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Fairer Private Health Insurance Incentives (Medicare Levy Surcharge) Bill 2009 Fairer Private Health Insurance Incentives (Medicare Levy Surcharge—Fringe Benefits) Bill 2009 Fairer Private Health Insurance Incentives Bill 2009 Health Insurance Amendment (Extended Medicare Safety Net) Bill 2009

CHAIR —Welcome. Today we have only Senator Furner, Senator Boyce and me here. But everything will be on Hansard, as you know, so all the members of the committee will have full access to all your evidence. It does not represent any reflection on our interest; it is just people getting together at this time. I just wanted to assure you that it is a really important committee as far as we are concerned.

Mr Rashleigh —That is certainly understood.

CHAIR —You have information on parliamentary privilege and the protection of witnesses and evidence. We have your submission. Thank you very much. If either or both of you would like to make a statement, please go ahead, and then we will go to questions. We are scheduled to go until two o’clock with you.

Mr Rashleigh —I do not have anything dramatically different to what is already contained in our submission, so perhaps as an opening statement I will just highlight a couple of the key features of that submission. I just want to reinforce the fact that I represent a total of 17 funds. Thirteen of those are restricted access funds and four of those are regional Australian funds. I think the importance of that group is that they represent a wide range of bodies, including a number of unions, a number of employer groups, a number of professional groups. In total, the membership of HIRMAA is in excess of 430,000 contributors, which represents in excess of one million Australian lives.

It has often been asked—and we made note of this in our submission—how the smaller funds of our membership stay competitive. I think I can answer that fairly adequately. There are three primary reasons. One is that HIRMAA as a group is a very active body working particularly in the political arena on behalf of its member funds, irrespective of political persuasion. We try to represent the best interests of our funds, which in turn represent the best interests of our members. About 12 or 14 years ago, the HIRMAA funds undertook two primary initiatives. One was to found the Australian Health Service Alliance, which represents now, in terms of total membership, just short of 30 per cent of the total industry, which in terms of being able to negotiate competitive and attractive rates with hospitals and the medical profession places us in the same league as Bupa since the takeover of MBF and Medibank Private. It is also noteworthy that, at about the same time, we purchased a software house in Adelaide which represents the majority of our members’ interests, which enables us to have a dedicated health insurance platform spread over the 23 participating member funds and enables us to do it both efficiently and highly competitively.

I should also emphasise the fact that all of our 17 member funds are not for profit. I think sometimes the media treats health insurers somewhat unkindly, in that we frequently see terms like ‘greedy health insurers’ et cetera. I can say without contradiction on behalf of the HIRMAA membership that our only interest is the best interests of our members. Aside from working within the prudential framework prescribed by the legislation, we endeavour to supply the very best benefits at the most competitive prices. We have no stakeholders other than our members to service.

CHAIR —And you are based here? Is your head office in Melbourne?

Mr Rashleigh —Yes, it is. That may vary from time to time because our membership has a national coverage. It just depends on who is the chairman of the day and where they would like the executive director to reside. But for the last 10 years it has been Melbourne based.

CHAIR —So the Queensland teachers health fund could take you over and have you up in Brisbane?

Mr Rashleigh —They might. They are very active members of our—

CHAIR —Yes, I saw them on the list.

Mr Wilson —They would make us most welcome.

CHAIR —Particularly in the winter months?

Mr Wilson —Exactly. It could be a very good place to be.

Mr Rashleigh —One of our primary concerns about the proposed legislation is that it is in defiance of all undertakings that were made to us in the past. As an association we frequently sought reassurance as to the undertaking that the 35 per cent and the 40 per cent rebates as they are currently structured would remain intact without interference. We are disappointed that is potentially not the case. I would be of the view, and I am sure this has been expressed to you because I have read the BUPA paper, that the people who will feel most disenfranchised will be those who rely least on their health fund, being the younger members. That is a known fact. In fact, the structure of health insurance as it is required to be in Australia under legislation with community rating is that the young healthy members subsidise the older members, who have a greater need for health services. Without being in any way able to verify the wide range of figures that have been put forward by various organisations as to what the loss of membership might be or, alternatively, what the downgrading of the level of cover might be, nevertheless I would put forward the view that it will have an adverse effect on membership, the extent of which I do not think any of us have the capability of being able to pinpoint with any accuracy. I would also put forward the contention which I alluded to before that, that the adverse effect will largely rest with the younger, healthier members. That will in turn be reflected in premium levels in the future.

