Bills Digest No. 173 2002-03
Health Legislation Amendment (Private Health
Insurance Reform) Bill 2003
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Health
Legislation Amendment (Private Health Insurance Reform) Bill 2003
Date Introduced:
6 March 2003
House:
Senate
Portfolio:
Health and Ageing
Commencement:
The Act, and Parts 2 and 3 and some of Part 4 of Schedule 1,
commence on the day of Royal Assent. Most of the Part 1 commences on Proclamation,
or failing that, six months after Royal Assent. Items 25-27 in Part 1
commence on Proclamation, but are repealed if that day is not within six
months of Royal Assent.
To make a variety of changes to the regulation of the
private health insurance industry under the National Health Act 1958
(the NHA) and the Private Health Insurance Incentives Act 1998.
Background
Since coming to office in 1996, the current government
has made significant changes to the environment in which private health
insurance funds operate. The intention behind changes such as the introduction
of gap-cover, Lifetime Health Cover and the 30% private health insurance
rebate has been to make private health insurance more attractive to consumers.
More recently, the government has turned its attention to the regulation
of the private health insurance industry. On 2 April 2002 the Minister for Health
and Ageing (the Minister) announced a Governmental review of the rules
and regulations governing private health insurance.(1) The
review is ongoing, however the proposed legislation (‘first stage of reforms’)
emerges out of recommendations made by the review to date.
In April 2003, the Health Minister, Senator
Kay Patterson announced the second stage of reforms associated
with the review.(2) According to the relevant media release,
the second stage of reforms will:
- require
funds to disclose additional information on their management expenses
to allow consumers greater transparency and give them the ability to
compare the funds' performance
- provide
incentives to manage disease prevention and health promotion programs
- tackle
supply costs (eg: prostheses), which are placing pressure on premiums,
and
-
introduce a default benefit arrangement for rural and regional private
hospitals where these hospitals provide the only services available
in their communities, replacing the "second tier" default
benefit currently available to hospitals unable to negotiate a contract
with a health fund.
The above reforms announced in the second stage of the
review are not dealt with in the current Bill. However some of them will
be implemented via disallowable Determination, and thus open to parliamentary
scrutiny. This Bills Digest deals with the legislative components introduced
as part of the first stage of reforms in September 2002.(3)
An ongoing complaint made by the private health
insurance industry is the administrative burden associated with changes
to their rules and products and the lack of flexibility they have in developing
and delivering new products to contributors.(5) Proposed in
Part 1 Schedule 1 of this Bill (particularly
items 25-27) are a series of changes designed to deal with these criticisms.
The Explanatory Memoranda for this Bill
states that the proposed changes are intended to:(6)
remove the inefficiencies associated with the existing
rule change process, allowing RHBOs to be more responsive to the needs
of their members.
Under the current legislative arrangements, health
funds are required to notify the Secretary of the Department of Health
and Ageing (the Department) of changes to their constitution, articles
of association, rules and products. All changes to private health insurance
products and the rules governing such products, including increases in
excesses and co-payments, additional restrictions on hospital benefits
and premium changes etc are subject to this requirement. In the case of
premium changes, the changes must be notified at least 14 days in advance
of when the change is proposed to take effect.(7) For all other
changes, health funds are required to provide 60 days notice to the Secretary.
Where the Minister is of the opinion that a change:
- would or might result in a breach of this Act
or of a condition of registration of an organisation
- imposes an unreasonable or inequitable condition
affecting the rights of any contributors, or
- might, having regard to the advice of the Council,
adversely affect the financial stability of a health benefits fund
the Minister may disallow the change. Similarly,
the Minister may disallow a change increasing premiums if
he / she is of the opinion that the change ‘would
be contrary to the public interest’.
The Bill proposes two
substantial modifications to the existing regulation of private health
insurance funds and their products.
The first involves the issue of notification to
the Secretary. This will now only be required for where a health fund
changes its rules, not where it changes its constitution or articles of
association. More importantly, the prescribed period of advance notice
will only apply to rules that deal with premiums. Other rule changes must
only be notified ‘before com[ing] into effect’. In addition, the current
requirement that contributors be ‘informed’ of any changes before
they take effect will now only apply to changes that are ‘or could be
detrimental to the interests of all or any of its contributors’. The second
proposed modification replaces the current detailed examination of proposed
rule changes against the National Health Act 1958 (NHA) with a
system of monitoring against performance indicators. Each of these proposed
modifications is discussed in greater detail below.
In the Private Health Insurance Ombudsman’s (PHIO)
latest quarterly bulletin, the PHIO notes that the period of notice given
to contributors of changes to fund rules has in the past been ‘inadequate
and unreasonable’.(8) Many contributors have in the past been
given as little as two weeks notice of what are often detrimental (to
the contributor) changes. Given these concerns, the reduction of scrutiny
of rule changes proposed in this Bill may have
significant implications for contributors. The primary concern for contributors
is that without adequate notice of rule changes they may be unable to
upgrade their product or transfer to another funds product and be locked
into the reduced benefits for the standard waiting periods.
The PHIO has indicated that the removal of the
60-day notice requirement to the Department should improve the capacity
of funds to provide more notice of changes to contributors.(9)
The Australian Consumers Association (ACA) takes a different approach
to this issue. The ACA argues that funds should be required to give policyholders
notice of at least 30 days before minor changes take effect, and for major
changes (including premium increases) this period of notice should be
at least 60 days, thus offering formal protection of contributor’s rights
rather than relying on self-regulation.(10)
As mentioned above, the proposed amendments will
also substitute the current regulation of health funds rules and products
with a system of monitoring against a set of performance indicators.
