PRIVATE HEALTH INSURANCE INCENTIVES BILL 1998
PRIVATE HEALTH INSURANCE INCENTIVES AMENDMENT BILL 1998
TAXATION LAWS AMENDMENT (PRIVATE HEALTH INSURANCE) BILL 1998
DECEMBER 1998
© Commonwealth of Australia 1998
ISSN 1440-2572 |
View the report as separate downloadable parts:
For further information, contact:
Committee Secretary
Senate Standing Committees on Community Affairs
PO Box 6100
Parliament House
Canberra ACT 2600
Australia
MEMBERSHIP OF THE COMMITTEE
Members
| Senator Sue Knowles, Chairman |
LP, Western Australia |
| Senator Andrew Bartlett, Deputy Chair |
AD, Queensland |
| Senator Kay Denman |
ALP, Tasmania |
| Senator Alan Eggleston |
LP, Western Australia |
| Senator Chris Evans |
ALP, Western Australia |
| Senator Ross Lightfoot |
LP, Western Australia |
| Substitute Member |
|
| Senator Lees for Senator Bartlett for the Committee's
inquiry |
AD, South Australia |
Participating Members
| Senator Eric Abetz |
LP, Tasmania |
| Senator Bob Brown |
Greens, Tasmania |
| Senator Mal Colston |
Ind, Queensland |
| Senator the Hon Rosemary Crowley |
ALP, South Australia |
| Senator the Hon John Faulkner |
ALP, New South Wales |
| Senator Michael Forshaw |
ALP, New South Wales |
| Senator Brenda Gibbs |
ALP, Queensland |
| Senator Brian Harradine |
Ind, Tasmania |
| Senator Meg Lees |
AD, South Australia |
| Senator Dee Margetts |
GWA, Western Australia |
| Senator the Hon Chris Schacht |
ALP, South Australia |
| Senator John Woodley |
AD, Queensland |
1.1 The Private Health Insurance Incentives Bill 1998 and associated
Bills were introduced into the House of Representatives on 12 November
1998. On 26 November 1998, the Senate, on the recommendation of the Selection
of Bills Committee (Report No. 11 of 1998), referred the provisions
of the Bills to the Committee for report by 7 December 1998. The reporting
date was subsequently extended to 8 December 1998.
1.2 The Committee considered the Bills at a public hearing on 4 December
1998. Details of the public hearing are referred to in Appendix 2. The
Committee received 39 submissions relating to the Bills and these are
listed at Appendix 1.
Private Health Insurance Incentives Bill 1998
2.1 The Private Health Insurance Incentives Bill 1998 provides for a
non-income tested financial incentive for people who take out or maintain
private health insurance (PHI). The incentive is in the form of a direct
payment, reduced premium or tax offset and is equal to 30 per cent
of the cost of PHI cover. The incentive is generally available to an individual
who pays for appropriate PHI cover with a fund registered under Part VI
of the National Health Act 1953. The incentive scheme will apply
from 1 January 1999.
2.2 The measure was announced as part of the Government's tax reform
package, contained in Tax Reform: Not a New Tax, a New Tax System.
The scheme will assist families and individuals with the cost of PHI.
The new scheme will replace the Private Health Insurance Incentives Scheme
(PHIIS) from 1 January 1999. The new scheme has, however, been designed
so that persons who are currently able to benefit under PHIIS will not
be worse off than if PHIIS had continued to operate.
2.3 The new incentive scheme will assist existing members of PHI funds
who will gain a significant benefit from the reduced cost of PHI. It will
encourage these people to retain their health fund membership. It also
aims at encouraging people to join a PHI fund because of the reduced cost
of membership. Under the new tax system proposed in the Government's tax
reform plan, this is as generous, or even more generous, than full deductibility
for health insurance premiums for more than 80 per cent of taxpayers.
[1] The private health rebate will cost the Government
an additional $1.09 billion in 1999-2000 (the first full year of operation);
$1.18 billion in 2000-01; $1.27 billion in 2001-02 and $1.36 billion in
2002-03. [2]
2.4 The Minister in the Second Reading Speech stated that:
This is an important Bill for it proposes a measure that will prove
to be of enduring benefit to the Australian health system, and to the
Australian public, namely to cut the cost of private health insurance
by 30 per cent through a rebate outlined in this Bill. What this effectively
means is that for the majority of Australians, private health insurance
will once again become tax deductible.