We would also make the point strongly, as we have made in our submission, that we have concerns that this might be one of a series of planned moves ahead. We would make the point to this committee that we will be seeking from all the political parties some reassurance that this is not the beginning of a trail of further fragmentation of the structure of health insurance in this country. I have some genuine concerns that the administrative costs of this will have a very significant impact. All health insurers have a range of policies. The real effect of this change will be to multiply the number of policies that they already have by 10 in every instance. I think that is concerning in terms of being able to contain administrative costs. There is a benchmark which the industry regulator set by which they expect health insurers to be able to contain their management expense ratio at or less than 10 per cent of contribution income, and 90 per cent of us are able to achieve that. I have some genuine concerns that there will be some blow-out in that ratio if in fact we have a multiplication factor by 10 of all the number of policies.

Having had some discussion with the federal department in respect of the administration of the scheme, I also have some grave concerns that we are a long way from finding an ideal solution as to how it can be effectively administered. It has been suggested to us in several different forums that one of the solutions may well be to in fact leave it to the insured contributor to nominate for themselves which level they should fall under. In other words, if there is a reduction in the level of the rebate or if there is the removal of the rebate, it would be the responsibility of the contributor to advise their health insurer. I think messages from health insurers, no matter how carefully they are crafted and constructed, are largely not given a lot of attention by recipients. I foreshadow the case where the majority of contributors would probably not take a great deal of notice and would continue to take private health insurance with the benefit of the 30 per cent rebate and would then find out, with some shock and probably much stronger emotions than that, with the submission of their annual tax return, that in fact they are facing a substantial penalty. Under a somewhat selfish approach to this, I have a real concern that the contributors who are confronted with that shock will in fact blame the health insurer as opposed to the legislation which is driving this.

The final point that I would like to make to this committee is that health insurance is a complex arrangement at the best of times. We have continually seen in recent years the introduction of new acts with some fairly significant changes. Last year we saw changes as to the surcharge thresholds. Now it is proposed that there be changes as to access to the rebate. I would put forward that the majority of the insured community already have difficulty understanding what their health insurance is about. Having been in this industry for some 30-odd years, I am amazed personally by the blandness of some of the questions that professional friends and colleagues ask me. That clearly indicates to me that they have no understanding and that a further change will increase the complexity of that lack of understanding. I think that is a real concern. I would be happy to try to answer with my colleague any questions that you may have to ask us.

CHAIR —Thank you, Mr Rashleigh. Mr Wilson, are you wanting to add something at this stage?

Mr Wilson —Yes, thank you, Chair. I would add two points as to what my colleague has said in his more than adequate summary of our position on this issue. I will pick up on an earlier point that Mr Rashleigh made and emphasise to the committee that we are a not-for-profit organisation. I think we can truthfully say that we come to this committee—and we do so when we go to government—with clean hands. We do not have shareholders demanding that we return certain profits to them. Our organisation—so all 17 funds within the organisation of HIRMAA—is not for profit and is consumer-centric. I think that makes it a very special organisation. When we speak to you about how these changes are going to impact on our members, we can do so without having to be concerned about side issues. Secondly, to pick up on the final point that Mr Rashleigh made about private health insurance being complicated and becoming more complicated, I want to put before the committee my concern. All of us are aware of how Australians are very confused by superannuation rules. I would hate to think that we are going down the same pathway with private health insurance so that the average Australian who takes out and purchases his or her private health insurance becomes so confused about the rights and incentives that are attached to private health insurance that they find it easier not to participate or do not participate in a fulsome way and get the best benefit from it. I think that when government are making changes to private health insurance they have got to look at the value of them and look at what benefit the Australian community as a whole derives from private health insurance and keep them as simple as possible.

CHAIR —Thank you.

Senator BOYCE —I want to tease out a little bit more information on what you refer to as yours being a special organisation. As I understand it, contributors would come to you in a way different from the way in which they come to some of the other funds in that it would be a group of contributors who are already in an organisation. Is that so?

