National Health Amendment (Lifetime Health Cover) Bill 1999

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National Health Amendment (Lifetime Health Cover) Bill 1999

25 AUGUST 1999

© Commonwealth of Australia 1999

ISSN 1440-2572

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MINORITY REPORT- Australian Labor Party


SUPPLEMENTARY REPORT - Australian Democrats


APPENDIX 1 - Submissions received by the Committee


APPENDIX 2 - Public hearing


For further information, contact:

Committee Secretary
Senate Standing Committees on Community Affairs
PO Box 6100
Parliament House
Canberra ACT 2600

Phone: +61 2 6277 3515
Fax: +61 2 6277 5829


Membership of the Committee


Senator Sue Knowles, Chairman LP, Western Australia
Senator Andrew Bartlett, Deputy Chair AD, Queensland
Senator Kay Denman ALP, Tasmania
Senator Chris Evans ALP, Western Australia
Senator Brett Mason LP, Queensland
Senator Tsebin Tchen LP, Victoria

Participating Members

Senator Eric Abetz LP, Tasmania
Senator Bob Brown Greens, Tasmania
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 the Hon Chris Schacht ALP, South Australia
Senator Natasha Stott Despoja AD, South Australia
Senator John Tierney LP, New South Wales
Senator John Woodley AD, Queensland



BILL 1999



1.1 The National Health Amendment (Lifetime Health Cover) Bill 1999 (the Bill) was introduced into the Senate on 21 June 1999. On 30 June 1999, the Senate, on the recommendation of the Selection of Bills Committee (Report No. 11 of 1999), referred the Bill to the Committee for report by 24 August 1999.

1.2 The Committee considered the Bill at a public hearing on 13 August 1999. Details of the public hearing are referred to in Appendix 2. The Committee received 25 submissions relating to the Bill and these are listed at Appendix 1.



2.1 The Bill amends the National Health Act 1953 to introduce Lifetime Health Cover (LHC) into private health insurance. Under Lifetime Health Cover, health funds will be required to set different premiums depending on the age at which a member first takes out hospital cover with a registered health fund.

2.2 Lifetime Health Cover is designed to address problems associated with adverse selection, that is, the tendency of healthier members of health funds to drop their health insurance, leaving a residual membership of people with higher health risks, while maintaining the broad objectives of community rating. Lifetime Health Cover, in concert with other reforms to private health insurance, is expected to have a significant positive impact on membership numbers and consumer behaviour. [1]

2.3 The reforms are based on a 1997 inquiry into private health insurance conducted by the Industry Commission which recommended the introduction of a lifetime community rating system. An extensive consultation process with consumer and industry groups was undertaken during the formulation of the proposals.

2.4 The Minister in the Second Reading Speech stated that:

2.5 The main features of the proposed Lifetime Health Cover scheme are as follows:



3.1 Evidence received on the Bill, especially from industry and peak consumer groups, indicated broad general support for the Lifetime Health Cover scheme, although some submissions and witnesses raised issues related primarily to details of the scheme's operation. [4] The Institute of Actuaries of Australia, reflecting much of the evidence, stated LHC `should make private health insurance more affordable, more attractive and hence more popular, thereby enhancing the viability of the private health insurance system and helping reduce pressure on Medicare'. [5]

Consumer safeguards

3.2 Several groups argued that the consumer safeguards in the proposed legislation were adequate and appropriate to protect consumer interests. [6] The Private Health Insurance Ombudsman (PHIO) stated that the Bill incorporates `a number of important safeguards', including a twelve-month grace period prior to the introduction of the scheme, provision for periods of absence from membership, special provisions for people currently 65 and older and provisions for hardship cases. [7] Medibank Private noted that waiting periods and pre-existing ailment provisions of the National Health Act will still apply. [8] The Consumers' Health Forum of Australia (CHF) stated that additional consumer protections that put the onus on funds to provide plain language documents and to simplify their rules were also needed in the Bill. [9]

3.3 PHIO stated that the twelve-month grace period before the new arrangements take effect `should provide consumers with sufficient time to become aware of the new system and decide on a course of action'. [10]

3.4 Regarding implementation of the scheme, the Department of Health and Aged Care (DHAC) stated that an extensive information campaign will be undertaken prior to the introduction of the scheme to ensure that all Australians, including people of non-English speaking backgrounds and other specific groups, are aware of the new LHC arrangements and how these arrangements may affect them. [11]

3.5 The Committee suggests that this information campaign should commence as soon as possible.


3.6 Some issues relating to the treatment of migrants under the Bill were also raised in submissions and by the Committee at the public hearing.

3.7 The Tasmanian Government raised the issue of aged migrants, arguing that the Bill will make health insurance premiums for this group expensive. [12] DHAC responded, however, that migrants born on or before 1 July 1934 (that is, 65 years and over) will benefit from the special provisions for people in this age group. They will be able to take out private hospital cover at any time and pay the base rate premium with no additional loading for late entry. The Department noted that for migrants aged up to the age of 65 there are no special provisions. [13]

3.8 The Committee raised with DHAC whether the portability of benefits between countries had been considered. In response, the Department while noting the Committee's concerns, stated that portability is a `complex issue' because the schemes vary from country to country and that `at this stage in the design of the scheme we have not included that feature'. [14] The Department indicated, however, that it had liaised with the Department of Immigration and Multicultural Affairs on the question of portability and in relation to information on health insurance matters for prospective migrants. [15]

3.9 The Committee also raised the issue of humanitarian entry, especially for those newly arrived migrants (usually aged around 30 years). [16] The Department noted the Committee's concerns but stated that `we do not want to have a system with rules that are more generous for newly arrived migrants than for the Australian citizenry generally'. [17]