This is one of the simplest, most effective and most important changes
that could be made to restore the balance in our health system by working
to slow the drop-out from private health insurance.
The proposed cut in the cost of private health insurance will help
the private sector, take pressure off public hospitals and help restore
much needed balance to our health care system. [3]
Private Health Insurance Incentives Amendment Bill 1998
Taxation Laws Amendment (Private Health Insurance) Bill 1998
2.5 The Private Health Insurance Incentives Amendment Bill 1998 provides
for transitional arrangements arising from the abolition of the existing
incentives scheme to the introduction of the Government's new private
health insurance benefit. This new benefit is introduced in the Private
Health Insurance Incentives Bill 1998. The Taxation Laws Amendment (Private
Health Insurance) Bill 1998 amends the Income Tax Assessment Act 1997
to provide for a tax offset (tax rebate) as part of the new scheme.
Need for the rebate
Health insurance membership
3.1 A range of groups stated that the rebate will not only encourage
people to join PHI, but that it will also help people to retain their
fund membership. [4] The Department of Health
and Aged Care (DHAC) stated that the Government's proposed 30 per cent
rebate will provide assistance to people who purchase PHI by lowering
the cost of their insurance by almost a third. [5]
The Department also stated that the rebate will address the immediate
pressures on the system as a result of the decline in PHI membership due
to high premiums and ensure that PHI coverage `is returned to around 33
per cent' of the population, from the current level of 30.6 per cent.
[6] The Department noted that the decline in PHI membership
is currently almost 2 per cent per annum. [7]
The Australian Health Insurance Association (AHIA) stated that the rebate
would bring PHI premiums back to 1985-86 levels. [8]
3.2 Some organisations submitted that membership levels may increase
even further as a result of the introduction of the rebate. The Australian
Private Hospitals Association (APHA) stated that the `best' estimate that
the impact of the proposed rebate would be an increase of membership from
30.3 per cent of the population to 45.6 per cent, an increase of 15.3 percentage
points. [9] The Australian Medical Association
(AMA) also suggested that the effect of the rebate would be to increase
PHI coverage to 45 per cent. [10] Some groups,
however, questioned whether the rebate would arrest the decline in PHI
membership. [11]
Support for the private health sector
3.3 Evidence received by the Committee suggested that the rebate will
help maintain the viability of the private health system. APHA stated
that `a recovery in private health insurance membership is necessary to
ensure viability of the private hospitals industry'. [12]
The Association noted that if 45.6 per cent insurance membership is achieved
it is likely to increase average occupancy of private hospitals from 70
to 85 per cent, the level at which hospitals run most efficiently. [13] APHA argued that an increase in this order would
reduce demand on public hospitals by 10 percent and would eliminate existing
waiting lists. [14]
3.4 DHAC stated that the private sector is experiencing particular financial
pressures from the move by private patients out of public facilities and
into private hospital beds. The private health insurers are also dealing
with the financial burden of a membership base which is becoming increasingly
skewed towards the older and sicker members as younger and healthier members
drop out. [15]
Effect on the public hospital system/waiting lists
3.5 Evidence suggested that declining PHI insurance membership could
threaten the existing balance between the public and private system, and
undermine the viability of the public system. DHAC explained that:
This is because falls in health insurance membership impact on the
public system by increasing demand for services. At some stage, private
health cover will not match private hospital places and the viability
of private hospitals might also be at risk…Each and every fall
in the private health insurance coverage, feeds directly through into
the public system as more and more people become entirely reliant on
the public system for their health care. This imposes considerable cost
pressures on the state health system. [16]
3.6 AHIA also noted that the impact of the rebate will prevent short
term increases in public hospital waiting lists and in the medium to longer
term `prevent a public sector crisis'. [17]
Several groups, including the AMA and AHIA noted that a decline in health
insurance numbers will add to the current numbers on waiting lists. [18]
AHIA estimated that if PHI declined by 10 per cent (that is, to 20 per
cent of the population) waiting lists would increase by 500 000 persons.
