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Wednesday, 10 August 2005
Page: 145
Senator COONAN (New South Wales —Minister for Communications, Information Technology and the Arts) [6:39 PM] —I move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows—


The Bills are necessary to ensure the viability and sustainability of the medical indemnity industry.

The Australian Government was forced to intervene in the medical indemnity market in 2002 when the United Group—United Medical Protection (UMP), and its registered insurer, Australian Medical Insurance Limited (AMIL) —went into provisional liquidation. Several factors contributed to this situation. But the most significant was the practice whereby some Medical Defence Organisations (MDOs) had not recognised ‘incurred but not reported’ or (IBNR) liabilities on their balance sheets. This meant that they had insufficient capital to meet their full liabilities.

If United had gone into full liquidation, nearly 60 per cent of Australia’s medical practitioners would potentially have been without medical indemnity cover. The Government acted quickly to avert this potential crisis.

We introduced a short-term guarantee for all of United’s liabilities, followed by the IBNR Indemnity Scheme and the High Cost Claims Scheme. Notably, the IBNR Indemnity Scheme provided coverage of claims for which MDOs had failed to make adequate provisions. At the time, United’s unfunded liabilities were estimated at $460 million.

The Government’s rescue package allowed medical practitioners who were members of United to continue to practise without fear of losing their personal assets as a result of litigation against them. Stabilised by the rescue package, and especially by the IBNR Indemnity Scheme, United came out of provisional liquidation in November 2003. United was effectively brought back from the dead—a rare feat by today’s standards. And it was fortunate to have kept its independence through this tumultuous period in its history.

This brings me to the reason the Government is introducing these Bills. Within twelve months of coming out of provisional liquidation, AMIL announced that it would substantially reduce its premiums for 2005. This unexpected move sent a shockwave through the medical indemnity industry. It signalled that United had returned to a position of financial strength much sooner than expected by anyone. The move also sparked concerns that United may have a competitive advantage due to the Government’s rescue package for the industry.

This Government is not in the business of ‘picking winners’ in a competitive market. Because of this, on 17 December 2004, we commissioned an independent review of competitive neutrality in the medical indemnity insurance market. We want to ensure that all medical indemnity providers operate on an equal footing. No medical indemnity insurer should gain a competitive advantage from assistance provided to make insurance for doctors secure and affordable.

The independent review was headed by Mr Graham Rogers, the former head of the Institute of Actuaries of Australia. Mr Rogers, who provided his report to the Government on 15 March, concluded that the Government assistance provided was extremely valuable in stabilising the medical indemnity industry. However, he also concluded that United had gained a competitive advantage from the IBNR indemnity scheme, and furthermore, that it was appropriate to act to address the competitive advantage. The Government has accepted the findings of Mr Rogers’ report and we thank him for his considered work on this issue.

Having accepted the findings of the review, the Government must take action. The IBNR scheme was not devised to distort the medical indemnity playing field. However, the evidence shows that it has, and without corrective action, it could destabilise the medical indemnity market, and thereby threaten the operation of our health system. Let me be very clear about this —the Australian Government will not stand by and watch this happen.

Too much is at stake. Of primary concern are the interests of patients and doctors and the viability and sustainability of the medical indemnity industry.

The Medical Indemnity (Competitive Advantage Payment) Bill 2005 will eliminate the competitive advantage enjoyed by insurers associated with MDO’s benefiting from the Government’s IBNR package by requiring them to make a series of payments over ten years to the Australian Government. The amount of the payments will be set annually, having regard to the outstanding net IBNR exposure for each MDO and a percentage set in regulations.

We intend that the percentage will be set having regard to the formula set out by Mr Rogers in his report. However, to ensure that the Government can respond flexibly to emerging circumstances the percentage will be set annually. If a regulation is not made, no payment will be required in that year. As a result there is no need for insurers to carry on their balance sheet a liability relating to payments that may be required in future years.

In recognition of the payments to the Government by insurers, the associated Medical Indemnity Legislation Amendment (Competitive Neutrality) Bill 2005 reduces the payments that doctors need to make under the UMP support payment scheme. Contributing doctors will have their annual UMP support payments reduced by $1,000 for the third and fourth years of the scheme, after which the scheme will come to an end. This means that from next year some 7,000 of the 17,000 doctors currently making payments will no longer be required to do so, while the liability for many other GPs will be reduced to a few hundred dollars for two years.

This legislation ensures that the medical indemnity market will operate on a competitively neutral basis into the future, providing insurance to doctors on a sustainable basis.


This Bill contains machinery provisions relating to the assessment and administration of the competitive advantage payment imposed under the Medical Indemnity (Competitive Advantage Payment) Bill 2005.

It also reduces payments required of doctors under the UMP support payment scheme.


This Bill amends the Health Insurance Commission Act 1973 and the Commonwealth Services Delivery Agency Act 1997 by making changes to the governance structures of Centrelink and the Health Insurance Commission.

These changes form part of the implementation of the Government’s response to the review of corporate governance of statutory authorities and office holders that was conducted by Mr John Uhrig.

The primary purpose of the report by Mr Uhrig was to identify ways in which corporate governance might be improved and to provide the Government with options for increasing accountability and ensuring high levels of performance of government agencies.

As part of his report, Mr Uhrig developed two templates for assessing statutory authorities—a “board” template for use where the Government was prepared to delegate full power to the statutory authority to act independently from Government and an “executive management template” for use in other cases.