Hardship provision

3.10 Some groups sought clarification as to the operation of the hardship provision in the Bill and argued that the provision that the Minister may make determinations in cases of hardship only up to 1 July 2002 may be too inflexible. [18]

3.11 In response, DHAC stated that the hardship provision `is intended to ensure that in exceptional circumstances of demonstrated hardship during the transition period people will not be disadvantaged by the introduction of Lifetime Health Cover'. [19] The Department noted that it is envisaged that exceptional circumstances of hardship will be defined as instances where a person is aged between 60 and 64 or has been overseas or unemployed during the period of grace; and the person was a previous long term member of private health insurance and only recently dropped their health cover because of short term financial hardship or overseas residence. [20]

3.12 DHAC stated that many health funds already agree to suspend a person's membership under specified conditions such as a period of unemployment, an overseas posting or extended overseas leave. The Department noted that under LHC, funds will be permitted to continue this practice. [21]

3.13 The Committee also raised the issue of long-term members (for example, with 30 years membership) who are not members of a health fund on 1 July 2000 due to unemployment or other financial circumstances. In response DHAC stated that:

3.14 The Committee notes these concerns raised regarding the hardship provisions and suggests further consideration of this matter.

Continuous membership

3.15 Some submissions argued that the scheme has the potential to weaken the incentive for continuous membership of health funds. [23] Under the Bill, people can join a health fund before 1 July 2000, attain preferential contribution rights, and lapse after a month or so. Should they eventually rejoin, they will only pay additional loadings based on their period of absence. Some groups argued that a minimum period of membership should be required of health fund members. [24]

3.16 In response, DHAC stated that the potential for this behaviour to impact adversely on health fund finances will be tempered by the fact that when these people drop their hospital cover, they will be aware that, for each year after the first two years they are absent from private health insurance, they will pay a 2 per cent loading if in future they rejoin a fund – `this consideration will act as an incentive for them to rejoin earlier than they might otherwise have done. If they do rejoin, it is reasonable to assume that they will still, in aggregate, be healthier than existing fund members of the same age. The health profile of fund members will consequently improve, helping to dampen premium increases'. [25]

3.17 The Committee suggests closer examination of the issue surrounding new members taking out hospital cover during the period 1 January 2000 to 1 July 2000 and whether that should or should not lock in the right to pay premiums at the base rate until they have had hospital cover continuously for 12 months.

Impact on the public hospital system

3.18 Lifetime Health Cover is part of an overall plan for stabilising the Private Health Insurance Industry and should be seen, not in isolation, but as part of that broader perspective.

3.19 Submissions from State Governments/State Health Departments claimed that LHC may encourage people to take out low cost private health insurance but continue to use the public hospital system. [26] Queensland Health stated that the `available evidence shows that it is likely that the number of people with private health insurance electing to be public patients is significant. Also, there is anecdotal evidence that people are taking out front-end deductible insurance policies and still using the public system as public patients'. [27]

3.20 DHAC responded, however, that LHC does not provide any incentive for people to take out hospital cover that they do not intend to use – `there is no point in securing a low certified age at entry for its own sake. The only advantage to be gained by securing a low certified age at entry is to enable a person to purchase private hospital cover at the best possible price'. [28] DHAC advised the Committee that if the Department finds evidence that the purchase of low cost insurance products by people who do not use their insurance is having an impact on public hospital funding the issue will be addressed. [29]

3.21 Some State Governments/State Health Departments also claimed that if LHC results in increasing private health insurance coverage, funding to the States and Territories under the Australian Health Care Agreements (AHCAs) will decrease. This was perceived by the States as a `penalty' on the public health sector. [30] Under the AHCAs should private health insurance participation rates increase above a threshold point (consistent with a national average level of 33 per cent), funding under the Agreements will decrease by around $82 million for each percentage point increase beyond that point.

3.22 DHAC stated, however, that the current AHCAs `reflect acceptance by the Commonwealth that reductions in the rate of participation in private health insurance will result in increased demand on public hospitals, and acknowledgment by the States that these demands will reduce should the participation rate increase above a certain level'. [31] The Department emphasised that the States wanted the specific provision relating to private hospital insurance participation rates in the AHCAs – `so they must have understood what the implications were if participation went one way or the other'. [32]

3.23 The Department also noted that any upward drift in private health insurance participation rates will only become evident over the next two to five years which will give the States and Territories the opportunity to gauge the effects of LHC and to take such effects into account when negotiating the next AHCAs in 2003. [33]



4.1 The Committee reports to the Senate that it has considered the National Health Amendment (Lifetime Health Cover) Bill 1999 and recommends that the Bill proceed following due consideration of the issues raised in paragraphs 3.14 and 3.17.

Senator Sue Knowles

August 1999




BILL 1999

1. Introduction

This Report reflects the views of the undersigned Senator who attended the Community Affairs Legislation Committee hearings into the National Health (Lifetime Health Cover) Amendment Bill 1999 on 13th August 1999.

Labor does not agree that the conclusions and recommendations contained in the Committee majority report adequately respond to the issues raised during the Inquiry.

The concept of unfunded lifetime community rating is sound. The private health sector would be strengthened by well-designed reform of its premium structure that reduces the large cross subsidies between younger and older groups. However it does not reduce the need for other structural reforms including reform of the re-insurance pool, elimination of gap payments, cost control to end the upward spiral of premiums and a new consumer focus to put value back into the product.