[19] DHAC submitted that if the present decline in
private health insurance continues, the Government would need to provide
for an extra 1.2 million public hospital bed days by 2002-03, equating
to 3 300 new beds in that year. [20] Several
State Governments stated that higher levels of PHI would reduce the pressure
on the public hospital system and public hospital waiting lists. [21]
Some submissions and witnesses claimed, however, that the rebate would
not reduce public hospital waiting lists. [22]
3.7 The Department also noted that insured people cost the Commonwealth
less for health services than the uninsured as the insured make a direct
contribution to the cost of their own health services, which is not made
by the uninsured. [23] AHIA also stated that in many areas private hospitals
provide more services than the public system – eg. 60 per cent of
lens procedures, 52 per cent of hip replacements etc. There would be additional
strain on the public sector were the private sector not able to provide
these services. [24]
Community rating
3.8 The introduction of the rebate will support the community rating
system, which underpins the private health system. DHAC submitted that
the rebate is intended to potentially attract others into the system,
particularly the young and healthy, and also additional higher income
earners. Under the community rating system, the viability of the health
funds depends on a membership profile that includes younger and healthier
members to share the risk with older and sicker members. AHIA noted that
`by keeping or bringing more higher income earners – who are of low
risk health status – within the insurance system it will be possible
to cross subsidise poorer, less healthy persons and keep health insurance
affordable for them'. [25] DHAC also noted
that the cross-subsidy element of the PHI sector works to relieve pressure
on premium levels. [26]
Promoting choice/self provision
3.9 Many submissions and other evidence pointed out that the rebate will
facilitate choice of medical practitioner or choice of hospital and the
amenity it provides via private health insurance which is not accommodated
in the public hospital sector. [27] AMA cited
recent survey research that indicated that two-thirds of Australians support
the idea of a rebate for private health insurance. [28]
DHAC also noted that private health insurance allows for the self-provision
of some health care, which relieves pressure on the public system. [29]
The rebate and higher income earners
3.10 Some groups claimed that the rebate is inequitable and largely directed
to higher income earners. [30] APHA stated, however, that 30 per cent of the
insured population are in household income units of less than $30 000
per year. By contrast only 26 per cent of the insured population are in
income units earning more than $70 000 per year. [31] AHIA also noted that the rebate is not aimed
at providing a subsidy to higher income people –`it is about ensuring
the rich add to the pool of health financing moneys, which translates
to the rich subsidising the poor. Exclusion of higher income earners from
the rebate will provide minimal savings to government, but reduce the
cross subsidisation of higher risk, lower income persons'. [32]
3.11 The Association also stated that the rebate will provide low and
middle income earners with greater opportunities for choice in their health
care, whether they choose public or private treatment – `by reducing
demand pressures on public facilities, health outcomes, equity and access
must be improved'. [33]
3.12 DHAC stated that the tax rationale behind the rebate is that it
is a horizontal tax equity measure, which responds to the additional costs
borne by taxpayers across the entire income range for private health cover,
irrespective of their level of income. [34]
The Department submitted that the rebate provides in effect a tax credit
so that lower income people who would otherwise not be able to access
fully a tax concession gain the full benefit. [35]
A non means-tested rebate
3.13 Evidence to the Committee suggested that means testing the proposed
rebate would have significant disadvantages. [36]
AHIA noted that while means testing may encourage lower income people
to take out PHI, the value of the scheme would be negated if higher income
earners were discouraged from taking up PHI. AHIA explained that:
If the benefit was means tested, health funds would become increasingly
overloaded with higher drawing members. The outcome would be an escalation
in costs, as these people used their insurance, and this would be reflected
in premium rises. Any action which increased the relative proportion
of lower income earners whose health status was lower than average would
in fact drive up prices and negate the value of the rebate. [37]
3.14 AHIA also stated that the current means tested scheme – the
PHIIS – `has encouraged participation by poorer risks, without retaining
the good risks. If that continues, prices will rise more and more, and
this will have a perverse incentive which will negate the value of the
incentive'. [38] The introduction of a means
tested rebate would also add to the administrative complexity of the scheme.
[39]
3.15 DHAC noted that the rebate is universal by intention –`not
only is it intended to support poorer families to maintain their health
cover, but it is also intended to make health insurance tax effective
for middle and higher income earners so that they might be drawn more
into the private system'. [40] The Department
stated that the rebate's relative value is also greatest at low income
levels where it is equivalent to a higher proportion of the income of
low income earners. [41] DHAC also submitted that evidence suggests that
people in the middle to higher income brackets are leaving PHI and that
these are the people `who should be encouraged to retain their insurance
to protect the risk pool and hence community rating'. [42]
Priorities for health funding
3.16 Several groups and some State Governments argued that funding should
be directed to public hospitals or other areas of health need such as
rural health services and indigenous health services rather than expenditure
for the proposed rebate. [43]
3.17 DHAC noted, however, that the Commonwealth is already injecting
substantial new funds into public hospital care, and the rebate will serve
to reduce additional pressures on public hospitals. Over the five years
of the Australian Health Care Agreements more than $31.34 billion in current
prices will be paid to the States and Territories for public hospitals
– which represents a 16.5 per cent real increase in funding
over that period. [44] DHAC noted that more effective support for PHI
offers the opportunity to restore equilibrium in the health care system.
