Chapter 1
Private Health Insurance Amendment (Lifetime Health Cover Loading and Other
Measures) Bill 2012
1.1
On 28 November 2012 the Senate referred the provisions of the Private
Health Insurance Amendment (Lifetime Health Cover Loading and Other Measures)
Bill 2012 (Bill) to the Senate Community Affairs Legislation Committee
(Committee) for inquiry and report by 12 March 2013. The Bill was introduced in
to the House of Representatives on 28 November 2012.[1]
1.2
The committee received 10 submissions, and considered the evidence
received in each one. The committee also held a public hearing in Canberra on 8 February 2013.
1.3
A list of individuals and organisations that made public submissions to
the inquiry together with other information authorised for publication is at
Appendix 1.
Purpose of the Bill
1.4
The Bill seeks to amend the Private Health Insurance Act 2007
(the Act) in order to remove the private health insurance rebate from the
Lifetime Health Cover loading portion of affected premiums. The Bill also
provides for the cessation of claiming the Rebate through a Department of Human
Services (DHS) service centre under the Incentive Payments Scheme.
Excising the Lifetime Health Cover
Loading from the Private Health Insurance Rebate
1.5
The bill seeks to change the way that two separate policy initiatives
interact; the Private Health Insurance Rebate (Rebate) scheme, and the Lifetime
Health Cover initiative.
1.6
Under the current Act people are encouraged to take out private hospital
insurance through the offering of a rebate. Eligible policy holders are able
to claim from the Commonwealth a rebate of up to 40 per cent of their
total premiums paid. This rebate covers both the base premium, and any
applicable LHC loading.
1.7
In order to encourage individuals to take out private health insurance
early in life, and to maintain their cover, the Lifetime Health Cover (LHC)
initiative was introduced on 1 July 2000.[2]
The LHC loading applies a 2 per cent surcharge on an individual's private
hospital insurance premium for each year over 30 years of age, up to a maximum
of 70 per cent, if that individual delays taking out hospital insurance until
after 1 July after their 31st birthday.[3]
1.8
Health Minister the Hon. Tanya Plibersek explained to the House of
Representatives that:
Under existing arrangements, the government pays a rebate as
a percentage of the premium paid, which includes any applicable Lifetime Health
Cover loading. If the Australian Government continued to subsidise a proportion
of the Lifetime Health Cover loading the incentive to take out hospital cover
is diminished.[4]
1.9
Removing the LHC loading from the rebate thus means that the full cost
of the loading is passed onto the policy holder.[5]
The Minister reasoned:
Lifetime Health Cover is a key component in supporting
community rating in private health insurance, keeping private health insurance
affordable for all Australians, regardless of age, illness or potential health
risk...It is irrational to have a Lifetime Health Cover loading that encourages
people to take out private health insurance at an earlier age and maintain it,
and then have the government pay a proportion of this loading. It is also
unfair to those taxpayers who do take out private health insurance earlier in
life.[6]
1.10
The Bill also includes minor consequential amendments to the Income Tax Assessment Act 1936,
the Income Tax Assessment Act 1997 and the Taxation Administration
Act 1953.[7]
1.11
Key issues relating to this proposed reform are discussed in the
following chapter.
Incentive Payment Scheme
1.12
There are many ways for eligible individuals to claim their Rebate that
include the premium reduction scheme and tax offset. These methods account for
99.9 per cent of rebate claims.[8]
An additional but seldom used means of claiming the Rebate is the Incentive
Payment Scheme in which the policy holder pays the entire cost of their policy,
before claiming their Rebate though a
Department of Human Services service centre.
1.13
It is argued that this amendment will not have a major impact on policy
holders as so few elect to use this option, and will also reduce administrative
burdens on all parties involved in the transaction.[9]
1.14
The committee did not receive any submissions objecting to this proposed
amendment.
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