A key issue is the retention of the current expertise among PHIAC’s staff.

This was explicitly addressed in APRA’s submission to the Senate Economics Committee, which stated:

    • Of PHIAC’s 34 [Full-time equivalent] FTE staff:
      • 20 staff in the following teams will transfer permanently to APRA: Supervision, Actuarial, Policy, Premiums Research, Data Collection/Statistics, Legal, Enforcement, IT;
      • 5 staff in the following teams will temporarily transfer to APRA for 6-12 months to assist with transition: Finance, Human Resources, Web and Records Management;
      • Remaining staff, and statutory office holders, will be retrenched by PHIAC, or by operation of the legislation, on dissolution of PHIAC, including the Commissioner and Council members, Council Secretary, CEO, Personal Assistant, Director of Research and Research Officer.
    • APRA has indicated that work will be transferred from the Canberra office over a period of up to 3 years. APRA is encouraging permanent staff to move to Sydney or Melbourne and will provide appropriate support for this. APRA will give 6 months' notice to each person when their role is to transfer from Canberra to either Sydney or Melbourne. If they choose not to transfer, they will be made redundant.[41]

hirmaa commented in its submission that it was:

... satisfied that the package of legislation as presented to the Parliament, will not ... Materially impact the overall effectiveness of prudential supervision of private health insurers through the transition (particularly by ensuring that there is not a loss of “corporate memory” and regulatory expertise as a result of discontinuity of personnel) ... We have arrived at these positions through our extensive consultations with APRA, the Department of Health and the Treasury.[42]

Information on private health insurance

One of the major issues in relation to the proposal is the potential for reducing the availability of information, as a result of PHIAC’s merger into APRA. This relates to both statistics published by PHIAC, as well as information available currently through the website of the Private Health Insurance Ombudsman (PHIO).[43]

While the initial exposure draft did not carry over requirements from the PHI Act for the publication of a report on private health insurers,[44] there is now a requirement in the Bills that matches the requirement in the current PHI Act.[45] hirmaa commented that:

... hirmaa is satisfied that these provisions ensure PHIAC’s public information functions are carried over by APRA. This will enable consumers to continue to make informed decisions about their private health insurance coverage.[46]

In relation to information currently available on the Private Health Insurance Ombudsman’s website, APRA noted in its submission that this would still be available:

In addition to statistical publications, PHIAC currently provides a variety of consumer information on its website. Much of this information is provided via a click-through link to the PHIO website, www.privatehealth.gov.au. These arrangements will be continued. For example, the link to the "comparison tool" for consumers to compare private health insurers on www.privatehealth.gov.au will be maintained as will the link to FAQs on www.privatehealth.gov.au. Much of the remaining consumer information will continue to be provided directly by APRA. For example, the list of registered private health insurers will continue to be published; and the consumer statistics will continue to be provided. The responsibilities for the update and hosting of the www.privatehealth.gov.au website will transfer to the Office of the Commonwealth Ombudsman ('OCO'). The OCO will retain all consumer information on the www.privatehealth.gov.au website as is.[47]

A footnote in the submission also noted that:

... the comparison [in the ‘comparison tool’] is not based on PHIAC data but instead on the Standard Information Statements ... private health insurers are required to make available to the public.[48]

Other industry concerns

Submissions on an exposure draft[49] identified particular concerns in relation to:

    • The offences in the Bill, particularly the severity of penalties and the inconsistencies between penalties; and
    • The breadth of APRA’s powers, including its powers to monitor and investigate and take action where it has prudential concerns.[50]

Submissions made to the Senate Economics Committee provide conflicting evidence on the extent to which these and other detailed concerns have been addressed. Private Healthcare Australia, which ‘represents 21 health funds throughout Australia and collectively covers approximately 97 per cent of the private health insurance industry,’[51] strongly criticised the consultation process, and the Bills as introduced. Its submission stated that:

... due to the rushed nature of the consultation process, which only began in January this year, some important issues have not been addressed. A number of new provisions that significantly impact industry compliance costs have been introduced since the Exposure Draft legislation, without consultation.[52]

However, one industry organisation, hirmaa, stated that:

... hirmaa has been an active participant in the consultation sessions over this package of legislation and in summary, we are satisfied that the Bills as presented to the Parliament, achieve the Government’s over-arching aim of ensuring a smooth transition from PHIAC to APRA.[53]

Provisions—Private Health Insurance (Prudential Supervision) Bill 2015

The Private Health Insurance (Prudential Supervision) Bill 2015 (the Prudential Bill) establishes the new prudential framework for APRA’s supervision of private health insurers. This section outlines the contents of the Prudential Bill.

Part 1—Introduction

Part 1 of the Prudential Bill specifies the commencement date (clause 2), provides a simplified outline (clause 3), specifies how particular terms are to be interpreted (clause 4), and specifies that APRA has general administration of the proposed Act (clause 5). It also deals with a number of constitutional matters in Division 2, with clause 7 providing that the proposed Act does not apply to State insurance that does not extend beyond the limits of the state concerned.

Part 2—Registration of private health insurers

Part 2 of the Prudential Bill specifies the requirements for registration of private health insurers.

Clause 10 mirrors the current wording of the PHI Act in requiring persons carrying on a health insurance business to be registered health insurance providers, but imposes a significantly higher maximum penalty for a contravention. Currently the PHI Act (section 118-1) specifies that a person who ‘carries on a health insurance business’ and ‘is not a private health insurer’ commits an offence,[54] which is subject to a maximum 40 penalty units per day ($6,800) for contraventions.[55] However clause 10(1) of the Prudential Bill specifies a maximum penalty of imprisonment for two years or 120 penalty units ($20,400) or both. The current Act and the proposed legislation (clause 10(2)) both provide that such a contravention comprises a separate offence per day.

Clause 11 allows the Federal Court to grant an injunction, on application from APRA, where unregistered entities are providing private health insurance. This is identical to the current wording of the legislation, with one exception. Under the current legislation, ‘the Minister, the Council or any other person’ may apply for an injunction, but under the proposed legislation only APRA may apply for an injunction.[56]

Division 3 of Part 2 specifies the registration process. This closely matches the current legislative framework,[57] with some minor differences:

  • the current legislation requires an applicant to provide a copy of its rules to the Secretary of the Department of Health.[58] That requirement is not included in the Prudential Bill. The Explanatory Memorandum notes that ‘Fund rules will be provided by APRA to the Department of Health through an inter-departmental administrative arrangement’[59]
  • whereas the current framework specifies that the Health Minister makes Rules in relation to applications for registration, the Prudential Bill explicitly provides APRA with the authority to ‘set out criteria for the registration of bodies as private health insurers’[60]
  • there are minor differences in the wording of how the decision is to be made. Both PHIAC under the current legislation and APRA under the proposed legislation have scope to consider a range of matters in assessing applications; however the current legislation provides slightly more detail on the issue[61]
  • APRA is not required to notify the Secretary of the Department of Health when it accepts or refuses applications and[62]
  • while PHIAC is required under current legislation to ‘give to a person, in writing, such information from the record [of private health insurers on the PHIAC website] as the person requests’, that requirement is not replicated in the proposed framework for APRA, although the requirement to maintain an up-to-date record of private health insurers on the internet remains.[63]

Part 3—Health benefits funds

Part 3 of the Prudential Bill relates to requirements and regulation of health benefit funds.[64]

Division 2 specifies the requirements for a private health insurer to have a health benefit fund; this closely replicates the current Division 134 of the PHI Act. PHIAC has under current legislation, and APRA will have under the proposed legislation, the power to issue directions to a private health insurer to divest where the dominant purpose of a health benefits fund is not ‘health insurance business’.[65] However the proposed legislation explicitly provides APRA with the power to revoke directions (they then cease to have effect), and specifies that particular requirements in relation to directions apply to APRA’s directions on divestment.[66]

Division 3 specifies requirements in relation to the operation of health benefits funds, closely replicating sections of the current PHI Act.[67] There are very minor changes in relation to specifying Authorised Deposit-taking Institutions (ADIs) rather than banks, and referring to APRA rules rather than rules specified under the PHI Act.

Division 4 specifies restrictions on restructurings, mergers and acquisitions in relation to health benefits funds. It parallels the relevant sections of the PHI Act.[68]

Division 5 specifies requirements for the termination of health benefit funds. It matches Division 149 in the current PHI Act.