The rebate effectively restores previous levels of support to the private
sector. [45]
3.18 APHA and AHIA stated that if the value of the rebate were diverted
to public hospitals the problem of waiting lists would not necessarily
be improved. [46] AHIA submitted that `the participation rate would
at best continue and any funding to public hospitals would be more than
offset by increased demand'. [47]APHA further
noted that directing funding to other areas such as rural health or services
for indigenous Australians `does almost nothing to address the problem
for which the funding is being proposed: that is, improving hospital care'.
[48]
4.1 The Committee reports to the Senate that it has considered the Private
Health Insurance Incentives Bill 1998, the Private Health Insurance Incentives
Amendment Bill 1998 and the Taxation Laws Amendment (Private Health Insurance)
Bill 1998 and recommends that the Bills proceed.
Senator Sue Knowles
Chairman
December 1998
APPENDIX 1
Submissions received by the Committee
| 1 |
Consumers' Health Forum of Australia |
| 2 |
Alwyn Rehabilitation Hospital |
| 3 |
Brent Walker Actuarial Services Pty Limited |
| 4 |
Association of Independent Retirees, Inc |
| 5 |
Noosa District Community Hospital |
| 6 |
Monash Surgical Private Hospital Pty Ltd |
| 7 |
Rockingham Family Hospital |
| 8 |
Ashford Community Hospital Inc. |
| 9 |
North Eastern Hospital Inc |
| 10 |
Victorian Government
- Supplementary Submission dated 3 December 1998 |
| 11 |
National Seniors Association |
| 12 |
The Association for the Advancement of Private Health |
| 13 |
Australian Healthcare Association |
| 14 |
ACOSS |
| 15 |
Council on the Ageing (COTA)
- Additional Information, dated 4 December 1998 |
| 16 |
Mr Ian McAuley |
| 17 |
Australian Private Hospitals Association Limited |
| 18 |
Health Issues Centre |
| 19 |
Australian Consumers' Association (ACA) |
| 20 |
Australian Medical Association Limited (AMA) |
| 21 |
Tasmanian Government |
| 22 |
The Private Hospitals Association of Victoria |
| 23 |
South Australian Government |
| 24 |
Australian Health Insurance Association Ltd
- Additional Information, dated 4 and 7 December 1998 |
| 25 |
National Centre for Epidemiology and Population Health
(NCEPH) |
| 26 |
Western Australian Government
- Supplementary Submission, dated 2 December 1998 |
| 27 |
Australian Catholic Health Care Association |
| 28 |
Doctors Reform Society |
| 29 |
Mr Roy Harvey |
| 30 |
Health Consumers' Council WA (Inc) |
| 31 |
Mr Richard Moore |
| 32 |
National Rural Health Alliance |
| 33 |
Department of Health and Aged Care
- Corrigendum to Submission, dated 4 December 1998 |
| 34 |
Australian Nursing Federation |
| 35 |
Dr Paul Tridgell |
| 36 |
Queensland Government |
| 37 |
New South Wales Government |
| 38 |
Combined Pensioners and Superannuants Association of
New South Wales Inc. |
| 39 |
Medibank Private |
APPENDIX 2
Public Hearing
A public hearing was held on the Bills on 4 December 1998 in Senate Committee
Room 2S1.