The Lifetime Health Cover scheme put forward by the Government is built on the principles of lifetime community rating but various parts of the design have been modified. Several of these modifications are poorly designed and unfair in the way they impact on particular groups of people. Further attention needs to be given to the issues raised during the Inquiry, which are discussed below grouped under each of the Terms of reference for the Committee.

2. Consultation

The Government claimed that it had consulted widely on the detail of the Lifetime Health Cover. It was evident from the submissions that although there had been consultation on the concept (through circulation of the first Trowbridge report) there had been virtually no consultation on the detail.

The later changes were substantial and had not been open to comment by the groups most affected. For example, an arbitrary cut off was used to excluding over-65 year olds without excluding other retirees on pensions. There was no explanation of the decision to drop the recommended discounts for young people and the penalty premium rate and starting date were changed.

Term of reference 1: To determine the impact of the proposed Lifetime Health Cover on the viability of private health insurance and the flow on impact for the public hospital system.

3. Short term impact on adverse selection

The Committee did not get a clear picture about the likely effect of Lifetime Health Cover on overall membership. The actuarial consultants used by the Government, Trowbridge Consulting, argued that there would not be a “very large increase” in health fund membership but foresaw a surge during the period of grace. [34]

The Department of Health and Aged Care admitted in its submission that it had assumed that the aggregate health risk of these new joiners would be less than the existing members and that the problem of adverse selection would therefore reduce. [35]

This assumption may not be correct. The public officer for the Hospital Contributions Fund (HCF) argued that there could be a sharp increase in adverse selection during the initial grace period. [36] MBF also argued that those joining during the initial grace period are likely to be older than the age group normally recruited but did not foresee “a dramatic increase in any one fund's claims”. [37]

Ian McAuley calculated that the scheme was most attractive to those between 57 and 65 during the grace period and that this group would have increasing health needs in future years which would financially penalise the funds. He foresaw a rush of older people joining which would be “a body blow to the industry”. [38] In his view young people were better off saving for their own needs.

Trowbridge has based its modelling on an assumption that participation would increase to 35% by the end of the grace period (and above the trigger point for reduction in public hospital funding). This level would require a very strong response over the next nine months. None of the witnesses could give any confidence about the public response. The Trowbridge modelling may be too optimistic because it is based on a high assumption for the participation rate.

It should also be noted that the comparisons to the existing case are exaggerated because they assume that without Lifetime Health Cover participation will drop to 20%.

4. Impact on the long term viability of private health insurance

A number of industry witnesses who previously had forecast large increases due to the 30% rebate now were pleased that the rebate had simply stabilised participation.

The Department of Health and Aged Care argued that the scheme was not expected to increase participation but that it would reduce “churn” due to people engaging in hit and run behaviour. [39] Others, including Medibank Private thought that there were still sufficient financial incentives for continued “hit and run” behaviour.

Ian McAuley highlighted that the groups most involved in “hit and run” membership were people over 65 and young mothers. He pointed out both groups were largely insulated from any impact of Lifetime Health Cover.

MBF cautioned that medical gaps remained the major source of complaint and dissatisfaction. It did not foresee any improvement in participation until the gaps issue was resolved apart from the short-term impact during the grace period.

A number of witnesses declined to directly answer the concern that the funds would face insurmountable barriers to marketing their products to older non-members after 1 July 2000.

Medibank Private expected a significant reduction in recruitment of members over 30 and said its future marketing activities would focus on those under 31 and those already in the industry. [40] Clearly this would reduce future growth prospects substantially.

It is a serious concern that Lifetime Health Cover may have the effect of inducing a short-term rush into the scheme followed by a virtual freeze out of many consumers who would face high penalties to later change their mind.

For example, private health insurance will become a very poor option to new migrants to this country when compared to Medicare. The market for selling private health insurance would be substantially reduced with a new focus on those just turning 30 and those currently over 65.

Trowbridge considered a “worst case” scenario in which entry to the funds effectively froze after the grace period because new members were not prepared to pay penalty premiums and the proportion of 30 year olds able to take up insurance was no higher than now.

On their analysis, this resulted in a 50% increase in premiums over 5 years and a “vicious cycle” of increasing contribution rates and reducing membership.

Labor remains concerned that the health insurance industry is too complacent about the difficulties they will face in getting new members under Lifetime Health Cover. There has been a succession of “rescue plans” for the industry, which have failed to deliver results. The industry must understand that it cannot expect Government to bail them out of their problems. Already we have seen $1.7 billion a year in subsidies go into the industry for marginal effect. If the industry fails to achieve the appropriate level of membership as a result of Lifetime Health Cover they will have to rely on their own resources to sort out the current problems with private health insurance.

5. “Join and Lapse” behaviour

Particular concern was raised at the hearings by Towers Perrin and HCF that many people would join the fund for a short time in June 2000 to get the benefit of being a member on the critical date. [41] There is nothing to stop a person joining for just one month next June to gain a permanent exemption from the impact of higher premiums. At little cost a person of any age can acquire the nominal age of 30.

This is a potential rort that will be of great interest to accountants looking for novel advice for their clients.

HCF described this as “join and lapse behaviour” and argued it was a major flaw in the design of the scheme and one which would cost the industry heavily in the future. [42]

The Department recognised that there was a problem but limited itself to suggesting that regulations could be developed to set a minimum three month membership period. This would seem quite insufficient to close the loophole and the 12-month period suggested in the Majority report is still inadequate.