Division 6 relates to the external management of health benefit funds. It and ‘other provisions ... relating to external management and terminating management (flowing from external management) of health benefits funds, are based on provisions currently in Divisions 217, 220 and Part 6.5 of the PHI Act’.[69] There are a number of minor drafting differences in relation to particular areas, including:

  • in relation to the requirements for appointing external managers. Under the current legislative framework, PHIAC ‘must not appoint an external manager to a health benefits fund unless the Council believes that the appointment of an external manager to the fund is, in the circumstances, in the interest of the policy holders of the fund’.[70] While this requirement is reflected in subclause 52(1) of the Bill, the current legislation includes a clause specifying information and reports the PHIAC ‘may have regard to’ in relation to the best interests requirement for appointing external managers[71] and
  • two sub-paragraphs from the current legislation which provide clarification in relation to court orders in respect of schemes of arrangement are omitted in the Prudential Bill.[72] Similarly, a paragraph of the current legislation in relation to the binding nature of court orders is not replicated in the Prudential Bill.[73]

Division 7 relates to ordering the termination of health benefits funds. It reflects the current provisions in the PHI Act, while not including the current provision in relation to the binding nature of court orders.[74] Clause 69 ensures that where the Federal Court orders the appointment of a terminating manager, then relevant subdivisions of the Prudential Bill apply as if APRA had approved the termination and given notice of the appointment of the terminating manager.

Division 8 relates to external managers and terminating managers. An ‘external manager’ is a manager appointed by APRA under clause 51.[75] A ‘terminating manager’ is a person appointed either by APRA under division 5 or the Federal Court under clause 67.[76] The provisions in the Prudential Bill broadly replicate those in the current PHI Act, with some minor differences:

  • the current PHI Act subsection 290-1(2) specifies that the ‘rights of the insurer, and any of its officers, to exercise any of [powers exercisable by the external or terminating management] in relation to the fund is suspended while the fund is under external management or terminating management’. The Prudential Bill adds that ‘such a person may exercise powers or functions with the manager’s written approval’.[77] It also specifies that these provisions do not mean that the relevant individuals cease their roles as ‘officer or employee, or an external administrator’[78]
  • the Prudential Bill doubles the maximum penalty units (30 to 60) and imprisonment time (six to 12 months) associated with the offence of performing functions or dealing with property of the fund, while the fund is under management[79]
  • the Prudential Bill specifies a situation in which a director is exempt from a requirement to ‘deliver to the [external] manager all records in the director’s possession’, where they are ‘entitled to retain possession of the records’[80]
  • an ‘exoneration provision’ included in current section 293-15 of the PHI Act is not reflected in the equivalent provision in Division 8 (that is, clause 76), but the impact of the ‘exoneration provision’ still applies to clause 76 through the operation of clause 166 of the Prudential Bill. (Under the ‘exoneration provision’ a court may relieve a person who would otherwise be liable to pay compensation, from that liability if it appears to the court that the person acted honestly and ‘ought fairly to be excused from liability’)
  • the wording in relation to funding the remuneration of terminating managers is slightly modified from the current legislation, but reflects the substance[81]
  • subclauses 78(3) and (4) specify that the Federal Court may, by order, give directions to a terminating manager similar to those which APRA is empowered to make. An application for an order may be made by APRA, or a terminating manager
  • clause 79 of the Prudential Bill uses slightly different wording to section 296-10 of the current PHI Act in relation to terminating the appointment of managers, but the underlying policy intent is the same
  • clause 85 of the Prudential Bill includes an additional requirement that in making rules in relation to health benefits funds under management, APRA ‘must consult the Health Secretary’, which is a requirement not included in the current legislation[82] and
  • section 299-20 of the PHI Act specifies that ‘the Federal Court has jurisdiction to hear and determine applications’ under a number of sections of the current legislation; this is not directly reflected in Division 8.

Division 9 relates to the ‘Duties and liabilities of directors etc.’ It reflects Division 152 of the current PHI Act.

Part 4—Prudential standards and directions

Proposed Part 4 of the Prudential Bill includes some of the more significant changes in the package of Bills. Under the current legislation, PHIAC has the power to make:

  • solvency standards (PHI Act Part 4-4, Division 140)
  • capital adequacy standards (PHI Act Part 4-4, Division 143) and
  • prudential standards (PHI Act Part 4-5, Division 163).

Instead, under the provisions in the Prudential Bill APRA would have the power to make prudential standards. This provides APRA with the power to make standards in relation to the three items listed above (although not requiring it), but also enables APRA to set standards on other issues. This section outlines the framework proposed for APRA’s prudential standards for regulation of health insurers.

Part 4, Division 2 of the Prudential Bill sets out the broad framework for prudential standards, including a number of technical details. Subclause 92(2) defines ‘prudential matters’ as, in relation to private health insurers, matters relating to:

(a)     the conduct of the affairs of the insurer in such a way as:

(i)   to keep the insurer in a sound financial position; or

(ii)   not to cause or promote instability in the Australian private health insurance system; or

(b)     the conduct of the affairs of the insurer with integrity, prudence and professional skill.

Subclause 92(3) specifies that a prudential standard may apply to all private health insurers, a specified class of private health insurers, or one or more specified private health insurers. Prudential standards are legislative instruments, except where they apply to specified health insurers (as opposed to all health insurers or a specified class of health insurers) (subclause 92(6)). Subclause 92(8) specifies a number of restrictions on prudential standards, such as ensuring that they cannot ‘create an offence or civil penalty’.

Division 3 of Part 4 relates to APRA’s powers to give directions to private health insurers. Under the current PHI Act, PHIAC may give directions to private health insurers in a number of circumstances.[83] Division 3 of Part 4 of the Prudential Bill sets out in more detail a broader framework for directions from the regulator to private health insurers:

  • clause 96 specifies a number of situations in which APRA may give private health insurers directions
  • clause 97 specifies the ‘kinds of direction ... that may be given’
  • clauses 98-100 specify a number of technical details relating to directions from APRA
  • clause 101 specifies that a direction from APRA is ‘not grounds for denial of obligations’ imposed by a contract
  • clause 102 specifies that APRA may publish information about a direction in the Gazette
  • clause 103 specifies that the secrecy requirements imposed under the Australian Prudential Regulation Authority Act 1998 (Cth) apply,[84] unless ‘the information has been published in the Gazette under section 102’ of the proposed Bill and
  • clause 104 sets out the penalties for non-compliance with a direction. Specifically, the penalty for non-compliance with a direction is set at a maximum of 30 penalty units for each day in which the private health insurer fails to comply with a direction. Under the current PHI Act, a maximum penalty of 300 units applies for contraventions of a direction in relation to a prudential standard.[85] The Explanatory Memorandum to the Bill does not explain the reasoning behind the reduction in penalties.

Part 5—Other obligations of private health insurers

Part 5 of the Prudential Bill sets out the other obligations of private health insurers. This largely replicates the provisions in Part 4-5 of the current PHI Act, although the Explanatory Memorandum notes that the Prudential Bill ‘amends the provisions to align the language around powers and obligations of actuaries with the Life Insurance Act’ (the Life Insurance Act 1995 (Cth), or ‘LI Act’).[86] The obligations largely relate to the requirement to appoint an actuary, and the powers and obligations of the appointed actuary.

Clause 106 relates to the appointment of actuaries for private health insurers. This broadly matches the requirements in the current PHI Act, but the drafting more closely matches the LI Act.[87] Insurers are required to appoint an actuary, who must meet the eligibility requirements set out in the prudential standards and not be a disqualified person. Where a person ceases to be an appointed actuary, the insurer must appoint a new one within six weeks.

Clause 107 relates to terminating the appointment of an actuary. While the current PHI Act leaves these issues to the Private Health Insurer (Insurer Obligations) Rules,[88] the proposed legislation more closely matches the LI Act, in specifying when the appointment of an actuary must be terminated, and that the board of directors may appoint a new actuary on an interim basis, even if not empowered to under the relevant insurer’s constitution or rules.[89] The proposed section also specifies the ‘statutory duties and functions’ of a private health insurer actuary.