Mr Rashleigh —Yes, it is. I will give you an example. My daytime job is Chief Executive of Navy Health, and obviously we relate to the Navy. While we are totally financially independent of the Navy and constitutionally are largely unlinked, other than through the act and our membership eligibility requirements, the Navy itself would regard us very much as a part of the family. I, together with my chairman, as a courtesy, report to the Chief of Navy twice annually just to inform him of whether anything is happening. There would be an expectation from the Chief of Navy that, if there were something out of the ordinary happening within our fund, I would alert him to it immediately. I think that is symptomatic of the relationship that exists between Navy Health members and the Navy Health fund as exists across the total 17 funds.

Let me just make an interesting comment. In a wider fora of the industry, during the consultation process leading to the new Private Health Insurance Act, reference was made as to how contributors would understand what they could claim in relation to hospital episodes. It is common across all of the 17 funds that I represent that, before our contributors go to hospital, 90-plus per cent of them would in fact ring the fund and just ensure that their interpretation of what their entitlement was was correct.

CHAIR —Was that in Navy or across all your associated—

Mr Rashleigh —Across the 17 funds.

Mr Wilson —There is a very close relationship between the consumer and the insurer. The consumer feels a very close bond and has the ability to make that contact to ask what their entitlements are rather than get to the other end of the situation and find out what they are not entitled to.

Senator BOYCE —For instance, Navy Health would be the default insurer for all Navy personnel, for retired personnel or for both?

Mr Rashleigh —Both. With respect, if I could make a correction: ‘default’ would not be the word I would use. It would, in most cases, be the fund of choice.

Senator BOYCE —I am sorry. I am presuming that people do have a choice.

Mr Rashleigh —Yes, they do. They can join any open fund, but they do not. But, again, that would be universal across—

Senator BOYCE —Because you are so good!

Mr Rashleigh —Yes, Senator.

Senator FURNER —How many people would you have in Navy, as opposed to personnel, who are covered by your fund?

Mr Rashleigh —Actual Navy personnel are not covered at all because they are covered by the Commonwealth, as are all military-serving members. So it is only families. Our total membership is approximately 15,000 contributors, which relates to about 40,000 lives. The population of the Navy itself is just under 12,000.

Senator BOYCE —So it would be Navy personnel with families and prior Navy personnel?

Mr Rashleigh —With families, and they would normally retain their membership after they separated from the Navy.

Senator BOYCE —I am trying to get a sense of how you might be different from other funds. You would market yourselves differently? These funds would all market themselves differently to the likes of BUPA, for instance?

Mr Rashleigh —Yes.

Senator BOYCE —They are, in the main, smaller funds and, as you say, therefore have a closer relationship with their members. Are there any other differences that we should be aware of?

Mr Wilson —You are completely correct on size. We have no fund, for instance, over 100,000 contributors. It ranges from the very small funds of 2,000 members, from the Reserve Bank of Australia, up to the 70,000, 80,000 membership funds. Each one of those funds appeals to a certain market, be it a teacher union, the Navy, Defence Health, which is aimed at Navy, Army and Air Force and at religious groups.

Senator BOYCE —Is the Queensland Teachers Union the only union based fund or is the railway and transport—

Mr Rashleigh —Road and rail transport is fundamentally union based. Transport in Victoria is fundamentally union based and New South Wales Teachers Federation is principally union based. So are South Australian Police. Again, their corridor to the fund is via the police union.

Senator BOYCE —I am trying to draw the distinction. Some are around the place of work or the organisation you work for; others are around which union you are a member of?

Mr Rashleigh —Yes.

Senator BOYCE —Okay. I am just trying to get those distinctions clear. I think, Mr Rashleigh, you have already mentioned this, but I have asked all the witnesses this. Given the guarantees that the government were giving right up until February this year, were you surprised by the moves outlined in this legislation?

Mr Rashleigh —I think disappointed would be more accurate. Canberra is reasonably well recognised for being able to release some fairly early rumours. We had a fair hold of those rumours. So ‘disappointment’ would probably be a more appropriate word than ‘surprised’.

Senator BOYCE —Have you approached the government in any way about your disappointment?

Mr Rashleigh —We have written to all parties, including the government, about our disappointment and about our concern of being given specific undertakings and then those undertakings being changed.

Mr Wilson —Before and at budget time we made contact with the minister and the minister’s office to express our disappointment at the proposed changes. I should say that prior to the last election our funds took a degree of comfort out of what was being said of the future of private health insurance incentives. When those assurances were given after the election and up until February this year, we again took a degree of comfort out of that. When the rumour mill started and then when the actual changes were announced in the budget we were not so much surprised but, as Mr Rashleigh has said, disappointed.