For example a 60-year-old person who joined just prior to June 30th 2000 will benefit from avoiding a 60% penalty premium for every year that they subsequently join. If this person joined later in life for a 10-year period they would have saved (excluding price rises) around $4,800 on an $800 base premium after the rebate. The financial gains clearly outweigh the cost of even a year's membership. The principle is that the system should benefit those who are genuine long-term members and hence the minimum period to gain an advantage should be more like 3 years.

6. Low value policies

Another potential rort is that there is no deterrent to a person buying a low value policy and upgrading when they need to use a hospital (apart from the normal waiting times).

This problem was raised by several witnesses who were concerned at the extent of the trend that has developed since the introduction of the Medicare Surcharge. PHIAC data shows that in the six months to June 1999 there were 80,000 new policies taken out of which no less than 69,000 were either exclusionary policies or ones with front end deductibles – or had both features. Clearly there is a strong trend towards low cost products, which has not been addressed.

These policies with large “front end deductibles” and exclusions have become popular as a way to avoid the Medicare surcharge. Trowbridge has commented that the industry statistics underestimate the situation because they only include products with total exclusions.

Trowbridge raised a number of concerns about the growth in these products including the extent to which they had undermined the principles of community rating. The potential they saw for confusion over exactly what benefits are included is confirmed by the complaints received by the Private Health Insurance Ombudsman. This undermines the credibility of the industry.

Alan Brown proposed a detailed solution to this problem using the ratio of the values of premiums in the calculation of the penalty to be paid after an upgrade. [43]

The simplest way to curb misuse is to limit the extent of the front-end deductible to a moderate amount such as $500 and restrict exclusionary products. This approach would reduce both the incentives to manipulate the Lifetime Health Cover system and dampen Medicare surcharge avoidance. The principle should be that private insurance should offer a real insurance product.

7. Reform of the re-insurance pool

The benefits of the proposed scheme would be largely cancelled out by the current re-insurance pool arrangements. The consultant actuaries recommended a new re-insurance system be adopted because the current arrangements do not provide incentives to health funds to contain hospital costs.

Trowbridge argued that this reform could be delayed if necessary by up to two years. [44] However, others argued that earlier reform was desirable.

The Institute of Actuaries said that if adjustments were not made to support Lifetime Health Cover, funds would have an incentive to seek new uninsured elderly persons. [45] Change to the re-insurance pool may affect some funds more than others and the risk is that if the Lifetime Health Cover is introduced without fundamental reform of the re-insurance pool it will lock in further distortion of the market.

8. Impact on public hospitals

The most significant side effect of the proposed new scheme is the negative impact it could potentially have on the public hospital system. The private health insurance sector is now heavily subsidised at the expense of public hospital funding. It would be unsupportable if the introduction of Lifetime Health Cover resulted in further cutbacks to public hospitals without any demonstrated reduction in demand.

Each of the Australian Health Care Agreements contain a clause which provides for the States to lose up to $200 million in funding if the participation rate in private health insurance reaches 36%. The current participation rate is 30.5% but this could rise if the Government's proposed advertising scares people into joining. Trowbridge has assumed the participation will jump to 35% by mid 2000.

Lifetime Health Cover targets young, healthy people and it will not produce a significant drop in public hospital usage even if it succeeds in increasing coverage. The clawback provisions were agreed prior to Lifetime Health Cover being proposed and therefore they would have an unanticipated, punitive effect on the States. The Department argues the States entered into the agreement freely and that they can try to renegotiate in three years if Lifetime Health Cover takes off.

The reverse should apply. As the States did not know of the Lifetime Health Cover proposal when they signed the Agreements in 1998 they should not suffer a penalty as a consequence. The Government first needs to demonstrate that there has been a reduction in demand on public hospitals over the first three years of Lifetime Health Cover. The principle is that the Government should provide adequate funding for public hospitals up to 2003 based on the demand at those hospitals at the time.

Term of reference 2: To recommend consumer safeguards and other amendments to ensure the scheme is viable and equitable

Groups in submissions and during evidence raised a range of concerns. These suggest there are several areas where the design of the scheme should be improved and anomalies removed. This would improve the overall fairness of the proposed system.

9. Age exemption

The second Trowbridge report makes it clear that the selection of the 65-year cut off was arbitrary. [46] It highlights the comparative inequity between those who are grandfathered and those who are not. The Department has not clearly stated the foundation for choosing 65 as a cut off point. However, it appears to have been a Government policy decision based on the perception that 65 is the normal retirement age after which people “ tend to be out of the workforce and have fewer means than others who are younger to increase their incomes to pay for things like these”. [47]

This is also the view argued by Medibank Private in support of the 65 year cut off. [48] The Consumer's Health Forum said its members were concerned the scheme would discriminate against elderly consumers. [49] Trowbridge points out that the Funds will have a “perverse incentive” to attempt to avoid selling to people in the grandfathered group.

Other motives mentioned are not to put older people under pressure during the grace period and not to induce a sudden increase in adverse risk by pushing large numbers of older people into private health insurance.

The logic of these arguments has just as much force when applied to others who are retired and living on limited incomes– most notably women over 60 receiving the Aged pension and those on Veterans or Widows pensions.

They are in the same situation as other people over 65 because in just the same way the recent emergence of Lifetime Health Cover was unanticipated and they are unable to adjust their plans to accommodate joining earlier than they ought.

From an actuarial viewpoint there is also no benefit to the funds if this group is left exposed and pressured into joining a fund during the grace period. If there was a surge of such members it would create a distorted age profile and over time their claims would exceed their contributions weakening the funds viability –not strengthening it.