Clause 108 relates to the notification of appointment. It matches the drafting of the relevant section in the LI Act, which contains more detailed requirements than the current PHI Act.[90]

Clause 109 specifies that the ‘appointed actuary of a private health insurer must perform the actuary’s statutory functions and duties’ (as defined in clause 107), and then specifies that the private health insurer must ‘make any arrangements necessary to enable the appointed actuary to perform those functions and duties’. This matches the drafting of the LI Act. While it broadly reflects the substance of the current PHI Act, it appears to offer a slightly broader authority, but does not reflect the offences and penalties currently in place.[91]

Clause 110 relates to the obligations of the appointed actuary to inform the private health insurer, its directors, or APRA of relevant issues. The Prudential Bill proposes to impose, broadly speaking, a number of requirements:

  • the actuary is required to inform the private health insurer or its board of directors of matters and action required in relation to avoiding a contravention of relevant legislation. The Prudential Bill also imposes a requirement to inform the private health insurer or its board where action is required ‘to avoid prejudice to the interests of policy holders of a health benefits fund conducted by the insurer’.[92] This second obligation is not included in the current PHI Act, but reflects a similar requirement in the LI Act[93]
  • the actuary is required to inform APRA of possible and actual contraventions by the private health insurer that ‘may affect significantly the interests of policy holders’.[94] While the drafting matches the LI Act, the policy substance is similar to the current PHI Act. Where the private health insurer has already notified APRA of a relevant matter then the appointed actuary is not required to do so[95] and
  • where the appointed actuary has informed the private health insurer of a matter, and ‘is satisfied that there has been reasonable time for the taking of the action but the action has not been taken’, then the appointed actuary must inform APRA. This is stronger than the current PHI Act, which only specifies that the actuary ‘may’ inform PHIAC, but matches the provision in the LI Act.[96]

Clauses 111 and 112 relate to the ability, and duty when required to do so, to give information and documents to APRA. These match closely provisions in the LI Act, which are not in the current PHI Act.[97] The requirement to provide APRA with information or documents differs from the LI Act in both specifying a minimum time frame (at least seven days) within which information must be provided and a smaller number of penalty units (30 rather than 60 or 100). The Prudential Bill also provides more specific detail in relation to self-incrimination, which is not included in the current LI Act. Specifically, the Prudential Bill provides that a person is not excused from giving information or producing a document on the basis that doing so might incriminate the person or expose them to a penalty (subclause 112(5)). However, subclause 112(6) provides that information or documents provided by the person are not admissible in evidence against that person in any proceedings (this is referred to as a ‘use immunity’). On the other hand, the information or documents may be used to gather other evidence against that person that would be admissible (that is, no ‘derivative use’ immunity applies).[98]

Clause 113 relates to the qualified privilege of the appointed actuary, and closely matches the relevant provisions of the PHI Act and LI Act.[99]

Clause 114 specifies that in certain circumstances APRA may refer particular matters to professional associations. This matches an existing provision of the LI Act, but is not currently included in the PHI Act.[100]

Clause 115 specifies that APRA may ‘direct the removal’ of an appointed actuary. This power does not exist under the current PHI Act, but matches an existing provision in the LI Act.[101]

Part 5-Division 3 relates to disqualified persons. There are some differences between the current PHI Act and the Prudential Bill:

  • clause 116 imposes a maximum penalty for insurers who allow a disqualified person to act as a director or senior manager at 60 penalty units and/or 12 months imprisonment, but notes that under subsection 4B(3) of the Crimes Act 1914 (Cth) the court may ‘impose a fine of up to five times the penalty stated above’ for body corporates. The relevant section of the PHI Act simply specifies a maximum penalty of 250 penalty units.[102] However, there is no requirement to refer to subsection 4B(3) of the Crimes Act 1914 in order for it to apply. It will apply to any Commonwealth offence that imposes a pecuniary penalty on a natural person unless a contrary intention is expressly provided. (Although the offences existing at section 166-1 of the PHI Act and clause 116 of the Prudential Bill apply to ‘private health insurers’, which must be corporations, rather than natural persons, a natural person could be taken to commit the offences due to the operation of Part 2.4 of the Criminal Code, which provides that a person who aids, abets, counsels or procures the commission of an offence, is taken to have committed the offence.)[103]
  • clauses 120-121 relate to the Federal Court’s power to disqualify a person, on application from APRA, from being an appointed actuary or an officer of the private health insurer. This matches the current LI Act provisions, but is different from the current PHI Act, under which the PHIAC has the power to disqualify a person[104] and
  • clause 122 relates to the ‘Privilege against exposure to penalty’, and reflects the provision in the LI Act.[105]

Clause 123 matches an existing provision in the PHI Act, restricting the use of health benefit funds in relation to the payment of pecuniary penalties.[106] Clauses 124-125 specify that APRA may require copies of reports provided to policy holders, and the names of officers of the insurer.

Part 6—Monitoring and investigation

Part 6 specifies APRA’s powers to monitor and investigate private health insurers. Those powers to some extent reflect existing provisions in the PHI Act, but also propose new powers for APRA as the regulator of private health insurers, in contrast to PHIAC’s current powers. These new powers draw on or match existing powers under other legislation which APRA enforces.

Division 2—Monitoring

Division 2 sets out the proposed monitoring powers that will be available to APRA under the Prudential Bill. There is no existing monitoring power for PHIAC in the current PHI Act. While Division 191 of the current PHI Act allows the Minister or Council to write to a private health insurer requesting information, PHIAC is only able to do so where it ‘believes that ... a private health insurer may have contravened a Council-supervised obligation’.[107]

However APRA has monitoring powers under some of the existing legislation it enforces. Under the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act), APRA is able to request information in relation to particular financial years, or ‘production of books’.[108] Similarly, under the Banking Act 1959 (Cth) APRA may require an authorised deposit-taking institution to provide information; a failure to comply is an offence with a maximum penalty of 200 penalty units.[109]

Division 2 provides APRA with powers in relation to requiring information and the production of documents. Clause 127 specifies the scope of the monitoring powers – they ‘may only be exercised’ for the purposes of the Prudential Bill, or the ‘risk equalisation levy legislation’.[110]

Clause 128 provides APRA with the power to require information or documents from private health insurers, and section 129 provides APRA with the power to require documents ‘relating to the affairs of the insurers’. Failure to comply with these requirements is an offence with a maximum penalty of 30 penalty units.[111]

Division 3—Investigation

Division 3 specifies APRA’s powers in relation to investigating private health insurers. Under the current PHI Act, there are two separate powers to conduct investigations:

  • Division 194 of the PHI Act allows the Minister to investigate a private health insurer ‘at any time and for any reason’. Under the same Division 194, PHIAC may begin an investigation if ‘for any reason it considers that a private health insurer might have contravened a Council-supervised obligation or it otherwise has concerns about the insurer’s compliance with a Council-supervised obligation’.[112] Under Division 194, the Minister or PHIAC may require individuals to provide information or documents, or give evidence
  • Division 214 of the PHI Act allows the PHIAC to appoint an inspector to investigate the affairs of a private health insurer, where it has:

... reason to suspect that ... the affairs of the insurer are being, or are about to be, carried on in a way that is not in the interests of the policy holders of a health benefits fund conducted by the insurer; or ... the insurer has contravened a provision of Part 4-4.[113]

Division 214 specifies the powers of inspectors (including requesting information and access to premises) and compliance requirements, and a number of other details (including delegation and a requirement to publish reports).

Division 3 of Part 6 of the Prudential Bill specifies an investigative framework for APRA that combines aspects of both of the current investigative powers available to PHIAC under the PHI Act. Clause 130 specifies that APRA will have the power to appoint an inspector to conduct an investigation where:

APRA reasonably suspects that:

(a)     the affairs of the insurer are being, or are about to be, carried on in a way that is not in the interests of the policy holders of a health benefits fund conducted by the insurer; or

(b)     the insurer has contravened an enforceable obligation.

Clause 130 sets out the broad power to appoint an inspector. It reflects the current powers to investigate in relation to breaches of obligations, or where there is a risk to the interests of policy holders. However, the drafting of the Prudential Bill only specifies that an investigation may be initiated where APRA ‘reasonably suspects that...the insurer has contravened an enforceable obligation’ – the current PHI Act allows PHIAC to initiate an investigation where PHIAC ‘considers that a private health insurer might have contravened a Council-supervised obligation’, which appears to provide slightly broader grounds.[114]

Clauses 131-145 set out a number of details in relation to the powers and obligations of appointed inspectors. These broadly reflect the existing provisions of the PHI Act, but specify particular aspects in more detail, in particular in relation to obtaining consent to enter premises (clause 135), and obtaining and executing investigation warrants (clauses 136-140 and clause 146), the investigator’s access to facilities and assistance (clause 141), and delegation by inspectors (clause 147).

Division 4 of Part 6 of the Prudential Bill sets out a number of miscellaneous issues in relation to APRA’s monitoring and investigation powers. Clause 148 specifies that a failure to comply with specific requests is an offence. Clause 149 specifies that while individuals are not excused from responding to requests even if the information that they provide might incriminate them or make them liable to a penalty, any information or documents the person provides are not admissible in evidence against the person, except in relation to offences for providing false or misleading information or documents. (As with clause 112, discussed above, this provides a ‘use immunity’, but not a ‘derivative use’ immunity).