Mr Rashleigh —Could I just raise one other issue that I think will be of interest and will hopefully be taken on board by this committee. I have been to a couple of consultations now conducted by the department in conjunction with the ATO in relation to the implementation of the changes. I had a great concern at both of those consultations I attended that they have dropped the word ‘rebate’ and are now using private health insurance ‘incentives’ as the terminology. I alerted you before about my concerns about confusing the insured community. If we change the terminology away from the rebate, we will confuse them much, much more.

Senator BOYCE —What do you think might be the motivation for the change in that terminology, Mr Rashleigh?

Mr Rashleigh —I do not think I understand. When I say ‘I do not understand’, I understand why it is being said, but I do not understand what drives that change.

Senator BOYCE —I wanted to go on to talk about a topic you touched on in your submission and mentioned earlier when you talked about whether there were other government plans ahead to do other things. You have mentioned here a justifiable belief by consumers that private health insurance would be increasingly less attractive and affordable if there were more changes to come. I would have also thought that the matter of trust and ongoing change would be an issue.

Mr Rashleigh —I would certainly agree with that.

Mr Wilson —I think the consumer is looking for certainty. There has now been two federal budgets since the election of the current government and both those budgets brought significant changes to private health insurance. If that were to happen again—and then perhaps again and again—the consumer would start to look at the product, confusion and disappointment will take over, and they will think less of the product.

Senator BOYCE —Nevertheless, what store does one put in a guarantee that no further changes are planned, even if you were to get it?

Mr Wilson —Very qualified now.

Senator BOYCE —You have used far more temperate language here, but do you have concerns that this is actually a move against private health insurance that is being introduced in an incremental way?

Mr Rashleigh —That is an underlying concern, yes.

Senator BOYCE —What would be the effect if that were to be the case?

Mr Rashleigh —If we go to the stark facts, 52 per cent of all procedures are currently performed in the private sector. If we were to transfer that workload to the public sector, which is already struggling, we would completely swamp it. If we turn the clock back to the days before the 30 per cent rebate and Lifetime Health Cover, the actual level of the insured population had fallen to 30.2 per cent and was declining rapidly. One would have to question whether private health insurance, had it kept declining as it was when it got to 25 per cent of the population only, was sustainable in totality in that situation.

Mr Wilson —The stark reality is that every person who drops or modifies their private health insurance will be an actual or potential extra pressure on the public health system. We all understand the pressure that that system is already under. Any further drift from private health insurance and the private sector to the public sector cannot be a good thing for the Australian health system.

Senator BOYCE —We have had evidence from a number of other organisations that the effect as far as they are concerned is that the younger, healthier members will pull out or pull back on their health insurance, leaving the older, less healthy—the ‘high-end users’, for want of a better term—and therefore push up premiums. Is there going to be any difference in the behaviour of your membership?

Mr Rashleigh —It would be fair to say that there is probably a higher level of loyalty towards the fund. As a group of funds we do not suffer the same churn as you see occurring in the bigger, open funds. That is because of the loyalty and the cultural linkage to the fund. But there is the overriding question of affordability. Most of us came under very close examination in the last rate round, which took effect from 1 April this year, to justify our premium increases. I think the fact that the industry was able to contain itself to an average increase of 6.2 per cent versus an average increase in costs of about 9.5 per cent was a fairly commendable outcome. We are advised that the scrutiny which will be applied in the forthcoming round—which they brought forward by submissions being required by 20 November this year to take effect from 1 April, which leaves an enormous gap in the predictability time scale—will be such that there will be an expectation that premiums be contained to increases of five per cent or less. That is going to be very difficult for the industry to achieve, particularly given the last two sets of circumstances.

Mr Wilson —Adding to that, if there is a consumer risk taker in the world of private health insurance, it is going to be the younger and more healthy person—certainly, young males, who think that at 25 they are—

Mr Rashleigh —Invincible.

Mr Wilson —invincible and that nothing is going to come their way in terms of bad and serious health concerns. If there is a very obvious group who might now reconsider their membership of private health insurance, it is young, healthy males.

Senator BOYCE —Which, of course leaves the higher users.