These indicators, which are being developed in consultation with industry,(11)
will be established by regulation rather than through explicit articulation
in the National Health Act 1953. Thus while neither the Bill
nor the Explanatory Memorandum contains information as to what
will be included in these indicators, the Department’s submission to the
Senate Inquiry into the Bill notes that the
indicators will include the following:
- measures of complaints to the Private Health
Insurance Ombudsman
- changes in premiums paid by age cohort
- changes in the number of persons insured in
each age cohort
- changes in the number of episodes, and episodes
per one hundred members, in each age cohort
- changes in the nature of episodes, and
- changes in benefits paid per member and episode
in each age cohort.(12)
While the Bill proposes
greater flexibility in rule changes, funds will need to ensure that any
rule changes they make do not breach the provisions of the NHA, including
community rating. Community rating can be simply defined as the system
requiring health funds to charge the same prices (premiums) to different
types of consumers. Thus regardless of health status or risk, personal
circumstances or characteristics, past claims history etc, health funds
must charge consumers the same price. The only exception to this is Lifetime
Health Cover, which allows health funds to charge higher rates the older
a member (after the age of 30) is when they first join. Currently, despite
its wide use, the term ‘community rating’ is not defined in the NHA.(13)
The Bill defines the term, particularly by linking
it with a revised definition of improper discrimination.
In relation to improper discrimination, there has
been some concern within the industry that the proposed inclusion of the
term ‘place of residence’ in the revised definition will render the practice
of setting different premiums for each State and Territory illegal.(14)
Currently, there are different premiums for the same product in different
States and Territories. However, it is unlikely that the revised definition
will legally impact on this practice. The text of the relevant part of
the proposed definition of improper discrimination actually reads:
Discrimination that is related to…any other characteristic
of a person…including place of residence…that is likely to result
in an increased requirement for profession services [emphasis added]
Since, as stated above, the current differences
between state premiums are a function of the different overall costs of
health care between states rather than the characteristics of individuals,
these differentials would not on the face of it come within the definition
of improper discrimination.
Overall, given that the proposed performance indicators
mentioned above are yet to be publicly released, the question of whether
they will be able to adequately regulate the products and rules of private
health funds against compliance with community rating and detect breaches
of the Act is difficult to assess. Moreover, the administrative burden
on the private health insurance industry and the Department under the
current regulatory arrangements must be weighed against the need to appropriately
regulate the industry and protect consumers from breaches of the principle
of community rating and the Act more generally.
Alongside the above changes in the regulation of
health funds rules and products, the Bill expands
both the Minister’s investigative powers and the sanctions that can be
applied to a fund breaching the NHA. Whilst these changes are detailed
in the Main Provisions section of this Bills Digest, of particular importance
are the clarification and expansion of the powers of the Minister in dealing
with breaches by funds of legislated requirements, community rating principles
and inappropriate administrative practices.
The proposed changes will allow the Minister to
seek, within a specified time frame, an explanation from a health fund
thought to be in breach of the NHA. The proposed changes also clarify
the range of regulatory options available to the Minister following an
explanation from a health fund. These are detailed in new section
73BEC of the Bill. New section 73BEG
clarifies the range of regulatory options open to the Minister following
an investigation of a health fund. Where the Minister is satisfied that
there has been a breach of the NHA, the Minister can take the following
action:
- request an enforceable undertaking
- give a direction to the health fund
- impose a further condition
of registration on that fund
- revoke the status of the
health fund to offer the 30% private health insurance rebate as a premium
reduction
- apply to the Federal Court for an order, or
- take action to appoint an inspector, place a
health fund under administration or seek the winding up of a health
fund.
Other actions open to the Minister where there
has not been a breach of the NHA, but where he or she considers the performance
of the fund could be improved, include:
- request an enforceable undertaking
- give a direction to the health fund or
- impose a further condition of registration on
the fund.
Further details of the conditions of the above
sanctions are provided in the Main Provisions section of this Bills Digest.
There has been some debate in the private health
insurance industry over the broad ranging powers that the proposed changes
will give the Minister.(15) In particular the apparent lack
of limiting conditions on when a Minister may launch an investigation
into a fund and the broad ranging investigative powers and associated
sanctions available to the Minister have raised particular concerns.
The proposed sanction of the removal of the fund’s
ability to offer the 30 per cent private health insurance rebate as an
upfront premium reduction is of particular interest. The rebate has been
the source of significant controversy since its introduction. While the
rebate has contributed to lower out of pocket expenses for those with
private health insurance there has been some debate over the contribution
the introduction of the rebate has made to the growth in membership of
private health insurance funds.(16) One concern associated
with the rebate is that there are no existing mechanisms to link the rebate
with increased efficiency in the industry. The administrative costs of
private health insurance funds have been highlighted by a number of commentators
and the ALP.(17)
If this sanction were applied to a health fund,
its contributors would still be able to obtain the private health insurance
rebate through the taxation system. According to the Department of Health
and Ageing submission to the Senate Inquiry, the removal of the 30 per
cent rebate status would be reserved for the most severe breaches of community
rating obligations and the NHA, and would only be applied where other
interventions (such as enforceable undertakings or directions) are not
achievable or appropriate. It is worth noting the removal of a fund’s
status to offer the rebate as a premium reduction could severely impact
on that fund’s capacity to compete with other funds and maintain its membership.