Clause 150 specifies that a person who complies with a requirement by APRA or an inspector ‘does not incur any liability to any other person merely because of that compliance’.

Part 7—Enforceable undertakings

Part 7 specifies that APRA may accept enforceable undertakings from private health insurers and may apply to the Federal Court if an undertaking is contravened. The Federal Court may order a contravening private health insurer to:

  • comply with the undertaking
  • pay to the Commonwealth any financial benefit that the insurer has obtained as a result of the contravention
  • compensate any person who has suffered loss or damage due to the contravention and/or
  • do anything else that the Court considers appropriate.[115]

The drafting mirrors the relevant section of the LI Act, rather than the relevant sections of the PHI Act.[116]

Part 8—Remedies in the Federal Court

Part 8 sets out the remedies available in the Federal Court when a private health insurer does not comply with an enforceable obligation.[117] Enforceable obligation is defined in clause 4 of the Prudential Bill as:

  • a provision of the Prudential Bill, the prudential standards or the APRA rules[118]
  • a direction given under the Prudential Bill (when it is enacted), the prudential standards or the APRA rules
  • a provision of the risk equalisation legislation[119]
  • any relevant terms and conditions imposed on the insurer when it is registered
  • for restricted access insurers–the parts of the insurer’s constitution or rules that deal with the restricted access group.

Part 8 is broadly based on Division 203 in the current PHI Act, with some differences:

  • under the current PHI Act, either the Health Minister or PHIAC may apply to the Federal Court for a declaration that a private health insurer has contravened an enforceable obligation.[120] Under the proposed changes, APRA will be able to apply in relation to contraventions of an enforceable obligation, as defined above (which encompasses some provisions of the PHI Act). The Health Minister will only be able to apply in relation to contravention of enforceable obligations under the amended PHI Act (but not the Prudential Bill)[121]
  • while the current PHI Act specifies that proceedings may be ‘started no later than six years after the contravention’, proceedings under the Prudential Bill ‘must be made within four years of the alleged contravention’[122] and
  • under the current PHI Act the court may only make an order to compensate an individual if the Minister has made the application for a declaration that an insurer has contravened an enforceable obligation. Under the Prudential Bill, the court will be able to make an individual compensation order following a successful application by APRA.[123]

Part 9—Miscellaneous

Part 9 of the Prudential Bill deals with a range of miscellaneous matters.

Clause 166 allows the Federal Court to provide ‘whole or partial’ relief from civil liability for directors or officers of private health insurers, who the court considers have acted honestly and ‘ought fairly to be excused from liability’. This is an option not currently available in the PHI Act.[124]

Clause 167 requires APRA to publish information on a number of aspects of private health insurance (including premiums for different funds) on its website, in relation to each financial year. This is based primarily on current section 264-15 of the PHI Act, with the inclusion of a specific requirement not to publish personal information, which is taken from the SIS Act.[125]

Clause 168 specifies which decisions under the Bill are reviewable. This reflects the transfer of key components of the PHI Act to the new framework proposed under the Prudential Bill. While the current PHI Act merely specifies that particular decisions are reviewable by the Administrative Appeals Tribunal (AAT), the Prudential Bill specifies that subject to certain conditions APRA must conduct an internal review; where a decision is not revoked, applications may then be made to the AAT.

Clause 169 specifies that where a decision is reviewable (as per clause 168), then APRA must provide specific information in writing to the person affected by the decision, which must advise the person of their review rights.

Clause 170 provides powers to APRA to ‘give approval, make a determination or do an act’ under the Prudential Bill where it is implicitly referred to, but APRA is not given an explicit power.[126]

Clauses 171-173 relate to a number of administrative issues, including ensuring the powers of the Federal Court are not restricted, the ‘approved forms’ which documents must take, and delegation of the Minister’s powers to Departmental officials.

Clause 174 specifies that APRA may make rules prescribing matters that are ‘required or permitted’ by the Prudential Bill to be prescribed in the rules, and sets out particular constraints in relation to those rules (for example, that they must not create an offence or civil penalty).

Provisions—Private Health Insurance (Collapsed Insurer Levy) Amendment Bill 2015

The Private Health Insurance (Collapsed Insurer Levy) Amendment Bill 2015 (Collapsed Insurer Levy Bill) amends the Private Health Insurance (Collapsed Insurer Levy) Act 2003 (Cth) (Collapsed Insurer Levy Act) to ensure that APRA, rather than PHIAC, is the relevant regulator in relation to collapsed insurer levies. This primarily relates to providing advice to the relevant Minister, who determines if the levy will be imposed.[127] The relevant Minister will change from the Health Minister to a Treasury Minister.

A previous Digest prepared by the Parliamentary Library summarised the collapsed insurer levy as follows:

This levy is designed to protect contributors to private health insurance funds. If a fund is unable to meet liabilities to its members, the Minister for Health may impose a levy on each other registered organisation to help meet those liabilities.[128]

The majority of amendments in the Collapsed Insurer Levy Bill are consequential changes that do not alter the effect of the legislation. Specifically, items 1-3, 5, 8-9, 11 and 13 make consequential amendments that reflect the transfer of regulatory responsibility from PHIAC to APRA.

Item 4 inserts a definition of ‘health benefits fund’ (by reference to the PHI Act) into the Collapsed Insurer Levy Act.

Item 6 inserts a requirement that where the Minister determines a collapsed insurer levy applies, the determination must specify the payment day for the levy. Item 10 amends section 10 of the Collapsed Insurer Levy Act to require the Minister to consider APRA’s advice in relation to the day to be specified as the payment day before he or she makes a determination.[129]

Item 7 changes the prudential standards to which the Collapsed Insurer Levy Act refers from those currently set by PHIAC, to those which will be made by APRA.

Item 12 repeals a now redundant section of the Collapsed Insurer Levy Act, relating to levies which PHIAC ‘purported to impose’ under the previous National Health Act.[130]

Item 14 is a transitional provision which ensures that a determination made under the Collapsed Insurer Levy Act before the amendments made by the Collapsed Insurer Levy Bill commence, continues to have effect after that time.

Provisions—Private Health Insurance (Risk Equalisation Levy) Amendment Bill 2015

The Private Health Insurance (Risk Equalisation Levy) Amendment Bill 2015 (the Risk Equalisation Bill) makes amendments to the Private Health Insurance (Risk Equalisation Levy) Act 2003 (the Risk Equalisation Act) relating to the risk equalisation levy to reflect the transfer of regulatory responsibility from PHIAC to APRA.[131]

The second reading speech for the Bill describes the risk equalisation levy as follows:

The purpose of the Risk Equalisation Levy is to ensure that no insurer is unduly impacted by costly claims because of the risk profile of its members. It does this by allowing for cross-subsidisation for aged, chronic and long-term acute care patients and other high-cost policy holders across different private health insurers. The Risk Equalisation Levy assists insurers to offset the effects of complying with the principle of community rating established under the Private Health Insurance Act.[132]

Items 1-2, 5-7 and 9 make consequential amendments to the Risk Equalisation Act, reflecting the transfer of regulatory responsibilities from PHIAC to APRA.

Item 3 repeals the definition of ‘registered health benefits organization’ in section 5 of the Risk Equalisation Act. This term is used only in relation to transitional provisions which are no longer required, and are repealed by item 8.

Item 4 repeals the definition of the Risk Equalisation Trust Fund, which is not referred to elsewhere in the Risk Equalisation Act and will be replaced with the Private Health Insurance Risk Equalisation Special Account.[133]

Item 9 repeals transitional provisions relating to previous amendments which are no longer required.

Item 10 is a transitional provision which ensures that a determination made under the Risk Equalisation Act before the amendments made by the Risk Equalisation Bill commence, continues to have effect after that time.

Provisions—Private Health Insurance Supervisory Levy Imposition Bill 2015

The Private Health Insurance Prudential Supervisory Levy Imposition Bill 2015 (Supervisory Levy Bill) establishes a new framework for supervisory levies in the private health insurance industry. This draws on the framework established by the Financial Institutions Supervisory Levies Collection Act 1998 (Cth) and replaces the Private Health Insurance (Council Administration Levy) Act 2003 (Cth), which will be repealed by item 183 of the Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Bill 2015 (see below).[134]

Clause 6 of the Supervisory Levy Bill imposes the levy that is payable in accordance with proposed subsections 8(4A) and 8(4C) of the Financial Institutions Supervisory Levies Collection Act, to be inserted by item 12 of the Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Bill 2015. These new subsections provide that a body corporate that is a private health insurer at any time during a financial year is liable to pay a levy in respect of that financial year. (See further details below under the Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Bill 2015.)