Mr Wilson —It has flow-on effect for those who remain.

Senator BOYCE —Have you done any modelling on what you would anticipate the effect of this move would have on your contributors if it were to go ahead?

Mr Wilson —We have not yet. We conduct consumer surveys on a regular basis, in which 12 of our 17 funds participate. I think part of that exercise now will be asking those who are already members of our funds what they are thinking about their private health insurance and whether some of the changes that have been mooted by government will have an impact upon their decision to stay, go, or decrease their cover.

Senator BOYCE —Would you have any sense of what percentage of your members would be affected in tier 2 or tier 3?

Mr Rashleigh —We have not done that modelling.

Senator BOYCE —Would you have the data to do it? BUPA did it by looking at Roy Morgan’s income levels and applying them. Would you have to do something similar? You would not actually have that income data, would you, for your members?

Mr Rashleigh —No.

Senator BOYCE —Mr Rashleigh, I have a technical question. You mentioned the administrative complexity of this and talked about a multiple of 10.

Mr Rashleigh —Yes.

Senator BOYCE —Can you explain what you meant by that?

Mr Rashleigh —It is just the number of multiples, if you take the three different levels and then multiply them across all aspects of your products.

Senator BOYCE —I see. Sorry, I still do not see where we get a multiple of 10 from. We have three tiers—

Mr Rashleigh —Three tiers, yes, but nine is probably a more correct figure. There are three potential levels in each of those three, so we have nine. I am sorry; I was rounding the figures. I apologise for that

Senator BOYCE —Rounding up is always a good thing. Now I understand what you meant.

Senator FURNER —I think you indicated correctly there is no way of ascertaining income data for your members in the variety of funds you have. What sort of people would the Transport Health Pty Ltd fund cover? I assume it would it be truck drivers—correct me if I am wrong.

Mr Rashleigh —Yes, largely speaking it would be—I do not like the terminology—blue collar workers and probably people at a lower socioeconomic level than that.

Senator FURNER —Are you able to inform us what sorts of companies they might be employed by?

Mr Rashleigh —That could go from the very large Fox organisation down to the small single owner-driver of trucks.

Senator FURNER —You could possible draw down information using that scenario—say, Fox or Toll—through an understanding of certified agreements and what drivers might be on on average. You would possibly be able to ascertain for that group of workers in your fund that people—

Mr Rashleigh —I guess you could do it. Theoretically, you could do it with teachers, but then the mix of each level of teaching grade would be confusing. You could probably do some very rough estimates, but they would be rough and potentially very misleading.

Senator FURNER —Yes, but you would at least be able to produce some sorts of figures.

Mr Rashleigh —Yes.

Senator FURNER —And you would also be able to get some information from some union bodies, in particular, about where their members wages are based, wouldn’t you?

Mr Rashleigh —We could, but I would be very concerned on two scores—one, as I said, the accuracy of the final numbers you came up with and, two, I would not like—and I can say that very openly in respect of my own fund—to be seen to be invading people’s privacy in any way whatsoever. Again, one of our concerns, which we have put to government and to the department, is that we do not want to be involved in any way in asking people questions which could constitute a violation of their privacy.

Senator FURNER —No, that is understandable. But in general, looking at the range of your funds, most of your holders are, if I can use the terms, middle income earners to professional income earners.

Mr Rashleigh —Yes, although we would have a reasonable mix. As BUPA alluded to in their submission, nearly 40 per cent of the insured population are people earning less than $48,000 a year. As I touched on before, we all need to exercise some caution in categorising private health insurance as belonging to the higher income-earning groups, because that is not necessarily the case.

Senator FURNER —No, that is right. In your submissions you refer to the Treasury’s projections of retaining 99.7 per cent of their membership. Are you able to draw any conclusion that your policyholders might possibly be considering exiting the fund as a result of these changes?

Mr Rashleigh —No, I do not think I can at this stage. Let me reassure you, Senator, if I have painted the gravest picture. Our actual performance on a day-to-day basis will be to give people incentives to retain their private health insurance. We will not be taking a dark Grim Reaper’s tale out into the world; in fact we will be selling them very good reasons for retaining their private health insurance.