10. Youth

The National Youth Initiative submitted that the reaction of young people was most likely to be adverse. [50] They argued that most young people with health insurance did so because their parents had been members or that they were in the minority who had disposable income to afford it. They reported strong support for universal health care through Medicare and disinterest in private health insurance because the cost structure was weighted against young people. They concluded that the Bill “is well intentioned but likely to miss its target”.

The purpose of the scheme is to give incentives for young people but it fails to deliver this. Contrary to the original design there is no discount for people who join at a young age even though they are contributing far in excess of their demand on the insurance pool.

In the original scheme there were to be actual discounts for people under the age of 35. In the same way that older people were to be charged a penalty premium for late joining, younger people were to be given a discount of 2.5%. Trowbridge emphasised this would make Lifetime Health Cover “attractive relative to the existing system”. [51] The long-term strength of the funds depends on young people joining and it is unrealistic to expect them to do so when insurance offers such poor value to young people.

It would be feasible to retain the original structure recommended by Trowbridge by giving those under 30 a 2% discount for each year prior to 30 that they join. The financial cost to the funds would be offset if more young people join or otherwise by a fractionally higher premium increases over the years. Overall it would further reduce the extent to which young people cross subsidise older groups.

MBF approved the central age of 30 but raised concern that, in the absence of discounts it gave a signal that young people had no need to consider private health insurance any younger than this. [52] Other witnesses raised the concern that in the absence of discounts the threshold age would effectively become the minimum age for joining.

Discounts were removed from the final plan on the grounds that they could result in a rise in premiums for other members. [53] The extent of this difference is not quantified but Trowbridge reports that the flow on increases would be small.

Removing discounts also overlooks the whole point of the scheme, which is to give young people an incentive to join. The evidence presented demonstrated that young people made very low claims and even with a discount would be providing a cross subsidy to older members.

There seems little logic in imposing such a contribution level on young people when they are financially stretched. If the concept is to give an incentive then there must be something tangible to attract people when they are healthy and facing numerous other financial demands at a time of typically low income.

The only counter argument advanced was the claims pattern of young women for obstetrics which peaks in the early 30's. [54] This suggests that the funds should re-examine the pricing of the products and the benefits for childbirth rather than denying all young people a product at a reasonable price free of cross subsidy to older groups.

The conclusion reached in the Trowbridge second report is:

“The absence of discounts below the threshold of 35 is financially possible but may compromise one of the criteria for the ULCR scheme, namely reinforcing the value of new members joining early and existing members retaining their membership.” [55]

11. Long term members

The Bill treats harshly those who have been long-term members but have let their membership lapse. For example a 59 year old retiree who held membership for a total of 20 years in their working life but did not have it on 1 July 2000 would get a penalty premium of (59-30) x 2%= 58%.

By contrast, a person with the same record under Lifetime Health Cover would only get a penalty premium of 18%. There is no sound reason to reward future loyalty and to leave past loyalty unrewarded.

There has been no justification given why future periods of membership are to be included in the calculation of the penalty premiums but that past ones are not. Older people without current coverage feel justifiably aggrieved that their past loyalty counts for nothing under the new arrangements.

12. Hardship provisions

The current provisions for hardship are limited to approval by the Minister under special circumstances notified within 2 years of commencement of the scheme determined in accordance with regulations. This is unduly restrictive.

It is likely that the Minister will not personally consider hardship cases and the question will be determined bureaucratically in accordance with fixed regulations. This seems a most inappropriate manner to resolve questions of hardship.

This is particularly the case given that there is already a Private health Insurance Ombudsman who would seem to be equipped to consider such subjective issues as might be raised by the complex personal circumstances of particular individuals. It is not hard to imagine there will be unforseen cases where there is conflict between the rules and an individual's circumstances. For example where people were out of Australia at key times, when important information was not provided to them, when Guardians acted against the contributors long-term interests or membership lapsed at the critical point in time.

Labor would like to see a wider power for the Private Health Insurance Ombudsman to make a determination of hardship at any time.

There is also a need to look more closely at the arrangements that apply when there is a dispute about the correct age of a person, when documentary evidence of birth is not present or where it is unclear what prior history of membership the person has. Remember that many people will have to demonstrate that they were born prior to 1 July 1934 in countries for which records at that time may not now exist.

13. Refugees

The design of Lifetime Health Cover gives no special treatment to migrants to Australia. On the basis that they have not made a prior contribution to Australia's health system they are given the same penalties as those who chose not to join private health insurance– even though they did not have the opportunity to participate earlier.

The situation is particularly difficult because new migrants are denied membership of Medicare for 2 years after arrival and 10 years in the case of aged parents. This means that they are denied access to the public system and now will be subject to substantial penalty premiums to get private health insurance for the additional components covered by private health insurance.

The Private Health Insurance Ombudsman argued the rules applying to migrants as a whole were too harsh and some provision should be made for people who have shown a commitment in their country of origin. He also pointed out some funds recognise people transferring from overseas funds by dropping the waiting periods. [56]

The application of this principle to refugees and people on humanitarian visas seems particularly harsh. These people are being given refuge in Australia and come here by necessity not choice. The argument put forward by the Department in evidence was that they were concerned that new entrants should not be treated better than an Australian resident. The reverse applies equally. New entrants should be treated no worse and they should be rated on the basis of whether they joined at the first opportunity they had to do so after their 30th birthday.

14. Administrative issues

The Private Health Insurance Ombudsman approved of a number of features of the scheme that he believed would retain consumer rights as they presently existed. However he did recommend that, on the basis of his experience with complaints, that it would be important for Funds to be required to notify non contributors when their partner stops making payments. [57] Concern was also raised that the rules on suspension were unclear and that there was potential for funds to distort their suspension rules in order to obtain a commercial advantage.