While under the current Private Health Insurance (Council Administration Levy) Act the Minister may make rules which apply consistently over time, the proposed framework will require the Minister to determine annually the levy that applies. The same ceilings apply under both the current and proposed legislation ($2 ‘for a complying health insurance policy under which only one person is insured’, and $4 for other policies).[135]

There are some minor differences between the current and proposed frameworks. Under the Private Health Insurance (Council Administration Levy) Act, rules may set out requirements for four levy days in a financial year, and the Minister may by determination specify up to two ‘supplementary levy days’.[136] The proposed legislation provides that the levy will (after 2015–16) be collected annually.

Subclause 8(6) specifies that ‘the levy determination for a financial year may determine a levy amount by ... specifying the levy amount; or ... specifying a method for calculating the levy amount’, which provides more flexibility than the current legislation.

Provisions—Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Bill 2015

The Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Bill 2015 (the Consequential and Transitional Bill) sets out the consequential amendments and transitional provisions, associated with the package of Bills.

Schedule 1—Consequential amendments

Schedule 1 of the Consequential and Transitional Bill makes consequential amendments to multiple Acts.

Australian Prudential Regulation Authority Act 1998

The Consequential and Transitional Bill amends the Australian Prudential Regulation Authority Act 1998 (APRA Act) to ‘provide for matters relating to secrecy of information concerning private health insurers, and to provide for the administration of industry levies’.[137]

Item 4 adds private health insurers to the list of bodies regulated by APRA. This has the effect, in conjunction with other minor amendments, of ensuring that information provided by private health insurers is subject to secrecy provisions under section 56 of the APRA Act, and requirements under the Financial Sector (Collection of Data) Act 2001 (Cth).[138]

Item 5 amends subsection 8(1) of the APRA Act to broaden APRA’s legislated purpose, by changing the wording from ‘APRA exists for the following purposes’ to ‘The main purposes for which APRA exists are as follows’. It does not specifically outline additional purposes related to private health insurance. The Explanatory Memorandum notes that this is a reflection of the fact that ‘APRA will have functions in relation to the risk equalisation Special Account’.[139]

Proposed sections 54F-54H establish the Private Health Insurance Collapsed Insurer Special Account (see discussion above in relation to the collapsed insurer levy).[140]

Financial Institutions Supervisory Levies Collection Act 1998

The Consequential and Transitional Bill amends the Financial Institutions Supervisory Levies Collection Act 1998 to ‘cater for the collection of the private health insurance supervisory levy and the collection of the collapsed insurance levy’.[141]

Specifically, item 10 adds private health insurer to the list of ‘leviable bodies’ at section 7 of the Financial Institutions Supervisory Levies Collection Act. Item 12 inserts proposed subsections 8(4A)-8(4C), which set out the levy liability, including ensuring that the current regime continues to apply in the 2015–16 financial year. The Explanatory Memorandum notes in relation to proposed subsection 8(4A) that ‘This, and associated definitions in subsection 8(4B), have been inserted to ensure that in 2015–16, the Private Health Insurance Supervisory Levy is collected in the same way as the Private Health Insurance Council Administration Levy would have been collected had the Council continued to operate’.[142]

After the 2015–16 financial year, private health insurers will pay their levies annually, similarly to other institutions under APRA’s supervision.[143]

Item 16 inserts proposed subsection 10(3) which ensures that where a late payment penalty rate applies, the rate will be 15 per cent (reflecting the current regime), rather than the 20 per cent which other APRA regulated entities are subject to.[144]

Item 18 inserts proposed Part 3B into the Financial Institutions Supervisory Levies Collection Act ‘to empower APRA to collect and administer any levy payable under the Private Health Insurance (Collapsed Insurer Levy) Act 2003’; this was previously included in the PHI Act.[145]

Financial Sector (Collection of Data) Act 2001

The Consequential and Transitional Bill makes minor amendments to the Financial Sector (Collection of Data) Act 2001, including amending the object of the Act (paragraph 3(1)(a), amended by item 21 of the Consequential and Transitional Bill) to ensure that APRA is able to collection information for the purposes of administering the risk equalisation trust fund.[146]

Income Tax Assessment Act 1997

The Consequential and Transitional Bill amends the Income Tax Assessment Act 1997 (Cth)[147] to reflect that some of the definitions and provisions previously contained in the PHI Act will be transferred to the Prudential Bill, and that APRA will assume regulatory functions relating to demutualisation previously held by PHIAC.[148]

Life Insurance Act 1995

The Consequential and Transitional Bill amends the LI Act to include an additional reference to the Prudential Bill.

Medibank Private Sale Act 2006

The Medibank Private Sale Act 2006 (Cth)[149] includes a number of references to the regulatory framework for private health insurance; primarily to ensure that actions taken in relation to the privatisation are not in breach of the regulatory framework. The Consequential and Transitional Bill makes a number of amendments to ensure that an exemption is also provided where appropriate from the requirements imposed under the Prudential Bill.[150]

Private Health Insurance Act 2007

The Consequential and Transitional Bill makes a large number of amendments to the PHI Act. This includes repealing significant sections of the Act, to reflect the transfer to the Prudential Bill, as well as numerous consequential amendments to remove references to the current regulator, PHIAC. This section summarises where the amendments reflect minor changes in the framework.

Item 51 removes references to PHIAC from the list of entities to which private health insurers must provide information in relation to new or updated products, or on request. The Explanatory Memorandum notes that APRA will not have the same powers to receive or request information under the PHI Act as PHIAC currently does.[151]

Item 58 inserts proposed section 115-5. Proposed subsection 115-5(2) creates a new requirement that the Health Minister must consult with APRA before making Private Health Insurance (Health Insurance Business) Rules. Similarly, item 63 inserts proposed section 131-5, which includes a requirement that the Minister consult with APRA before making the Private Health Insurance (Health Benefits Fund Policy) Rules.

Item 64 inserts proposed section 131-20. This specifies that the Private Health Insurance (Health Benefits Fund Policy) Rules may specify risk equalisation jurisdictions, and in particular may specify ‘circumstances in which a private health insurer may ... have more than one health benefits fund in respect of a particular risk equalisation jurisdiction’ (proposed subsection 131-20(2)). Such a rule (if made) will operate despite subclause 23(2) of the Private Health Insurance (Prudential Supervision) Bill 2015, which provides:

A private health insurer may have more than one health benefits fund, but must not have more than one in respect of a particular risk equalisation jurisdiction.

Items 73 and 75 repeal sections 169-1, 169-5 and 169-15 of the PHI Act, which impose requirements on private health insurers to provide PHIAC with copies of reports to policy holders, annual financial statements and accounts, and notify PHIAC and the Secretary of the Department of Health of new chief executive officers. These requirements are not provided for elsewhere, although the Explanatory Memorandum notes that ‘insurers will still be required to notify the Secretary of the Department of Health about any proposed changes to their rules under section 169-10’.[152]

Item 102 amends paragraph 197-1(1)(a) of the PHI Act to slightly narrow one of the grounds on which the Minister may accept an enforceable undertaking from a private health insurer. Under the current legislation the Minister may accept an undertaking if the Minister ‘considers that compliance with the undertaking will ... be likely to improve the performance of the insurer’. The proposed change would specify that the Minister may accept an undertaking where the Minister considers that ‘compliance with the undertaking will ... be likely to improve the performance of the insurer in relation to one or more matters of a kind regulated by this Act’. (As set out above in relation to Part 7 of the Private Health Insurance (Prudential Supervision) Bill 2015, APRA may also accept enforceable undertakings from private health insurers.)

Item 147 repeals current Part 6-7 of the PHI Act, and replaces it with proposed Part 6-7, setting out the framework for the Private Health Insurance Risk Equalisation Special Account, replacing the existing Private Health Insurance Risk Equalisation Trust Fund.

Ombudsman Act 1976

The Consequential and Transitional Bill makes minor amendments to the Ombudsman Act 1976 (Cth) to reflect the transfer of responsibilities from PHIAC to APRA.[153] Additionally, items 179 and 180 make consequential amendments to the PHI Act, to clauses relating to the Commonwealth Ombudsman.[154]

Repeal of the Private Health Insurance (Council Administration Levy) Act 2003

Reflecting the transfer of the supervisory levy to APRA (see the Private Health Insurance Supervisory Levy Imposition Bill 2015 above), item 183 repeals the Private Health Insurance (Council Administration Levy) Act 2003.