It is possible that such a sanction would compromise the stability of
the fund.
Also proposed in this Bill
are expanded powers for the PHIO. The PHIO is a statutory body whose
main role is to provide an independent complaints and advisory service
for private health insurance contributors. Medical practitioners, hospitals
and RHBOs can also approach the PHIO in relation to problems regarding
health insurance arrangements.(18) The current functions of
the PHIO are set out in section 82ZRC of the NHA. These functions include
the ability to:
- deal with complaints and publish aggregate information
on complaints
- conduct investigations, and
- make recommendations about regulatory practices,
and/or industry practices relative to registered health insurance funds.
Some commentators have noted that the PHIO has
limited powers compared with the Commonwealth ombudsman.(19)
The Health Legislation Amendment Act (No.2) 1998 expanded the PHIO’s
powers to include mediation. However the PHIO’s annual report for that
same year noted that the PHIO continued to lack(20)
The necessary powers to be fully effective in complaints
which cannot be settled by agreement.
The PHIO has, under current arrangements, little
legislative remedy where a health fund does not follow its recommendations,
although the fund may refer matters to other bodies such as the ACCC.
According to Gath,
the PHIO is currently equipped with an ‘ineffective set of regulatory
and enforcement powers’. (21)
The Bill proposes to
expand the powers of the PHIO so that the Ombudsman will have greater
authority in dealing with complaints and disputes. In particular new
sanctions are proposed for health funds who fail to comply with requests
from the PHIO. The passage of this Bill will
mean that the PHIO can require reports from health funds, hospitals and
doctors on action taken on recommendations made by it. While the Bill
does not increase the power of the PHIO to make funds comply with recommendations
made by the Ombudsman, the power of the PHIO to report to the Minister
provides a clear avenue for action to be taken.
The Bill proposes the
establishment of an annual State of the Health Funds report. The aim
of this report will be to provide some comparative information on the
performance of health funds. The report will be compiled by the PHIO
and negotiations about the format and content of the report are currently
being negotiated between the PHIO, the Private Health Insurance Administrative
Council (PHIAC)(22) and health funds. It is expected that
the report will cover three broad areas. These include:
- Financial status of funds.
Such information could include market share, prudential
requirements, management expenses and benefits paid. Some of this information
is included already in the Operations
of the Registered Health Benefits Organisations Annual Report
produced by PHIAC, and the Standard and Poor’s Australian Health Insurance
Report. The Standard and Poor’s report provides further details on contribution
income, contributions as a percentage of market share, operating results,
reserves, benefits paid and expense ratio.(23)
- General service indicators.
Included in this category may be member retention
rates, the level of complaints and disputes, internal complaints handling
and accessibility of information about the fund and its products.
- Product information.
Potentially included within the report will be
information regarding the different products offered by each fund. In
addition, information such as the average price per person covered, the
average benefit paid per person etc may be included. Given the variability
of fund products and the need for the PHIO not to make recommendations
about products this latter type of information is perhaps the most contentious
of the information that may be incorporated into the report.
The provision of a comprehensive report by the
industry Ombudsman may help to re-focus attention on the products of health
funds and their service delivery. Currently much of the public debate
about private health insurance is concentrated solely on premiums and
ignores the actual products.
Lifetime Health Cover (LHC) was introduced in July
2000 and is considered by many analysts to be the most successful of the
Federal Government’s initiatives to increase private health insurance
membership.(24) The introduction of LHC has meant that health
funds are able to charge different premiums according to the age at which
a person first took out private hospital cover. From July 2000, people
who delay taking out hospital cover will pay a 2 per cent loading(25)
on top of their premium for every year they are aged over 30 when they
first take out hospital cover. For example, a 50 year old taking out cover
in April 2001 would pay 40% more for cover than if they had taken it out
a year earlier. Of course, private hospital cover is not compulsory, but
a person earning over $50 000 a year who does not have such cover must
pay the annual 1.5% Medicare surcharge.
In response to concerns that it is difficult for
funds to run advertising and marketing campaigns that focus consumers’
attention on LHC,(26) the Bill proposes
the establishment of a single LHC birthday. This will mean that irrespective
of when a person’s actual birthday occurs, people who join a health fund
by the next notional birth-date will be deemed to have met the LHC requirement
for their age.
There are a number of terms that are frequently used
in the NHA and the Main Provisions section of this Digest. For use of
reference, the NHA definitions are listed below.
Organisation – a society, body or group of persons,
whether incorporated or unincorporated, which conducts a health benefits
fund
Registered organisation (RO) – an organisation
registered under Part VI of the NHA.
Registered health benefits organisation (RHBO)
– an organisation registered under Part VI of the NHA for the purpose
of conducting a health benefits fund.
Item 3 amends the definition of 'improper discrimination'
in section 66 of the NHA. The definition will now effectively incorporate
the anti-discrimination provisions of existing section 73ABA and paragraph
(m) of Schedule 1, plus the additional criteria of ‘any other characteristic
of a person…including place of residence’ (forth dot point below).