Mr Wilson —We will not get a really accurate or decent feel for who is going to drop out or what number are going to drop out until the consumer starts to hear about this on a very regular basis. They will then start contacting the fund and asking the fund what it means for them and what impact it is going to have on them. It will be then that we will be able to get a fairly accurate view as to whether it is going to have a diabolical impact upon our funds or whether it is going to be more minor.

Senator BOYCE —It could even be when they start to do next year’s tax return.

Mr Wilson —Exactly

Mr Rashleigh —Or it could be the 2011 tax return, in June or July or August 2011 when we will get any real measurement.

Mr Wilson —That will be the time that the tax accountant says to the consumer, ‘Do you realise you can now do x, y, and z,’ or ‘you are not required to do this.’ That is when they will start making decisions.

Senator FURNER —In fact a number of submitters have indicated that there is a likelihood of very little exiting out of funds. One particular gentleman refers to it as the ‘endowment fund’ where people retain the insurance based on it being a necessity. They would not be game to let go their private health insurance, unlike some other forms of insurance. They may consider looking at other forms of insurance such as car insurance or household insurance and making changes or reducing some of the coverage in them. Would you concur with that at all?

Mr Wilson —I think that there is significant evidence that people are more inclined to hang onto their private health insurance than they are to other insurance matters in their lives. The question which we do not know the answer to it is: after you keep applying more and more disincentives how long can they hang on for? When will they reach that stage that they decide that this is no longer affordable for them and they make that decision to leave?

Senator FURNER —How long have you been established in terms of the practice for the range of funds you have here?

Mr Wilson —HIRMAA was formed in 1978, 31 years ago.

Senator FURNER —What has your evidence been over that time in terms of growth in the fund?

Mr Wilson —The restricted and regional funds which we represent have had healthy growth, largely, throughout that period. They were always impacted upon by various government changes until the real incentives came in after the 1996 election. There was an obvious decline in all private health insurance membership across the country and that impacted upon our funds as well. But during the course of the previous government and the introduction of a number of incentives, the overall industry membership rose significantly and our funds rose significantly if not somewhat above—

Mr Rashleigh —Marginally above the industry average, yes.

Senator FURNER —Just going back to your earlier statement about retention and particularly the point about younger people dropping out as a result of them thinking that they are 10 foot tall and bulletproof, what sorts of incentives will you be looking at to retain those types of people? We heard evidence yesterday based on young people getting pacemakers and I would be interested to hear what examples you might be able to alert us to—what sort of activities and claims young people are looking at—as a way of retaining them in private health insurance.

Mr Rashleigh —I am fearful that it may act as an incentive for people to bring in more exclusionary products. The difficulty with an exclusionary product—and we have all seen and read media coverage of unfortunate instances associated with exclusionary products—is that people take an exclusionary product within a certain age group, and it might exclude hip replacements, for example, and until their mid-40s that is probably a fairly reasonable exclusion to rationally look at. But people do not remember to change their product and they get to their mid-40s and all of a sudden it is not until they are hospitalised that they find that they are not covered at all.

Senator FURNER —Is that a case of the funds needing to market their product better in terms of keeping an eye on those sorts of things. I do not know whether you have the database or systems in place to alert people upon reaching that age bracket where they are susceptible to that type of illness or injury.

Mr Rashleigh —I think your point is a valid one. There are two issues: one is that, yes, probably the funds need to pay more attention to that sort of thing. I guess there are three issues. Three is that there are always exceptions to the rule. You are not meant to have a heart attack in your 30s but statistics will support the fact that people do and if you happen to be on an exclusionary product that excludes cardiac care of any description then you are likely to be confronted with a substantial bill. The third is the point that I made earlier in my discussion that people find health insurance difficult to understand anyway. I am not sure how carefully we construct our letters—whether they in fact draw the attention that they should—so we have a real problem with the consumer not absorbing the message that goes out there.

Senator FURNER —I have to agree with you on that point. This probably goes across the board for any type of insurance. You very rarely, certainly from my point of view, examine the fine detail until there is a claim that you are looking at to see whether you have a claimable item to get the insurance back.

Mr Wilson —To add to Mr Rashleigh’s answer, since the introduction of the new Private Health Insurance Act 2007, which introduced the concept of broader health cover, all of the HIRMAA funds are constantly looking at taking on new programs to be in addition to what people normally expected of their private health insurance so that they can get extra value, whether it be chronic disease management or some maternity programs. All of our funds are constantly looking for providers who can provide certain programs nationally. That is where the problem has been up until now, because this whole concept of broader cover is somewhat new. Until now there have not really been sufficient national providers of these services and programs, but that is increasing and our funds are looking to employ those programs and services so that our product is more attractive to the consumer.