Schedule 2—Transitional provisions

Schedule 2 of the Consequential and Transitional Bill contains a significant number of transitional provisions. The Explanatory Memorandum notes that these are ‘needed to ensure that legal actions undertaken or deemed to be undertaken under the PHI Act immediately before the transition time are taken to be undertaken under equivalent provisions in the Prudential Supervision Bill.’[155]

Schedule 2, Part 1 provides definitions, and specifies that where particular provisions are held to continue to apply in relation to a particular matter, then ‘rules, determinations or other instruments as in force’ are also applied.

Part 2 of Schedule 2 (items 2 to 20) contains specific transitional provisions.

Item 2 of Schedule 2 specifies that proceedings brought under the PHI Act by PHIAC or the Health Minister will continue under the Prudential Bill, with APRA substituted as a party.

Item 3 specifies that private health insurers registered under the PHI Act will continue to be registered under the Prudential Bill. Item 4 allows for a similar transition in relation to applications for registration and item 5 relates to approvals for conversion to for-profit status.

Division 2 (items 6 to 8) relates to health benefits funds. Items 6 and 7 ensure the transition of restructure and merger and acquisition approvals given prior to the amendments. Item 8 relates to applications and approvals for the termination of health benefits funds, and the appointment of external and terminating managers.

Division 3 (items 9 to 11) relates to ‘other obligations’ of private health insurers. Specifically, item 9 ensures that directions from the regulator continue to apply after APRA assumes regulatory responsibility; item 10 ensures the appointment of actuaries continues to have effect, and item 11 ensures that disqualified persons remain disqualified after the change in legislation.

Division 4 (items 12 to 15) relates to enforcement. Item 12 ensures that investigations in progress under the PHI Act may continue, and that APRA can investigate breaches of enforceable obligations formerly supervised by PHIAC. Item 13 ensures that enforceable undertakings accepted before the transition remain in force. Item 14 ensures that Federal Court proceedings about breaches of enforceable obligations underway before the transition continue with ‘APRA substituted for the Council as a party’, and item 15 ensures that proceedings for injunctions in relation to non-complying policies continue with the Health Minister substituted for PHIAC.

Division 5 (items 16 to 18) specifies the transition process for PHIAC’s finances. Specifically, item 16 specifies that appropriate amounts can be transferred to the Risk Equalisation Special Account, and item 17 ensures that if a levy is applied before the transition, but the funds are not yet collected, then APRA will collect the funds. Item 18 specifies that where an insurer has an unpaid entitlement from the current Risk Equalisation Trust Fund, then after the transition APRA will be responsible for the payment.

Division 6 (items 19 to 20) relates to a number of other matters. Item 19 deals with secrecy provisions, and preserves:

... secrecy in relation to information transferred to APRA, and/or known by employees of the Council who have been transferred to APRA, while ensuring that, if the information can be disclosed under a provision in APRA’s secrecy provision, it may be disclosed without having to also be an ‘authorised disclosure’ under the PHI Act.[156]

Item 20 ensures that where PHIAC has not fulfilled a statutory requirement to report in relation to a given year before the transition, APRA is responsible for that report.

Part 3 of Schedule 2 (items 21 to 37) relates to general transitional provisions. Division 1 specifies that during the ‘transition period’ (defined as the period between Royal Assent and the commencement date), the functions of APRA and PHIAC are expanded to include steps related to the transfer. Division 2 ensures the appropriate transfer of assets and liabilities between PHIAC and APRA.

Division 3 includes a number of provisions to ensure continuity between PHIAC and APRA, including in relation to instruments (item 27), legal proceedings (item 28), transferring records and documents (item 29) and Ombudsman investigations (item 30).

Division 4 relates to transferring personnel between PHIAC and APRA. Item 31 relates to employee transfers, item 32 specifies the terms and conditions transferring staff will receive at APRA, item 33 specifies the recognition of accrued leave and prior service, and item 34 relates to staffing procedures initiated but not completed at the transition. Item 35 provides for the continuing application of the Safety, Rehabilitation and Compensation Act 1988 (Cth) to injuries suffered prior to the transition, while item 36 specifies that consultants and Council officers are not transferred to APRA.

Division 5 specifies that APRA has responsibility for preparing the final annual report for PHIAC.

Part 4 of Schedule 2 (items 38 to 43) includes a number of miscellaneous provisions, including specifying an exemption from stamp duty or other state and territory taxes (item 39), delegation by the APRA Minister (item 41), and authority for the APRA Minister to make transitional rules (item 43).

 

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



[1].         Parliament of Australia, ‘Private Health Insurance (Prudential Supervision) Bill 2015 homepage’, Australian Parliament website, accessed 12 June 2015.

[2].         Parliament of Australia, ‘Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Bill 2015 homepage’, Australian Parliament website, accessed 12 June 2015.

[3].         Parliament of Australia, ‘Private Health Insurance Supervisory Levy Imposition Bill 2015 homepage’, Australian Parliament website, accessed 12 June 2015.

[4].         Parliament of Australia, ‘Private Health Insurance (Risk Equalisation Levy) Amendment Bill 2015 homepage’, Australian Parliament website, accessed 12 June 2015.

[5].         Parliament of Australia, ‘Private Health Insurance (Collapsed Insurer Levy) Amendment Bill 2015 homepage’, Australian Parliament website, accessed 12 June 2015.

[6].         Norfolk Island Legislation Amendment Act 2015, accessed 15 June 2015.

[7].         Private Health Insurance Amendment Act 2015, accessed 15 June 2015.

[8].         Acts and Instruments (Framework Reform) Act 2015, accessed 15 June 2015.

[9].         Private Health Insurance Administration Council (PHIAC), Annual report 2004–05, PHIAC, Canberra, 2005, p. 6, accessed 15 June 2015.

[10].      Private Health Insurance Act 2007, PHIAC, Annual report 2007–08, Canberra, 2008, p. 5, accessed 15 June 2015.

[11].      Section 264-5 of the PHI Act.

[12].      PHIAC, Annual report 2013–14, PHIAC, Canberra, 2014, p. ii, accessed 15 June 2015.

[13].      National Commission of Audit (NCOA), Towards responsible Government: the report of the National Commission of Audit, phase one, NCOA, February 2014, pp. 210–211, recommendation 53, accessed 10 June 2015.

[14].      Australian Government, Budget measures: budget paper no. 2: 2014–15, pp. 70–71, accessed 15 June 2015.

[15].      Senate Standing Committee on Economics, Inquiry into the Private Health Insurance (Prudential Supervision) Bill 2015 [Provisions] and related bills, The Senate, Canberra, 2015, accessed 10 June 2015.

[16].      C King, ‘Second reading speech: Private Health Insurance (Prudential Supervision) Bill 2015, Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Bill 2015, Private Health Insurance Supervisory Levy Imposition Bill 2015, Private Health Insurance (Risk Equalisation Levy) Amendment Bill 2015, Private Health Insurance (Collapsed Insurer Levy) Amendment Bill 2015’, House of Representatives, Debates, 4 June 2015, p. 39, accessed 12 June 2015.

[17].      Ibid., p. 37.

[18].      Ibid., pp. 37–39.

[19].      Ibid., p. 38. See also PHIAC, ‘Competition in the Australian Private Insurance Health Market’, Research paper, 1, 3 June 2013, pp. 6 and 32, accessed 12 June 2015. PHIAC reported that five health insurers – Medibank Private, BUPA, HCF, HBF and NIB - account for 83 per cent of the market.

[20].      Ibid., pp. 37–39.

[21].      Private Healthcare Australia, Submission to the Senate Economics Legislation Committee, Inquiry into the Private Health Insurance (Prudential Supervision) Bill 2015 [Provisions] and related bills, n.d., p. 1, accessed 14 June 2015.

[22].      Ibid., p. 2.

[23].      Ibid., pp. 2–3.

[24].      Ibid., p. 3.

[25].      Ibid., pp. 3–4.

[26].      Ibid., p. 4.

[27].      Ibid., pp. 4–6.

[28].      Australian Dental Association, Private health insurance reform bills forget to help consumers make informed choices, media release, 5 June 2015, accessed 14 June 2015.

[29].      Ibid.

[30].      Australian Dentists Association, Re: Private Health Insurance (Prudential Supervision) Bill 2015, 28 January 2015, accessed 14 June 2015.