The ‘place of residence’ issue is discussed in the Background section
of this Digest. 'Improper discrimination' will now be discrimination
that is related to any of the following:
- the suffering by a person from a chronic disease, illness or other
medical condition or from a disease, illness or medical condition of
a particular kind
- the gender, race or sexual orientation of a person
- the age of a person, except to the extent that the person’s age may
be taken into account under section 73BAAA and Schedule 2(27)
- any other characteristic of a person (including but not limited to
matters such as place of residence, occupation, leisure pursuits) that
is likely to result in an increased requirement for professional services
- the frequency of the rendering of professional services to a person
- the amount, or extent, of the benefits to which a person becomes,
or has become, entitled during a period, and
- any matter prescribed for the purposes of this paragraph.
The Explanatory Memorandum to the Bill comments that the amendment
is designed to(28)
Update the definition
of improper discrimination so the term can be used to clarify the principles
of community rating in the NHA…(which) prohibits RHBOs from discriminating
against contributors in relation to access to private health insurance
and the use of private health insurance products, except in specified
circumstances.
Item 7 inserts new section 67B. This new section
is actually a slightly modified existing section 74B.(29) It
requires a RO to 'conduct its health insurance business in accordance
with' the provisions set out in new paragraphs(a)-(e). A failure
to do constitutes a breach of the NHA, which may result in various regulatory
actions by the Minister (see for example new section 73BEG).
Item 8 replaces existing subsections 73(2A)-(2B)
with a new subsection 73(2A). This prohibits the PHIAC from granting
an organisation registration as a RBHO if 'the constitution or rules of
the organization permit improper discrimination'.
Item 10 inserts new sections 73AAF-AAK into
Division 3 of Part VI. Division 3 deals with the
conditions of registration for organisations as RHBOs. The main
effect of the item is organisations
are explicitly required to conform to principles of community rating.
The Explanatory Memorandum comments that:(30)
[the principle of] community
rating underpins the equitable access to private health insurance for
all Australians. It prohibits RHBOs from discriminating against contributors
in relation to access to private health insurance and the use of private
health insurance products, except in specified circumstances….[item 10]
will clarify the monitoring and enforcement of the community rating principles.
Taken in conjunction with the changes to the monitoring and enforcement
regime, this will provide RHBOs with increased flexibility in the conduct
of their health insurance business, without requiring Departmental oversight.
New section 73AAF simply provides that registration is subject to
the conditions set out in Division 3 and Schedule 1 of the NHA. In part,
it replaces existing subsection 73BA(1), which is repealed by item
16.
New section 73AAG provides that the Minister may determine
guidelines on loyalty bonus schemes(31) that RHBOs may offer.
This new section essentially replaces equivalent provisions in existing
subsections 73BA(2A)-(5), which are again repealed by item 16.
The Minister’s determination is a disallowable instrument.
New subsection 73AAH(1) requires the constitution, rules and actions of a RHBO must be 'at all times
consistent with the principles of community rating'. Under new subsection
73AAH(2)-(3), any improper discrimination would breach 73AAH(1),
including where an RHBO’s constitution or rules permitted an activity
by the RHBO that would be improper discrimination under section 66. The
Explanatory Memorandum states that:(32)
previously, community
rating requirements had to be derived from a range of provisions within
the NHA. The amendments in this Bill make it easier for RHBOs to identify their obligations
and to ensure compliance.
New section 73AAI prohibits ROs from refusing to sign up new members
or cancelling existing membership where this would constitute improper
discrimination. However, ROs may refuse to sign up a person in relation
to '[permanently] closed health insurance product'. The Explanatory
Memorandum comments:(33)
The ability to close
health insurance products to new or transferring contributors will enable
RHBOs to:
-
manage
their products more effectively, in particular to reduce losses on products
that have low or no returns due to changes in the broader health industry,
and
- enable RHBOs
to manage those products without disadvantaging members who are contributing
to them.
New section 73AAI applies to both hospital and ancillary cover.
New section 73AAJ prohibits RHBOs from improperly discriminating
against any contributor or class or contributors in deciding on whether
benefits are payable, and if so, the amount. Note that the Explanatory
Memorandum comments that the non-discrimination condition in new
section 73AAJ does not apply to ancillary cover (as opposed to hospital
cover tables). However, it is not obvious from the Bill that this is so – presumably the meaning of ‘benefit’
in new section 73AAJ excludes ancillary cover benefits.
New section 73AAK allows 'restricted membership organizations' a
limited exemption to the community rating conditions contained in new
sections 73AAH-AAJ. Essentially, the exemption allows them to continue
to restrict eligibility by reference to:
- employment or former employment in a profession, trade, industry
or calling
- employment or former employment by a particular employer or by an
employer included in a particular class of employers, and
- membership or former membership of a particular profession, professional
association or union.
Existing section 73B allows the Minister to revoke, change or impose conditions
under which an organisation is registered. Items 13-15 amend various
parts of section 73B and will collectively allow the Minister to apply
a revocation etc to multiple organisations at the same time.
Item 20 replaces existing Division 5 of Part VI with a new
version. Current Division 5 is headed 'Directions by the Minister' but
is to be renamed ‘Enforcement and remedies'. The Explanatory Memorandum
comments:
This new Division is
a major reform in the regulation of the private health insurance industry.