The Ombudsman also recommended that the legislation should contain a review mechanism, suggesting the Productivity Commission be asked to report within 5 years.

15. Conclusion

The problems identified with the detail of the proposed Lifetime Cover Scheme clearly need to be addressed before the proposed Bill becomes law.

These problems are significant and have the potential to undermine the objective of the Bill.

Senator Chris Evans
(ALP, Western Australia)



Supplementary Report by the Australian Democrats

National Health Amendment (Lifetime Health Cover) Bill 1999

The Democrats support the principle of industry reform for the private health insurance industry. The Democrats have argued previously for industry reform measures to be introduced to encourage competition and innovation among private health funds, rather than subsidies that can often entrench existing inefficiencies and anti-competitive practices.

The Democrats support the underlying principle of this Bill, which seeks to encourage a sustainable level of private health insurance membership. However, the Democrats have a number of concerns about aspects of the proposed Lifetime Health Cover scheme, including consumer issues, the impact of the proposed scheme on the public health system and the risk of future financial liability for the Government.

The Democrats understand that the Government is addressing a number of issues raised during the Senate Inquiry through amendments to the Bill or through regulations. The Democrats will introduce amendments in those areas (outlined below) that are not addressed through Government amendments.


The Democrats recognise the concerns raised during the Inquiry about the treatment of migrants under this Bill. The Bill specifies that migrants over 30 arriving in Australia who wish to take out private health insurance will have to pay a loading on the base level premium.

As migrants are required to wait for two years before they are entitled to receive Medicare services, they are dependent on the private health system to provide their health care during this period. This policy was vigorously opposed by the Democrats and is causing significant hardship in many migrant families. We therefore believe that is inappropriate and discriminatory to create additional barriers to accessing health services for new migrants. The Democrats are concerned that the Bill makes no provision for migrants who have contributed to a private health insurance fund in their country of origin for many years. Likewise, no consideration has been given for migrants from countries that do not have private health insurance and who therefore did not have the opportunity to contribute in their country of origin. The Democrats do not believe that migrants over the age of 30 are in the same position as Australian-born residents who were able, but chose not to take out private health insurance before the end of the grace period, and believe that this should be reflected in the Bill. The Democrats are also concerned about refugees and migrants who have little or no money when they arrive in Australia and who struggle to be able to afford the essentials of life during their first few years in Australia. These people already face significant hardship and should not be penalised through additional barriers to accessing private health insurance when they become established. Migrants contribute greatly to the economic and social fabric of Australian life, including paying taxes to support Medicare and the 30% private health insurance rebate. The Democrats do not believe migrants should be discriminated against in accessing these schemes due to their status as migrants.

Other Consumer Groups

The Democrats are concerned about other sectors of the community who may be disadvantaged by the proposed scheme. For example, prisoners who during a period of incarceration are unable to pay their insurance premiums and who after their release wish to take out private cover will be required to pay the premium levy. People living in rural areas where there are few, if any, private health services available are unlikely to need private health insurance. Yet if they move to a city will be required to pay the levy if they want to take out private cover. The long-term unemployed are another example of people who may be unable to afford private health insurance for an extended period and who then may face considerable penalties when they get a job and wish to take out private cover. People with chronic illnesses and disabilities are another economically marginalised group who already face considerably higher health care expenses than the general community. Many cannot afford private health insurance in addition to their day to day living expenses. The Democrats do not believe that people who are unable to take out private health insurance for reasons of economic hardship, unemployment, illness or disability, or other factors largely outside their control, should be penalised due to government policy changes. In particular, people who are unable to afford private health insurance because of high health care expenses not met through existing Government-funded programs, should not face additional barriers to obtaining private health cover if their circumstances change.

The Democrats recognise the hardship provisions currently outlined in the Bill but do not believe that these are adequate to ensure that consumers are not disadvantaged by the proposed scheme. Given the substantial amount of public funds (approximately $1.6 billion per annum) that are used to subsidise private health insurance premiums, the Democrats believe that the Government has an obligation to ensure that disadvantaged groups are not `locked out' of private health insurance by the implementation of Lifetime Health Cover.

Impact on the Public Health System

The Democrats are concerned about the impact that this scheme may have on the public health system. In particular, the Democrats are concerned about increasing the risk profile (and therefore increasing the cost of care) of people in the public system and decreasing the risk profile (and therefore the cost of care) of people in the private system. Lifetime Health Cover aims to attract more young healthy people into private health insurance on the basis that they are less likely to need health services and will therefore be able to cross-subsidise higher level users. If this is successful, the risk profile of the public system will increase without any additional funding being provided. In fact, if sufficient numbers take out private health insurance, public hospitals will lose money under the terms of the current Medicare Agreements. This can occur without any evidence of a reduction in demand on the public system, a reduction that, in any event, is unlikely if a large proportion of people taking out private cover are young and healthy. It should also be noted that when the state and territory governments signed the Medicare agreement this policy had not been announced. They therefore cannot be expected to have anticipated the implications of this significant policy change on the terms of the agreement. The Democrats are extremely concerned that the public health system, that is already under considerable stress, will face additional funding cuts due to the implementation of this policy.