[31].      Bupa Australia, Submission to the Senate Economics Legislation Committee, Inquiry into the Private Health Insurance (Prudential Supervision) Bill 2015 [Provisions] and related bills, 10 June 2015, pp. 1–4, accessed 14 June 2015.

[32].      Ibid., pp. 4–5.

[33].      Ibid., pp. 6–7.

[34].      hirmaa, Submission to the Senate Economics Legislation Committee, Inquiry into the Private Health Insurance (Prudential Supervision) Bill 2015 [Provisions] and related bills, 10 June 2015, p. 2, accessed 15 June 2015.

[35].      Explanatory Memorandum, Private Health Insurance (Prudential Supervision) Bill 2015, p. 7, accessed 15 June 2015.

[36].      Australian Government, Budget measures: budget paper no.2: 2014–15, pp. 70–71, accessed 14 June 2015.

[37].      Explanatory Memorandum, Private Health Insurance (Prudential Supervision) Bill 2015, op. cit., pp. 209–212.

[38].      The Statement of Compatibility with Human Rights can be found at page 209 of the Explanatory Memorandum to the Bill.

[39].      Explanatory Memorandum, Private Health Insurance (Prudential Supervision) Bill 2015, op. cit., p. 8.

[40].      Bupa Australia, Submission to the Senate Economics Legislation Committee, Inquiry into the Private Health Insurance (Prudential Supervision) Bill 2015 [Provisions] and related bills, op. cit., p. 5.

[41].      Australian Prudential Regulation Authority (APRA), Submission to the Senate Economics Legislation Committee, Inquiry into the Private Health Insurance (Prudential Supervision) Bill 2015 [Provisions] and related bills, 10 June 2015, p. 7, accessed 15 June 2015.

[42].      hirmaa, Submission to the Senate the Economics Legislation Committee, Inquiry into the Private Health Insurance (Prudential Supervision) Bill 2015 [Provisions] and related bills, op. cit., pp. 3–4.

[43].      Private Health Insurance Ombudsman (PHIO), ‘PrivateHealth.gov.au’, PHIO website, accessed 11 June 2015.

[44].      See section 264-15 of the PHI Act; Private Health Insurance (Prudential Supervision) Bill 2015: Exposure Draft, accessed 14 June 2015.

[45].      Specifically clause 167 of the Private Health Insurance (Prudential Supervision) Bill 2015.

[46].      hirmaa, Submission to the Senate Economics Legislation Committee, Inquiry into the Private Health Insurance (Prudential Supervision) Bill 2015 [Provisions] and related bills, op. cit., p. 4.

[47].      APRA, Submission to the Senate Economics Legislation Committee, Inquiry into the Private Health Insurance (Prudential Supervision) Bill 2015 [Provisions] and related bills, op. cit., p. 6.

[48].      Ibid., fn. 1, p. 6.

[49].      Consultation on the Exposure Draft Private Health Insurance (Prudential Supervision) Bill 2015 and explanatory materials was conducted between 12 January and 30 January 2015 (Treasury, Private Health Insurance (Prudential Supervision) Bill 2015: cessation of the Private Health Insurance Administration Council—summary of consultation process, 2015, p. 1, accessed 15 June 2015).

[50].      Ibid., p. 1.

[51].      Private Healthcare Australia, Submission to the Senate Economics Legislation Committee, Inquiry into the Private Health Insurance (Prudential Supervision) Bill 2015 [Provisions] and related bills, op. cit., p. 1.

[52].      Ibid., pp. 1–2.

[53].      hirmaa, Submission to the Senate Economics Legislation Committee, Inquiry into the Private Health Insurance (Prudential Supervision) Bill 2015 [Provisions] and related bills, op. cit., pp. 1–2.

[54].      The Prudential Bill defines a ‘private health insurer’ as ‘a body registered under Division 3of Part 2’ of the Prudential Bill (clause 4).

[55].      A penalty unit is $170 – see section 4AA of the Crimes Act 1914 (Cth), accessed 4 March 2015. Section 4D of the Crimes Act provides that a penalty specified for a Commonwealth offence is to be taken as the maximum penalty unless the contrary intention appears.

[56].      Private Health Insurance Act 2007 (PHI Act), section 118-5.

[57].      PHI Act, Division 126.

[58].      PHI Act, subsection 126-10(3).

[59].      Explanatory Memorandum, Private Health Insurance (Prudential Supervision) Bill 2015, op. cit., p. 22.

[60].      PHI Act section 333-20; clause 14. The Explanatory Memorandum notes that ‘Section 14 is based on subsection 12(1B) of the Insurance Act 1973 (Cth) and is similar to a number of provisions in current Acts administered by APRA ... the criteria will be matters to which APRA have regard, rather than a check list of preconditions that automatically determine whether an application will be granted or refused’ (Explanatory Memorandum, Private Health Insurance (Prudential Supervision) Bill 2015, op. cit., pp. 22–23).

[61].      Specifically, PHI Act subsection 126-20(2) specifies items the PHIAC must consider, subsection 126-20(3) states that PHIAC may consider ‘such other matters as it thinks fit’ except those ruled out by the Minister, and subsection 126-20(4) states that PHIAC must refuse applications where the proposed health fund’s rules permit ‘improper discrimination’.

[62].      PHIAC is required to do so under PHI Act paragraphs 126-25(1)(b) and 126-25(2)(b).

[63].      PHI Act, subsection 126-35(2).

[64].      A ‘health benefit fund’ is defined in PHI Act section 131-10 as ‘a fund that: (a) is established in the records of a private health insurer; and (b) relates solely to: (i) its health insurance business, or a particular part of that business; or (ii) its health insurance business, or a particular part of that business, and some or all of its health-related businesses, or particular parts of those businesses’.

[65].      Subclause 25(2); PHI Act, subparagraph 134-10(2).

[66].      Clauses 98, 101, 102 and 103 specify requirements that apply to directions from APRA.

[67].      PHI Act, sections 137-1 to 137-20.

[68].      PHI Act, sections 137-25 and 146-1 to 146-10.

[69].      Explanatory Memorandum, Private Health Insurance (Prudential Supervision) Bill 2015, op. cit., p. 45.

[70].      PHI Act, subsection 217-15(1).

[71].      Specifically, PHI Act subsection 217-15(3) does not appear to be replicated in the Prudential Bill.

[72].      PHI Act, subsections 217-60(3) and (4) do not appear to be replicated in the Prudential Bill.

[73].      PHI Act, section 220-10 does not appear to be replicated in the Prudential Bill.

[74].      It reflects the current PHI Act, Division 220, but does not replicate current section 220-10 of the PHI Act.

[75].      Under clause 52 of the Prudential Bill APRA ‘must not appoint an external manager to a health benefits fund unless APRA considers that the appointment ... is ... in the interests of the policy holders of the fund’, and particular grounds have been met (although APRA may specify these in rules).

[76].      APRA may appoint a terminating manager when it accepts an application for termination by a private health insurer (division 5 of the Prudential Bill), and the Federal Court may appoint a terminating manager under clause 67 of the Prudential Bill, where an external manager is directed by APRA to apply ‘for the appointment for a terminating manager of the health benefits fund’ (clause 66).

[77].      Subclause 70(2).

[78].      Subclause 70(3).

[79].      Clauses 71 and 75 of the Prudential Bill impose a maximum penalty of 60 penalty units and/or 12 months imprisonment for the offences they contain, compared to 30 penalty units and/or six months imprisonment in the comparable provisions of the PHI Act–sections 290-5 and 293‑10.

[80].      Subclause 73(6) of the Prudential Bill–this is not included in the current PHI Act. A note to the proposed clause in the Prudential Bill notes that ‘A defendant bears an evidential burden in relation to the matter in this subsection (see subsection 13.3(3) of the Criminal Code).’ The proposed subsection reflects a similar sub-paragraph in relation to other individuals (not directors) in the current PHI Act subsection 293-5(6).

[81].      Clause 77 of the Prudential Bill reflects the substance of section 296-1 of the PHI Act.

[82].      PHI Act, section 299-10 does not currently include this requirement.

[83].      Section 163-15 of the PHI Act allows PHIAC to give directions in relation to prudential standards. Section 200-1 allows PHIAC to give directions if ‘the Council considers that it will assist in the prevention of contraventions of Council-supervised obligations to do so’.

[84].      Australian Prudential Regulation Authority Act 1998, Part 6, accessed 15 June 2015.

[85].      Section 163-20 of the PHI Act specifies the penalty for breaches of a direction given by PHIAC under section 163-15.