New Division 5 will result in increased regulatory flexibility by:
- enabling monitoring of RHBO activities
via performance indicators, rather than the assessment of rules that
currently takes place in accordance with section 78 of the NHA;
- clarifying the Minister's investigation
powers; and
- establishing a range of responses
and sanctions that the Minister may take to appropriately deal with
breaches or potential breaches of the NHA.
New section 73BEA provides that regulations may be made to establish
performance indicators to be used by the Minister 'in monitoring the operations’
of ROs. The indicators must be ‘framed’ as specified in new subsection
73BEA(2), including so as to 'alert the Minister to any practice…that
may be contrary to government health policy and therefore require a regulatory
response'.
New section 73BEB allows the Minister, if he / she believes that
an RHBO may be in breach of the Act, to require the RHBO to provide an
explanation of operations with respect to the area of concern. If the
RHBO is unable to provide an explanation within the timeframe specified
by the Minister, it may request additional time. The Minister may refuse
this request, but must give reasons for this.
If the Minister is 'satisfied' with the explanation, the matter ends. If
not satisfied, the Minister has a range of responses available to him
or her, and the Minister must advise the RHBO that they intend to take
one or more of these.
Whether or not the Minister is satisfied that the RHBO has breached the
NHA, the Minister may:
- institute
a new Subdivision B investigation
- request the RHBO to commit to
a new Subdivision C enforceable undertaking
- give the RHBO a direction in
accordance with new Subdivision D, and
- impose a further condition of
registration on the RHBO under section 73B.
If the Minister is satisfied that a RHBO has breached the NHA, in addition
to the options above, the Minister may
- if
the RHBO has breached the principles of community rating or failed to
comply with a new section 73BEJ Ministerial direction, revoke
the status of the RHBO to offer the 30% rebate on premiums
- apply
to the Federal Court for an order under new subdivision F, which
includes provision for a fine, and
- take action under Part VIA, which
allows for the appointment of an inspector, application to the Federal
Court for the RHBO to be placed under administration or to be wound
up.
New Subdivision B (new sections 73BED-BEG) deals with investigations.
New section 73BED replaces the existing power in section 75 for the
examination of the records and associated material of an RHBO. The power
is now given to the Minister rather than the Departmental Secretary. The
Minister may require evidence to be given on oath or affirmation by a
person who is or has been an officer, employee or agent of an RO (as is
the case in existing section 75).
New section 73BEE covers penalties and related matters for failing
to comply with the requirements of new section 73BED. A failure
to give the relevant information / evidence, including on oath or affirmation
if required, attracts a fine of up to 10 penalty units ($1 100): new
subsections 73BEE(1)-(2). The new subsection 73BEE(1)-(2) offences
are ones of strict liability. In addition, a person knowingly giving false
or misleading information is subject to imprisonment of up to 6 months:
new subsection 73BEE(5).
Under new subsection 73BEE(4), if a person is required to
provide information under new section 73BED, that information is
required even if the answer to the question, or the production of the
document, might tend to incriminate the person or make the person liable
to a penalty. However, that information cannot be used in evidence in
any proceedings against the person providing the evidence, except for
a prosecution for giving false or misleading information.
Where an investigation raises questions about the financial strength or
governance of a RO, the Minister may direct the PHIAC to take over the
investigation: new paragraph 73BEF(4). The Explanatory Memorandum
comments that:(34)
this amendment does not
detract from the independence of the PHIAC… [but if the concern is of]
a prudential element or effect it is important that it may be handled
by the entity which has been specifically established and empowered to
deal with such matters.
New section 73BEG sets out the Minister’s powers upon completion
of an investigation. If the Minister is satisfied that there is a breach
of the NHA, he / she must advise the organisation of the 'nature of the
breach' and of the action they intend to take. The range of actions include:
- request
the RHBO to commit to a new Subdivision C enforceable undertaking
- give the RHBO a direction in
accordance with new Subdivision D
- impose
a further condition of registration on the RHBO under new section
73B
- revoke the status of the RHBO
to offer the 30% rebate on premiums
- apply to the Federal Court for
an order under new Subdivision F, which includes provision for
a fine, and
- take action under Part VIA, which
allows for the appointment of an inspector, application to the Federal
Court for the RHBO to be placed under administration or to be wound
up.
In situations where the Minister is not satisfied that there has been a
breach of the NHA, but he / she considers the performance of a RHBO 'can
be improved', the Minister may:
- request
an enforceable undertaking in accordance with new Subdivision C,
or
- give a direction to the RHBO
in accordance with new Subdivision D, or
- impose
a further condition of registration on the RHBO under section 73B.
New Subdivision C (sections 73BEH-BEI) deals
with enforceable undertakings.
Under new section 73BEH the Minister may accept undertakings from
RHBOs that will either improve the performance of RHBOs, or if Minister
considers the organisation has breached the NHA, that the undertaking
is likely to ensure the RHBO will cease to be in breach. A RHBO may withdraw
from or vary the undertaking if the Minister consents. A refusal by the
Minister regarding an application to withdraw or vary is reviewable by
the Administrative Appeals Tribunal (AAT) (new subsection 105AB(4AAA)).
Should the Minister consider that the RHBO has breached a new Subdivision
C undertaking, he /she may apply to the Federal Court for an order
of compliance and, if there has been a breach of the NHA, any other order
that is ‘appropriate’: new section 73BEI.
New Subdivision D deals with Ministerial directions.