Another matter brought to the attention of the Committee was the recent growth in policies with large `front end deductibles' (excesses). These policies have been marketed to young and healthy people who are unlikely to need hospitalisation and who pay significantly reduced premiums as a trade-off for a large excess when they enter hospitals. Anecdotal evidence suggests that these policies are often taken out by young people who wish to avoid the additional Medicare surcharge for high income earners and have been described as `basically a donation to a health fund'. Given the high excesses, holders of these policies have an incentive to use the public system if they require hospital treatment. While the Democrats support the right of all Australians to use the public hospital system, we are concerned about the rapid growth in these policies and the impact that this could have on the clawback of funding for public hospitals under the Medicare Agreements. Given that Lifetime Health Cover provides an additional incentive for younger people to take out low-cost policies, the Democrats urge the Government to address this issue through restricting the size of the excess allowable under policies with `front end deductibles' and/or removing the clawback provision in the Medicare Agreement.

Advertising Campaign

The Democrats are concerned about the proposed advertising campaign for this scheme. There have been a number of examples in recent years where the advertising of private health insurance and related products has been misleading and has caused confusion among consumers. The most recent example is the Federal Government's campaign promoting the 30% rebate for private health insurance which incorrectly stated that all policy holders would pay 30% less in premiums than they were paying prior to the rebate. The Democrats frequently receive calls and correspondence from consumers who are not aware of their entitlement to free public hospital care and who believe that they are unable to take out private health insurance due to a pre-existing condition. In view of the complexity of the lifetime health cover scheme and the lack of knowledge of the health system among many consumers, the Democrats believe that the advertising campaign should be comprehensive and in particular:

Other Issues

The Democrats also have concerns about the compulsory nature of the scheme. The Democrats share the concerns of Mr McAuley who made the following comment to the Committee in relation to the financial risks faced by the Government in introducing this policy:

The Democrats believe that this risk should be avoided so that future governments are not liable for any costs incurred by private health insurance funds as a result of this policy. The compulsory nature of the scheme requires health funds to charge higher premiums in accordance with age, does not allow funds the flexibility to reduce their premiums for older people if, in the future, they wish to do so. The Democrats believe that if this scheme were voluntary it would not leave the Government open to the fiscal risk of bailing out health funds facing financial hardship. It would also enable funds to be more flexible and competitive in changing their practices to meet consumer demand.

The Democrats are also concerned about the implications of this scheme in relation to privacy and confidentiality of health data. If private health insurance funds have the discretion to enforce the premium levy for individual consumers, there is an incentive for funds to waive the levy for healthy consumers to encourage them to join, and to enforce the levy for unhealthy consumers, thereby discouraging them from taking out private cover. This has the potential to create a `backdoor' system of discrimination towards people with illnesses and disabilities. It also has implications for existing regulations governing access to health and health-related data on individual consumers, as funds may want to access this data in order to differentiate between good and bad risks and assess likely future health care costs.

The Democrats also note that one of the major barriers to increasing private health insurance membership is the issue of gap payments. Consumers continue to face unpredictable, large and open-ended expenses when they use their health insurance. This can cause financial hardship and stress, particularly to people on low and fixed incomes and is a major reason for people dropping their health insurance. Until the issue of gap payments can be resolved, measures such as lifetime community rating are unlikely to cause many people to take out private health insurance.

Senator Andrew Bartlett
Australian Democrats Senator for Queensland


Appendix 1 - Submissions received by the Committee

1 Mr Ian McAuley
–Additional Information , dated 13 August 1999
2 National Youth Initiative
3 Consumers' Health Forum of Australia
4 Private Health Insurance Ombudsman
5 Private Health Insurance Administration Council (PHIAC)
6 Mr Alan Brown
6A Mr Alan Brown (Supplementary Submission)
7 Australian Medical Association Limited (AMA)
8 Towers Perrin
9 Department of Health and Aged Care
10 Australian Health Insurance Association Limited
11 National Seniors Association
12 Medical Benefits Fund of Australia Limited
13 Medibank Private
14 Health Insurance Restricted Membership Association of Australia
15 Association of Independent Retirees Inc
16 Catholic Health Australia
17 Brent Walker Actuarial Services Pty Limited
18 NSW Health Department
19 Australian Consumers' Association
20 Victorian Government
21 Queensland Health
22 Institute of Actuaries of Australia
23 Tasmanian Government
24 Mr David Watson, Hospitals Contribution Fund of Australia
25 Reverend Fr R Ayles


Appendix 2 - Public hearing

A public hearing was held on the Bill on 13 August 1999 in Senate Committee Room 2S3.

Committee Members in attendance

Senator Sue Knowles (Chairman)
Senator Andrew Bartlett
Senator Chris Evans
Senator Brett Mason
Senator Tsebin Tchen


Australian Health Insurance Association

Mr Russell Schneider, Chief Executive

Health Insurance Restricted Membership Association of Australia

Mr Michael Bassingthwaighte, Secretary

Medibank Private

Mr Matthew Moore, Manager, Strategy
Ms Lorelle D'Arcy, Manager, Policy and Information

Hospitals Contribution Fund of Australia

Mr David Watson, Public Officer

Catholic Health Australia

Mr Francis Sullivan, Executive Director

Australian Medical Association Limited

Dr David Brand, President
Dr Robert Bain, Secretary General
Mr John O'Dea, Director, Medical Practice

Towers Perrin

Mr Robert Paton, Principal

Institute of Actuaries of Australia

Mr Jock Rankin, Executive Director
Mr David Torrance, Councillor
Mr Ian McAuley, University of Canberra

Australian Consumers' Association

Ms Nicola Ballenden, Senior Policy Officer, Health

Consumers' Health Forum of Australia

Mr Matthew Blackmore, Executive Director
Mr Brooke Alexander, Senior Policy Officer

Department of Health and Aged Care

Ms Lynelle Briggs, First Assistant Secretary, Portfolio Strategies Division
Dr Robert Wooding, Assistant Secretary, Private Health Industry Branch
Ms Georgia Tarjan, Director, Insurance Reforms Section
Mr Charles Maskell-Knight, Assistant Secretary, Financing & Analysis Bch
Mr Barry Rafe, Trowbridge Consulting



[1] Submission No.9, p.2 (DHAC).