[86].      Explanatory Memorandum, Private Health Insurance (Prudential Supervision) Bill 2015, op. cit., p. 79. Life Insurance Act 1995, accessed 15 June 2015.

[87].      See sections 160-1 and 160-5 of the PHI Act and section 93 of the LI Act.

[88].      Private Health Insurance (Insurer Obligations) Rules 2009, accessed 15 June 2015.

[89].      Section 160-15 of the PHI Act and section 94 of the LI Act relate to the termination of the appointment of an actuary.

[90].      Section 160-10 of the PHI Act and section 95 of the LI Act relate to the notification of appointment of an actuary.

[91].      Section 160-25 of the PHI Act specifies maximum penalties of 30 penalty units for a private health insurer, or employee, who does not answer questions or produce documents the appointed actuary requires for their ‘functions and duties’. LI Act section 97 sets out the actuary’s role, but does not specify offences or penalties for non-compliance; neither does clause 109 of the Prudential Bill.

[92].      Paragraph 110(1)(b) of the Prudential Bill.

[93].      Section 160-30 of the PHI Act relates to the actuary’s obligations to report; the LI Act section 98 contains a similar provision.

[94].      Paragraph 110(2)(b).             

[95].      Subclause 110(3) of the Prudential Bill.

[96].      Subclause110(5) of the Prudential Bill; PHI Act, subsection 163-30(4); LI Act, subsection 98(3).

[97].      Sections 98A and 98B of the LI Act.

[98].      Thanks to Cat Barker for this succinct explanation of ‘use’ and ‘derivative use’ immunity.

[99].      Section 160-35 of the current PHI Act and section 99 of the LI Act relate to qualified privilege of the appointed actuary.

[100].   Section 125 of the LI Act.

[101].   Section 125A of the LI Act.

[102].   Section 166-1 of the PHI Act specifies the penalty for private health insurers.

[103].   Criminal Code Act 1995, accessed 15 June 2015.

[104].   Sections 166-20 and 166-25 of the PHI Act specify the PHIAC’s power to disqualify; sections 245A and 245B of the LI Act relate to the Federal Court’s power of disqualification.

[105].   Section 245C of the LI Act.

[106].   PHI Act, section 172-15.

[107].   PHI Act, section 191-1.

[108].   Superannuation Industry (Supervision) Act 1993 (SIS Act), subsection 254(2) and section 255, accessed 16 June 2015.

[109].   Banking Act 1959 (Cth) section 62, accessed 15 June 2015.

[110].   Clause 4 of the Prudential Bill specifies that ‘risk equalisation levy legislation means any of the following: (a) the Private Health Insurance (Risk Equalisation Levy) Act 2003; (b) the provisions of the Private Health Insurance Act 2007, as they apply in relation to: (i) levy imposed under the Private Health Insurance (Risk Equalisation Levy) Act 2003; or (ii) the Risk Equalisation Special Account’.

[111].   Clause 148 of the Prudential Bill.

[112].   PHI Act, subsections 194-1(1) and 194-1(2).

[113].   PHI Act, paragraph 214-1(1). Part 4-4 of the PHI Act specifies obligations in relation to health benefits funds.

[114].   PHI Act, subsection 194-1(2).

[115].   Subclause 152(5) of the Prudential Bill.

[116].   Section 133A of the LI Act; see also sections 197-1 and 197-5 of the PHI Act.

[117].   Explanatory Memorandum, Private Health Insurance (Prudential Supervision) Bill 2015, op. cit., p. 109.

[118].   This Act is defined at clause 4 of the Prudential Bill to include prudential standards and APRA rules.

[119].   Clause 4 of the Prudential Bill specifies that ‘risk equalisation levy legislation means any of the following: (a) the Private Health Insurance (Risk Equalisation Levy) Act 2003; (b) the provisions of the Private Health Insurance Act 2007, as they apply in relation to: (i) levy imposed under the Private Health Insurance (Risk Equalisation Levy) Act 2003; or (ii) the Risk Equalisation Special Account’.

[120].   Section 203-1 of the PHI Act.

[121].   Explanatory Memorandum, Private Health Insurance (Prudential Supervision) Bill 2015, op. cit., p. 109.

[122].   PHI Act, section 203-30; subclause 154(2) of the Prudential Bill.            

[123].   Explanatory Memorandum, Private Health Insurance (Prudential Supervision) Bill 2015, op. cit., p. 110; PHI Act, section 203-15; clause 157 of the Prudential Bill.

[124].   Explanatory Memorandum, Private Health Insurance (Prudential Supervision) Bill 2015, op. cit., p. 117.

[125].   Section 264-15 of the PHI Act and section 348A of the SIS Act (Explanatory Memorandum, Private Health Insurance (Prudential Supervision) Bill 2015, op. cit., p. 120).

[126].   Explanatory Memorandum, Private Health Insurance (Prudential Supervision) Bill 2015, op. cit., p. 122.

[127].   Private Health Insurance (Collapsed Insurer Levy) Act 2003, accessed 16 June 2015.

[128].   P Prince, National Health Amendment (Private Health Insurance Levies) Bill 2003, Bills Digest, 139, 2002–03, Parliamentary Library, Canberra, 2003, p. 1, accessed 15 June 2015.

[129].   A note in proposed subsection 7(3) of the Collapsed Insurer Levy Act (at item 6 of the Bill) highlights that ‘The payment day is the day on which the levy is due and payable under Part 3B of the Financial Institutions Supervisory Levies Collection Act 1998’.

[130].   For background see P Prince, National Health Amendment (Private Health Insurance Levies) Bill 2003, op. cit.

[131].   Private Health Insurance (Risk Equalisation Levy) Act 2003, accessed 16 June 2015.

[132].   J Frydenberg, ‘Second reading speech: Private Health Insurance (Risk Equalisation Levy) Amendment Bill 2015’, House of Representatives, Debates, 27 May 2015, p. 16. The risk equalisation framework is complex; for a summary see A Biggs and L Buckmaster, Private Health Insurance Bill 2006, Bills digest, 81, 2006–07, Parliamentary Library, Canberra, 2007, p. 7, both accessed 15 June 2015.

[133].   See proposed section 318–1 of the PHI Act, inserted by Item 147 of the Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Bill 2015.

[134].   Financial Institutions Supervisory Levies Collection Act 1998 (Cth); Private Health Insurance (Council Administration Levy) Act 2003 (Cth), accessed 15 June 2015.

[135].   Paragraph 8(7)(d) of the Supervisory Levy Bill; Private Health Insurance (Council Administration Levy) Act 2003, paragraph 7(2)(d).

[136].   Private Health Insurance (Council Administration Levy) Act 2003, section 6.

[137].   Australian Prudential Regulation Authority Act 1998 ; Explanatory Memorandum, Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Bill 2015, p. 125, accessed 15 June 2015.

[138].   Ibid., p. 129; Financial Sector (Collection of Data) Act 2001 (Cth), accessed 15 June 2015.

[139].   Explanatory Memorandum, Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Bill 2015, p. 130, accessed 15 June 2015.

[140].  See proposed section 318–1 of the PHI Act, inserted by item 147 of the Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Bill 2015.           

[141].   Financial Institutions Supervisory Levies Collection Act 1998, accessed 16 June 2015. Explanatory Memorandum, op. cit., p. 125.

[142].   Explanatory Memorandum, op. cit., p. 133.

[143].   Ibid., p. 133.

[144].   Ibid., p. 133.

[145].   Ibid., p. 134.

[146].   Financial Sector (Collection of Data) Act 2001; Explanatory Memorandum, op. cit., p. 136.

[147].   Income Tax Assessment Act 1997 (Cth), accessed 15 June 2015.

[148].   Explanatory Memorandum, op. cit., p. 138.

[149].   Medibank Private Sale Act 2006 (Cth), accessed 15 June 2015.

[150].   Explanatory Memorandum, op. cit., p. 138.

[151].   Ibid., p. 143.

[152].   Ibid., p. 147.

[153].   Specifically, item 178 amends subsection 35(6D) of the Ombudsman Act 1976, which will be inserted when the Private Health Insurance Amendment Act 2015 commences on 1 July 2015; Ombudsman Act 1976 (Cth), accessed 15 June 2015.

[154].   These amendments similarly make changes to clauses that will be introduced after the commencement of the Private Health Insurance Amendment Act 2015 (Cth), accessed 15 June 2015.

[155].   Explanatory Memorandum, Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Bill 2015, op. cit., p. 169.

[156].   Ibid., p. 179.

 

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