The Explanatory Memorandum comments that new section 73BEJ:(35)
increases the flexibility
of the sanctions available to the Minister to address concerns in relation
to improper discrimination. The power to make a direction in relation
to day-to-day operation of the RHBO is an important tool in the protection
of the principles of community rating.
In cases were the Minister considers that an organisation has given either
no or an unsatisfactory explanation under new Subdivision A (previously
discussed), the Minister may give a direction requiring a RHBO to modify
its constitution, rules or day-to-day operations to 'assist in the prevention
of improper discrimination': new subsection 73BEJ(1). Similar directions
can be given whether or not, as a result of an investigation, the Minister
is of the view that the organisation appears have breached the NHA (new
subsections 73BEJ(2)(36) and (3)). A direction may include
requiring that the organisation 'reconsider' a previous decision on a
person's application to join that fund or a current member’s claim for
benefits. A new section 73BEJ direction is reviewable by the Administrative
Appeals Tribunal (AAT) – see item 31.
New Subdivision E deals with removal of entitlement to offer rebate
as a premium reduction.
Where the Minister is satisfied that a RO has failed to comply with a Ministerial
direction or a community rating condition, new section 73BEL allows
them remove the eligibility (via section 14A-1 of the Private Health
Insurance Incentives Act 1998) of a RHBO to offer the Federal Government
30% rebate on private health insurance to contributors as a premium reduction.
The Explanatory Memorandum comments that:(37)
while the 30% Rebate
may be removed as a premium reduction from a particular RHBO, the 30%
Rebate will still be payable to contributors via the taxation system or
the HIC.
New Subdivision F deals with the Minister's powers to seek
Federal Court sanctions.
Under new section 73BEM, if the Minister is satisfied that a RO has
breached the NHA, the Minister may apply to the Court for a number of
orders. Notably, these include an order to pay compensation to an affected
individual, and / or an 'adverse publicity order’.
This later type of order requires
the relevant organization to:
- to disclose in a way, and to the person or persons, specified in
the order, such information to correct or counter the effect of the
breach as is so specified; and / or
- to
publish, in the way specified in the order, an advertisement to correct
or counter the effect of the breach in the terms specified in, or determined
in accordance with, the order.
New section 73BEN details the power of the Court to make and enforce
orders applied for under new section 73BEM. These include fining
an officer(38) of the relevant RO if the Court is satisfied
on the balance of probabilities that the officer ‘failed to take reasonable
steps to prevent the occurrence of [the relevant breach of the NHA].’
A fine may be up to $10 000.
New section 73BEO relocates existing subsection 74A(8) to prohibit
RHBOs from using contributor’s funds to cover pecuniary penalties (ie
fines) imposed on officers under new section 73BEN. The officer
(or presumably their professional insurer) must pay the fine, not the
employer company. New section 73BEO does not detail a specific
penalty for breaching the prohibition.
Items 21-38 make a number of mainly consequential amendments
to the NHA, many of these are required because of changes introduced by
items 1-20.
Items 25-28 amend existing section 78 which details the various
notice obligations of an RO if it changes its constitution, rules or articles
of association. The Minister has the ability to disallow any changes under
certain circumstances (existing section 78(4)). Currently, if the Minister
does not disallow the changes, a registered organization must take all
reasonable steps to notify each affected contributor (ie member), explaining
(in plain English) the change before the change takes effect.
Under item 25, the notification requirement to the Secretary in (new
subsection 78(1)) will only apply to changes in the RHBO rules, not
its constitution or articles of association. A prescribed period
of advance notice will only apply to rules that deal with premiums - other
rule changes must only be notified ‘before com[ing] into effect’: item
26. Under item 28 (new subsection
78(7)), the RHBO must notify contributors only where the rule change
'is, or could be detrimental to the interest of all or any of its contributors'.
Items 29-39 make various consequential changes
Item 40 amends the
Private Health Insurance Incentives Act 1998 by
inserting new paragraph 14A-1(1)(c). This will allow the Minister to remove the ability of a RHBO to offer
the 30% rebate as a premium reduction if the RHBO fails to comply with:
- a
direction given by the Minister under new section 73BEJ, or
- the community rating conditions
contained in new sections 73AAH-73AAI.
As previously mentioned, even if this power is used by the Minister, the
30% rebate will still be payable to contributors in relation to health
insurance products offered by the particular RHBO, but only via the taxation
system or the Health Insurance Commission.
Currently, complaints may be dealt in a variety of ways. Two of the initial
options are that (i) the PHIO may choose to try and mediate between the
relevant body / person and the complainant, or (ii) the PHIO may ask the
relevant body / person to investigate the matter itself. If these do not
produce a satisfactory result, the PHIO may launch its own full investigation,
or refer the matter to other bodies, including the ACCC.
Item 42 inserts new paragraph 82ZRC(c) so as to
broaden the listed functions of the PHIO. These will now include the ability
to report and make recommendations to the Minister following the investigation
of a complaint or an investigation of the practices and/or procedures
of RHBOs.
Item 43 inserts new subsection 82ZSAA(1) which allows
the PHIO to request information from an officer of an RHBO if a complaint
has been received. The request must be for the purpose of determining
how best to deal with the complaint. Currently the PHIO does not have
this ability.