[2] Minister's Second Reading Speech.

[3] Explanatory Memorandum, pp.1-2; Submission No.9, pp.4-5 (DHAC).

[4] Committee Hansard, 13.8.99, pp.1-2, 6-7,10,14,17,32. See also Submission No.3, p.3 (CHF); Submission No.10, p.1 (AHIA); Submission No.11, p.1 (NSA); Submission No.12, p.1 (MBF); Submission No.14, p.1 (HIRMAA); Submission No.16, p.3 (Catholic Health Australia); Submission No.22, p.2 (Institute of Actuaries of Australia); Submission No.24, p.1 (HCF).

[5] Submission No.22, p.2 (Institute of Actuaries).

[6] Submission No.7, p.2 (AMA); Submission No.10, p.7 (AHIA).

[7] Submission No.4, p.2 (PHIO). See also Submission No.13, pp.2-4 (Medibank Private). See also Committee Hansard, 13.8.99, p.14 (AMA); p.36 (DHAC).

[8] Submission No.13, p.2 (Medibank Private).

[9] Committee Hansard, 13.8.99, p.32 (CHF).

[10] Submission No.4, p.2 (PHIO).

[11] Submission No.9, p.17 (DHAC); Committee Hansard, 13.8.99, pp.35, 41 (DHAC).

[12] Submission No.23, p.5 (Tasmanian Government).

[13] Submission No.9, p.15 (DHAC); Committee Hansard, 13.8.99, p.42 (DHAC).

[14] Committee Hansard, 13.8.99, p.42 (DHAC).

[15] Committee Hansard, 13.8.99, p.41 (DHAC).

[16] Committee Hansard, 13.8.99, p.41.

[17] Committee Hansard, 13.8.99, p.42 (DHAC).

[18] Submission No.3, p.2 (CHF); Submission No.4, p.16 (Catholic Health Australia). See also Committee Hansard, 13.8.99, pp. 31-32 (ACA/CHF).

[19] Submission No.9, p.16 (DHAC). See also Committee Hansard, 13.8.99, p.39 (DHAC).

[20] Submission No.9, p.16 (DHAC).

[21] Submission No.9, p.15 (DHAC). See also Committee Hansard, 13.8.99, p.39 (DHAC).

[22] Committee Hansard, 13.8.99, p.40 (DHAC).

[23] Submission No.22, p.3 (Institute of Actuaries); Submission No.20, p.2 (Victorian Government); Submission No.24, p.2 (Mr D. Watson, HCF)

[24] Submission No.24, p.3 (Mr D. Watson, HCF); Submission No.22, p.3 (Institute of Actuaries).

[25] Submission No.9, p.11 (DHAC).

[26] Submission No.20, p.1 (Victorian Government); Submission No.18, p.2 (NSW Health Department); Submission No.21, p.3 (Queensland Health); Submission No.23, p.2 (Tasmanian Government). See also Submission No.16, p.6. (Catholic Health Australia); Submission No.24, p.4 (Mr D. Watson, HCF).

[27] Submission No.21, p.3 (Queensland Health).

[28] Submission No.9, p.8 (DHAC). See also Committee Hansard, 13.8.99, p.1 (AHIA).

[29] Submission No.9, p.8 (DHAC).

[30] Submission No.18, p.4 (NSW Health Department); Submission No.21, p.4 (Queensland Health); Submission No.23, pp.1-2 (Tasmanian Government). See also Submission No.1, p.4 (Mr McAuley).

[31] Submission No.9, p.8 (DHAC). See also Committee Hansard, 13.8.99, p.40 (DHAC).

[32] Committee Hansard, 13.8.99, p.41 (DHAC).

[33] Submission No.9, pp.8-9 (DHAC).

[34] Trowbridge Consulting “Unfunded Lifetime Community Rating – Preferred Model for Australia” November 1997 – called the “first Trowbridge report” – pg 3

[35] Department of Health and Aged Care (DHAC) Submission 9 pg 6

[36] Public officer of Hospitals Contributions Fund (HCF), Submission 24,

[37] MBF Submission 12 pg 2

[38] Ian McAuley Submission 1 pg 3

[39] DHAC Submission 9 pg 6

[40] Medibank Private, Submission 13, pg2

[41] Hansard CA 11 and 24

[42] Public Officer of HCF, Submission 24

[43] Allan Brown Submission 6

[44] Trowbridge first report pg 17

[45] Institute of Actuaries, Submission 22, pg 5

[46] Trowbridge, “Update report on Introduction of ULCR” March 1999 - called the “second Trowbridge report”

[47] Hansard CA 39, Ms Briggs in evidence

[48] Medibank Private, Submission 13, pg 3

[49] Consumers Health Forum Submission 3 pg 1

[50] National Youth Initiative Submission 2 pg 1

[51] Trowbridge second report pg 26

[52] MBF Submission 12 pg 2

[53] Department of Health and Aged Care Submission 9, pg 13

[54] Department of Health and Aged Care Submission 9, pg 13

[55] Trowbridge second report, pg 16

[56] Private Health Insurance Ombudsman Submission 4 , pg 3

[57] Private Health Insurance Ombudsman Submission 4 , pg 3