Committee Members in attendance
Senator Sue Knowles (Chairman)
Senator Meg Lees
Senator Mal Colston
Senator Kay Denman
Senator Alan Eggleston
Senator Chris Evans
Senator Brian Harradine
Senator Dee Margetts
Witnesses
Australian Health Insurance Association Ltd
Mr Russell Schneider, Chief Executive
Australia Private Hospitals Association Limited
Mr Ian Chalmers, Executive Director
Ms Jenny Badham, Director, Policy & Research
Mr Michael Roth, Public Affairs Manager
Australian Medical Association Limited (AMA)
Dr David Brand, Federal President
Dr Bill Coote, Secretary General
Mr John O'Dea, Director, Medical Practice Department
National Centre for Epidemiology and Population Health (NCEPH)
Professor Bob Douglas, Director
Professor John Deeble, Adjunct Professor of Economics
Dr James Butler, Senior Fellow (Health Economics)
Dr Philip Clarke, Research Fellow
Mr Ian McAuley
Association of Independent Retirees, Inc
Mrs Maureen Kingston, National President
Australian Healthcare Association
Professor Don Hindle, National Director
Doctors Reform Society
Dr Theo van Lieshout, Vice President
Australian Nursing Federation
Mr Denis Jones, Assistant Federal Secretary
Consumers' Health Forum of Australia Inc
Ms Kate Moore, Executive Director
Australian Consumers' Association (ACA)
Ms Sally Nathan, Senior Policy Officer – Health
Council on the Ageing (Australia) (COTA)
Mr Denys Correll, National Executive Director
Department of Health and Aged Care
Mr Andrew Podger, Secretary
Mr David Borthwick, Deputy Secretary
Ms Lynelle Briggs, First Assistant Secretary, Portfolio Strategies Group
Ms Chris Woodgate, Assistant Secretary, Health Insurance Development Group
Mr Charles Maskell-Knight, Assistant Secretary, Acute Care Finance &
Analysis
FOOTNOTES
[1] Explanatory Memorandum, pp.1-5,53-56.
[2] Explanatory Memorandum p.58. For further
details see also Submission No.33, p.8,26; Committee Hansard,
pp.87-93.
[3] Minister's Second Reading Speech.
[4] Submission No.17, p.4; Submission No.24,
p.iii; Submission No.4, pp.1-2; Submission No.27, p.4.
[5] Committee Hansard, p.42.
[6] Submission No.33, p.6; Committee Hansard,
pp.91-92. See also Submission No.25, p.8.
[7] Submission No.33, p.6.
[8] Submission No.24, piii.
[9] Submission No.17, p.4.
[10] Submission No.20, p.6.
[11] Committee Hansard, pp.57-58; Submission
No.1, pp.2-3; Submission No.14, p.3; Submission No.15, p.1.
[12] Submission No.17, p.2. See also Submission
No.22, pp.1-4.
[13] Submission No.17, p.4.
[14] Committee Hansard, p.38.
[15] Submission No.33, p.5.
[16] Submission No.33, p.6.
[17] Submission No.24, piii. See also Submission
No.20, p.5.
[18] Committee Hansard, p.52; Submission
No.24, p.25.
[19] AHIA, Tabled Document, 4.12.98.
[20] Submission No.33, p.15.
[21] Submission No.26, p.6 ; Submission No.23,
p.4; Submission No.10, p.4.
[22] Committee Hansard, pp.54,56,80;
Submission No.1, p.3; Submission No.16, p.4; Submission No.19, p.3.
[23] Submission No.33, p.15.
[24] Submission No.24, p.21.
[25] Submission No.24, p.iii.
[26] Submission No.33, p.7.
[27] Submission No.4, p.1; Submission No.11,
pp.3-4; Submission No.20, p1; Submission No.24, p.iii.
[28] Submission No.20, p.1.
[29] Submission No.33, p.8.
[30] Committee Hansard, pp.55-57,79;
Submission No.1, p.2; Submission No.14, p.3; Submission No.19, p.2.
[31] Committee Hansard, p.38.
[32] Submission No.24, p.16. See also Submission
No.17, pp.5-6; Submission No.20, p.4.
[33] Submission No.24, p.v.
[34] Submission No.33, p.7.
[35] Submission No.33, p.9.
[36] Submission No.4, p.3; Submission No.17,
p.9.
[37] Submission No.24, p15. See also Committee
Hansard, p.37.
[38] Committee Hansard, p.37.
[39] Submission No.20, p.4; Submission No.17,
p.9.
[40] Submission No.33, p.10.
[41] Submission No.33, p.10.
[42] Submission No.33, p.29.
[43] Committee Hansard, pp.54,65-66,75-76;
Submission No.15, pp.4-6; Submission No.19, p.4; Submission No.28, p.1;
Submission No.32, pp.1-3; Submission No.34, p.2; Submission No.36, p.4;
Submission No.37, p.6; Submission No.38, p.1.
[44] Submission No.33, pp.2,18-19,24.
[45] Submission No.33, pp.18-19. See also Submission
No.20, p.2.
[46] Submission No.17, pp.8-9.
[47] Committee Hansard, p.37. See also
Submission No.24, pp.20-23.
[48] Submission No.17, p.9.