Information may also be requested under new subsections 82ZSAA(2)-(3)
if the PHIO tries to a mediate the matter, conduct its own investigation
etc. The complainant must agree that the request be made: new subsection
82ZSAA(7). According the Explanatory Memorandum, this is for
privacy reasons. The RHBO must notify the PHIO if they cannot supply the
requested information within the prescribed time: new subsection 82ZSAA(5).
The PHIO may extend the time for the request. The RHBO may apply to the
AAT for review if the PHIO does not agree to extend the time (item
53: new subsection 105AB(6AC)).
New subsections 82ZSAA(8)(9) and (11)
deal with penalties and related matters for failing to complying with
the PHIO's request for information under 82ZSAA. As for new
section 73BEE, failure to comply attracts a fine of up to 10 penalty
units ($1 100) and the offence is one of strict liability. A person knowingly
giving false or misleading information in relation to a new subsection
82ZSAA(1)-(3) request is subject to imprisonment of up to 6 months.
Under new subsection 82ZSAA(10), if an officer of an RHBO
is asked to provide information, that information is required even if
it might tend to incriminate the person or make the person liable to a
penalty. However, that information cannot be used in evidence against
the person providing the evidence, unless in a prosecution for giving
false or misleading information.
Existing section 82ZSD enables the PHIO to make recommendations after a
RHBO has undertaken a internal investigation under paragraph 82ZSB(1)(b)
or where the PHIO has done its own investigation under paragraph 82ZSB(2).
Item 46 provides that the PHIO may ask that a RHBO, hospital, day hospital
facility or medical practitioner advise him or her of the action(s) that
it intends to take in relation to a recommendation made by the PHIO. It
also provides for penalties a failure to comply with the request or knowingly
giving false or misleading information, with respective penalties of 10
penalty units and up to 6 months imprisonment.
Item 47 inserts new section 82ZSDA to allow the
PHIO to report and make recommendations to the Minister on the outcome
of an investigation. The report may incorporate details of any response
(or lack of) given by a RHBO to the PHIO and include further recommendations
to the Minister for dealing with any issues or problems that have arisen
from an investigation.
New subsection 82ZSDA(2) requires the PHIO to consult with the RHBO before reporting to the Minister
and invite the organization to comment on criticisms to be made in the
report. Any comments must be included in the report to the Minister.
Existing sections 82ZT-ZRTD enable the PHIO to conduct investigations into
a RBHO on its own initiative or by the direction of the Minister. Item
50 gives it the power to obtain information for this investigation
as for item 43. Similarly, item 51 mirrors item 46
by amending existing section 82ZTC to strengthen the PHIO’s power to make
a recommendation to a RHBO and request notification of action taken in
relation to the recommendation.
Item 52 performs a similar function to item 47,
except that it relates to investigations done by the PHIO on its own initiative
or by Ministerial direction. As for item 47, the PHIO will be required
to consult with the RHBO before reporting to the Minister, invite the
organization to comment on criticisms etc.
Items 55-57 amend the NHA
to enable the PHIO to produce a proposed annual State of the Health
Funds Report. Under item 56, the Report is to be published
in written form and on the PHIO's website, as soon as practicable after
the end of each financial year, and will provide 'comparative information
on the performance and service delivery of all registered organizations
during that financial year': new paragraph 82ZRC(ba). Item 57
will require RHBOs to publicise, ‘in written form and on its website’,
the existence of the Report and to advise where copies of the Report can
be found.
An explanation of LHC is contained in the Background section to this
Digest.
Part 4 amends a range of LHC provisions contained in Schedule
2 of the NHA. Schedule 2 currently requires a person to take out private
hospital cover before his/her 'Schedule 2 application day' to
avoid having to pay a LHC loading. In general, this day is a person's
31st birthday. This rule differs for certain refugees or persons
overseas at the time when the changes were made.(39)
Under item 58, the amendments simply mean that the date for calculating
a persons age (if they fail to take out cover before their 'Schedule 2
application day') under existing clause 1 of Schedule 2 of the NHA will
be the previous 1 July. Thus if a person who turned 40 on 30
November 2003 took out LHC cover on 1
December 2003, they would actually be considered to be 39 for
the purposes of calculating the loading. This slightly revised method
for calculating age only applies to persons taking out cover after item
58 commences.
Subject to some conditions, persons may drop hospital cover for a cumulative
total of two years without this affecting whether they will have to pay
a premium loading once they take up cover again. There are also limited
circumstances in which dropping cover will not count towards this two
year limit. Items 60-61 introduce another circumstance. They amend
subclauses 3(1)-(2) of Schedule 2 to assist persons who are out of Australia
for more than a year and do not have cover during part or all this time.
In such cases, when they return to Australia and resume cover, those days out of Australia for which they do not have cover will not be considered
as counting towards the two year period mentioned above.
Item 62 inserts new subclauses 3(3)-(4) to clarify
the position of Norfolk
Island residents. For the purposes of the overseas exemption
to the 2 year period, item 62 states a person residing in Norfolk Island is deemed to be overseas. A resident may also stay
in Australia for up to 90 continuous days and still be deemed
to be overseas.
Items 63 and 64 amend Schedule 2 to provide that
the holder of a Department of Veterans Affairs Gold Card, or any persons
within any class specified in regulations, are deemed to have hospital
cover for the period they hold that card. If a person losses their eligibility
for a Gold Card, they have 2 years in which to take out hospital cover
without incurring a LHC loading.