Senator FURNER —You indicated that you are a non-profit organisation. Previous witnesses indicated that they actually deliver back to their fundholders initiatives on preventative illnesses and those sorts of things. Do you do the same with respect to your clients?

Mr Rashleigh —Yes, we do.

Mr Wilson —Yes.

Senator FURNER —Can you give us some brief examples of what you do.

Mr Rashleigh —Let me give you an example and, again, let me revert to my daytime job at Navy Health. Ten years ago—in fact, a little more than that now—we introduced an early discharge program. That was long before anyone had even dreamt up the term ‘broader health cover’. We saw it as being a distinct advantage for our members. But, again, particularly if you look at the younger members—where they have got younger carers at home—there is the ability to take advantage of an early discharge program where they can get home nursing for wound management, dressing changes et cetera to be able to recover in the comfort of their own homes. We have got maternity. The big program that the majority of our member funds are now looking at is mental health management programs. We are also looking at other programs relating to coronary care, diabetes et cetera. As my colleague Mr Wilson intimated, we have no shareholders to satisfy so any funds that we generate are poured back for the benefit of our stakeholders, who are our members.

Senator FURNER —The view has been all along throughout this inquiry about people dropping their ancillary matters. Do you have a position on that at all in terms of your fund holders?

Mr Rashleigh —I suspect that that would be the first cover that people would drop off. Because of affordability reasons, many would say: ‘We do not want to drop our hospital cover because there is enough media coverage about the problems being experienced within the public sector and we do not want to be exposed to those. But we will manage without our ancillary cover.’

It is also worth reporting that there was a very strong rumour—and I do not know its origin; I guess it would not be a rumour if I did—that, when the rebate was being reviewed, it was being reviewed particularly in relation to ancillary products rather than hospital products. Whether that was thrown out to test the waters, so to speak, and public reaction was such that they found that a lot more people than anticipated would drop their ancillary cover, I do not know. If somebody needs to downgrade I would suspect that that would be the first area that they would look at.

Senator FURNER —You also indicated an increase in administration matters dealing with particular information as a result of the changes to the funds. What occurred as a result of the Medicare changes—was there a need to increase your administration to deal with those changes?

Mr Rashleigh —No. Again, as I mentioned earlier in my address, because we have, largely speaking, a common software house and a dedicated platform that we work to, we are able to accommodate those changes into that platform. So they are absorbed technically as opposed to being absorbed by manpower.

Senator BOYCE —Would this be more complex, though?

Mr Rashleigh —I am sure it is going to be more complex. If you could rely on all your contributors nominating at which tier they stood, it would be somewhat less complex and you could probably accommodate a great deal of it within an IT platform.

Senator FURNER —But it has not been tested yet, has it?

Mr Rashleigh —No, it has not been tested. I guess most of my assertion is on the basis that getting people to communicate that sort of detail—

Senator BOYCE —But they need to know it to communicate it, too, Mr Rashleigh and, in fact, your income might vary through the year.

Senator FURNER —Exactly.

Mr Rashleigh —It might, or you might lose your job, be promoted or get an unexpected incentive. There are enormous complications which in our discussions with the department and the ATO to date have not been as broadly acknowledged as their impact will be.

Senator FURNER —Lastly, DoHA indicates that there is a likelihood of growth as a result of the Medicare levy surcharge—that about 130,000 people, as a result of the change to the surcharge, will consider taking up private health insurance. Do you have any position on that at all?

Mr Rashleigh —I know we had a combination of carrot initiatives and stick initiatives—that was the stick initiative. It has clearly had some impact; I do not think it has had a big impact. I am not sure how you could, by any scientific method, establish what sort of impact it would have. We have tried very hard since 1998, when that component of the legislation was introduced, to alert our members to the penalties that may exist if their income level is X and they do not have private health insurance. Again, I do not know—and I am not trying to apportion fault here—whether that message has been clearly received.

CHAIR —Mr Wilson and Mr Rashleigh, you will receive a copy of the Hansard. If there is anything you think you should have said or would like to add please be in contact with the committee. Thank you very much.

[2.04 pm]