Mr Uhrig recommended that a governance board should only be utilised in relation to a statutory authority where the Government was willing to delegate “full power to act” to the authority.

The Government released its response to Mr Uhrig’s report on 12 August 2004. The Government endorsed Mr Uhrig’s recommendation that governance boards should be utilised only where they can be given full power to act. The Government also announced that it would assess all statutory authorities and other bodies using the Uhrig templates.

Mr Uhrig said in his report, “the HIC and Centrelink are both established to provide services to the community on behalf of government, through Commonwealth Agencies. However the HIC is established with a Board and is covered by the CAC Act, while Centrelink is covered by the FMA Act and unusually, is also governed by a Board. Apparently, given the need to strengthen the Government’s power of the Centrelink Board, the Financial Management and Accountability Regulations 1997 establish the chairman of the board as the chief executive for FMA Act accountability purposes. However the actual chief executive officer is the Agency head for PS Act purposes. This situation creates an anomaly of having two chief executives for accountability and governance purposes.”

Centrelink and the Health Insurance Commission are service delivery organisations that are funded from the public purse.

The organisations are responsible for the delivery of very large and important government programmes, worth over $82 billion dollars annually. Through this delivery, Centrelink and the Health Insurance Commission touch the lives of nearly all Australians. The programmes and services they deliver are the essential glue that keeps the social fabric of the Australian community together.

Because of this vital role, these agencies need to move closer to Government to ensure that their daily operations deliver the outcomes that Government, and the taxpayer, expect.

Indeed, it is important that the organisations be brought under strong Ministerial control. With this in mind, the Government assessed both Centrelink and the Health Insurance Commission against Mr Uhrig’s executive management template. This assessment suggested that a number of governance changes should be made to both organisations. This Bill implements those changes that require legislative amendment.

A key change made by this Bill is the removal of the governance boards for Centrelink and the Health Insurance Commission. Both Boards have served their organisations diligently over many years, and the Government is grateful for the commitment of the current and former members of the Boards who have contributed so much of their time and expertise. However, neither Board can be fully effective, as neither Board has, or could realistically be given, full power to act completely independently of Government when they are delivering core government services.

Following the changes to be made by the Bill, the management of both organisations will be vested in a Chief Executive Officer. These Chief Executive Officers will have clear and direct accountability for the performance of their organisations.

Efficient organisations are professional, well organised, have excellent management control, are able to remedy problems quickly and are responsive to customer and stakeholder concerns.

Through these changes there must be a greater focus on cost effectiveness and better management of financial resources too—in particular using purchasing power to produce better outcomes for less money.

A significant challenge is to ensure the agencies in Human Services continue to deliver the already long list of existing government programmes whilst undertaking the changes necessary to achieve our goals.

Simplicity in both service and vernacular should help us achieve our goals. For example, given that the Health Insurance Commission will no longer be a Commission, it is appropriate to change its name. This Bill will establish Medicare Australia to replace the Health Insurance Commission. The Medicare name is well known by almost all Australians and the new name will help customers to identify readily with the organisation.

Mr Uhrig also recommended that, generally, the Financial Management and Accountability Act 1997 financial framework should be applied to bodies which do not require a governance board. The Government has accepted this recommendation and, accordingly, the new Medicare Australia will be a prescribed Agency under the Financial Management and Accountability Act 1997. The Bill will also provide that the staff of Medicare Australia will be engaged under the Public Service Act 1999, along with the majority of other public servants.

By bringing Centrelink and Health Insurance Commission as well as my other agencies under the one umbrella of Human Services, we have the opportunity for the first time, to review how they operate from a customer perspective. We must repeatedly ask whether the original policy intention is carried through in the delivery of the programmes.

Part of this process is pinpointing each agency’s core functions and constantly measuring its performance against the objectives of Government’s commitment to efficient service delivery.

As Mr Uhrig said, “Departments are the primary source of public sector advice to Ministers and are best placed to support Ministers in the governance of statutory authorities. In this respect, the Portfolio Secretary has a role akin to an advisory function within a parent company in providing advice to the CEO about the activities of the company’s subsidiaries.”

The governance changes to be made by the Bill will be complemented by other changes that do not require legislation.

The Government will be issuing Statements of Expectation to the Chief Executive Officers of Centrelink and Medicare Australia to clarify expectations and the Chief Executives will be replying with Statements of Intent. These documents will be made public.

The Department of Human Services will analyse information about the performance of Centrelink and Medicare Australia and provide advice to the Government. The Chief Executive Officers will report to me through the Secretary of the Department of Human Services.

The Government will also, at the appropriate time, be establishing a Human Services Advisory Board to ensure that it receives advice from relevant sectors of the community about delivery issues and service improvement proposals in the human services area. All of these initiatives form part of the Government’s implementation of the Uhrig report.

Our 20 million customers have little regard for sectoral and bureaucratic differences. Instead they just expect the Government to deliver services in a timely, efficient, cost effective and easily understandable manner. Changes brought into effect by this Bill will assist the Government to deliver on that expectation.

The changes made by the Bill will improve accountability and enhance the performance of both of these important organisations. The outcome will be a better level of service to Australians.

I commend the Bill to the Senate.

Debate (on motion by Senator Coonan) adjourned.

Ordered that the resumption of the debate be an order of the day for a later hour.

Ordered that the Human Services Legislation Amendment Bill 2005 be listed on the Notice Paper as a separate order of the day.