Item 69 inserts a new paragraph 5(1)(e) to clarify
that, for certain persons over 31 years returning to Australia for the
first time since turning 31, their 'Schedule 2 application day' is
the later of:
- the
first anniversary of the day the person returned to Australia; or
- the first anniversary of the
day that this amendment comes into effect.
Items 68-71 make amendments to similarly allow new arrivals
to Australia (other than refugees) a year to take out hospital
cover without incurring a LHC loading.
This Bill forms part
of the on-going review of health insurance regulation currently being
undertaken by the Commonwealth Government. The review will be continuing
throughout 2003 and further recommendations to the Minister and Cabinet
regarding the regulatory regime covering private health insurance can
be expected.
In the context of the Commonwealth Government’s
significant changes to the private health insurance industry, this Bill
can be viewed as another step towards reducing regulation within the sector.
Interestingly, reduced regulation has not corresponded with a reduction
in government subsidy for the industry.
- Senator the Hon Kay Patterson Minister for Health
and Ageing ‘Government
to reform regulation of private health insurance’ Media Release,
2 April 2003.
- Senator the Hon Kay Patterson
Minister for Health and Ageing, Stage
Two Reforms Drive Private Health Fund Efficiency, Media Release,
3 April 2003.
- The Parliamentary Library publication, The Regulation
of Private Health Insurance Premiums discusses some of the early
non-legislative changes to the regulation of private health premiums
that were detailed in the first stage of reforms released as part of
the review.
- Organisations must be registered under Part VI of
the NHA in order to conduct a private health fund business – such organisations
are ‘RHBOs’. In the Background section of the Digest, the term RHBOs
and health funds are interchangeable.
- Industry Commission, Private Health Insurance,
Report No. 57, 28 February
1997.
- At p.3.
- Health funds can apply to the Minister for a lesser
notification period: existing paragraph 78(1A)(ab).
- Private Health Insurance Ombudsman, Quarterly Bulletin
No 26 (1 January to 31
March 2003).
- PHIO submission to the Senate Community Affairs Legislation
Committee Inquiry into the Health Legislation Amendment (Private Health
Insurance Reform) Bill 2003.
- ACA submission to the Senate Community Affairs Legislation
Committee, Inquiry into the Health Legislation Amendment (Private Health
Insurance Reform) Bill 2003.
- Department of Health and Ageing Submission to the
Senate Community Affairs Legislation Committee, Inquiry into the Health
Legislation Amendment (Private Health Insurance Reform) Bill 2003.
- ibid.
- In fact, the term only appears once, at subsection
73BAA(3).
- See the Medibank Private, Medical Benefits Fund of
Australia, Australian Private Hospitals Association and Australian Health Insurance Association submissions to
the Senate Community Affairs Legislation Committee, Inquiry into the
Health Legislation Amendment (Private Health Insurance Reform) Bill
2003.
- See the Medibank Private and Australian
Health Insurance Association submissions to the Senate Community Affairs
Legislation Committee, Inquiry into the Health Legislation Amendment
(Private Health Insurance Reform) Bill 2003.
- See in particular Jim Butler
‘Policy Change and Private Health Insurance: did the cheapest policy
do the trick?’ Australian Health Review, 2002, 25(6): 33-41;
Russell Schneider ‘Health managing
risk in the private sector’ Australian Health Review2002 29(6):
49-53.
- See in particular Stephen Smith, Shadow Minister for
Health and Ageing, ‘Affordable
Health Care for Australians and the nation’, Paper presented to
the Health Insurance Summit, 24 July 2002 Hilton Sydney; Joanne Gray,
‘An unhealthy prognosis’, Australian Financial Review, 27 February
2002.
- PHIAC, Annual
Report, Commonwealth of Australia,
2002.
- Shaun Gath, ‘Enhanced
Consumer Rights in Private Health Care: have the “Lawrence
amendments” delivered?’ Journal of Law and Medicine 6(3): 241–252
- Private Health Insurance Complaints Commissioner,
Annual Report, Commonwealth of Australia,
1998, p. 7.
- Gath,
op. cit.
- The Private Health Insurance Administration Council
is a body appointed by the Health Minister under Part VIAA of the NHA
to carry out various advisory, supervisory and information functions.
- See PHIAC, Operations
of the Registered Health Benefits Organisations Annual Report 2002
and Standard & Poor’s Australian Health Insurance Report 2002.
- Bulter, op cit.
- The maximum loading is 70%
- See Explanatory Memorandum at p. 16.
- These relate to Life Health Cover.
- At p. 20.
- The modification
is the new paragraph 67B(a).
- At p. 21.
- See paragraph (ma) of Schedule 1 of the NHA.
- At p. 22.
- At p. 22.
- At p. 28.
- At p. 29.
- New
subsection 73BEJ(2) applies where ‘there appears to be a breach
of the [NHA] involving improper discrimination by the organization’.
- At p. 30.
- In most cases an ‘officer’ will be a director of the
RO.
- Persons born before 1 July 1934 are exempt from LHC
loading.
Angus Martyn and Amanda Elliot
20 June 20003
Bills Digest Service
Information and Research Services
This paper has been prepared for general distribution to Senators and
Members of the Australian Parliament. While great care is taken to ensure
that the paper is accurate and balanced, the paper is written using information
publicly available at the time of production. The views expressed are
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contained in this paper is provided for use in parliamentary debate and
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ISSN 1328-8091
© Commonwealth of Australia 2003
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