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Health Legislation Amendment (Gap Cover Schemes) Bill 2000
Bills Digest No. 134 1999-2000
Health Legislation Amendment (Gap Cover Schemes) Bill 2000
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any o fficial legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
Health Legislation Amendment (Gap Cover Schemes) Bill 2000
Commencement: The Act commences on Proclamation or six months and one day after Royal Assent, whichever is earlier.
The purpose of the Health Legislation Amendment (Gap Cover Schemes) Bill 2000 is to enable the intr oduction of private health insurance policies which limit the out-of-pocket costs faced by contributors and do not require formal contractual agreements between health insurance funds and medical practitioners.
The issue of the 'gap' between fee s charged by medical practitioners for in-hospital procedures and the combined Medicare rebate and refund from private health insurance funds has long been of concern to contributors and non-contributors alike. The Explanatory Memorandum to the Health Legislation Amendment (Gap Cover Schemes) Bill 2000 estimates the cost of the 'gap' at around $200 million in 1997-98 for contributors to private health insurance. (1)
Private health insurance policies offering limited or no out-of-po cket costs for contributors have been possible since 1995 following the passage of the Health Legislation (Private Health Insurance Reform) Amendment Act 1994 (colloquially known as the 'Lawrence legislation/amendments', after the then Minister for Health). This legislation, in part, enabled health insurance funds to make payments for medical services above the Medicare Benefits Schedule fee where an agreement was in place between the fund and the doctor (Medical Purchaser-Provider Agreements). The legislation also permitted agreements between hospitals and health insurance funds (Hospital Purchaser-Provider Agreements) and between hospitals and doctors (Practitioner Agreements). Amendments to this regime were passed in 1998 ( Health Legislation Amendment Act (No 2) 1997) which aimed to address some of the concerns held by the medical profession about the agreements.
While most health insurance funds have been successful in negotiating with most hospitals to achieve limited or no out-of-pocket hospital costs for their contributors with appropriate cover, only limited success has been achieved in relation to medical charges. Most medical practitioners and the Australian Medical Association (AMA) have been, and remain, implacably opposed to the existing system of agreements as a means of limiting out-of-pocket costs for contributors to private health insurance. Their opposition has tended to centre on a perception that the existing system permits health insurance funds to interfere in the doctor-patient relationship. The more flexible environment which the Health Legislation Amendment (Gap Cover Schemes) Bill 2000 proposes to create will offer the profession the opportunity to demonstrate that it is serious about addressing the issue of the medical ‘gap’.
The AMA strongly supports this legislation. In a media release following Federal Cabinet's approval of the legislation, AMA Federal President, Dr David Brand, said that:
…the move would result in gap insurance products that would meet with much greater acceptance from doctors…this legislation, once approved by Parliament, will help get Australia off the road to managed care. It is a major breakthrough for patients, for the health funds, for the medical profession and for the quality of care we can provide. (2)
The Explanatory Memorandum to the Bill states that "the views of all relevant stakeholders have been canvassed. Health funds and their representative bodies, peak medical groups and consumer groups all support the preferred Option 4" (gap cover schemes). (3)
Item 1 of Schedule 1 amends the Health Insurance Act 1973 in order to allow the automatic assignment of Medicare benefits. Proposed subsection 20A(2A) provides that where:
- a Medicare benefit would be payable to a person in respect of a p rofessional service rendered to a patient receiving hospital treatment; and
- the person entered into an applicable benefits arrangement with a health fund which covers (wholly or partly) the person’s liability in relation to professional services; and
- the professional service is covered by a gap cover scheme approved by the Minister for Health,
then the person will be deemed to have assigned their Medicare benefits to the fund or if the gap cover scheme otherwise provides, to an approved billing agent, the hospital or a prescribed person.
According to the Explanatory Memorandum this amendment ‘frees the patient from the need to claim the benefit directly, and allows a consolidated payment incorporating the Medicare and private insurance benefits to be made to the practitioner.’ (4)
Items 3, 4, 5 insert definitions of the terms ‘gap cover scheme’, ‘known gap policy’ and ‘no gap policy’ into the National Health Act 1953 (NHA).
A ‘gap cover scheme’ is a scheme prepared by a fund where the fund can offer no gap or known gap policies. A ‘known gap policy’ is a contract of insurance entered into by a fund that covers the insured for all but a specified amount or percentage of the cost of treatment and professional attention. A ‘no gap policy’ is a contract of insurance that covers the insured for the full cost of hospital treatment and associated professional attention.
Item 6 inserts a new Division 4A into Part VI of the NHA which deals with gap cover schemes. The new division essentially empowers the Minister to make appropriate regulations to facilitate the operation of gap cover schemes.
Proposed subsection 73BDD(2) deals with the requirements of a gap cover scheme. Funds may apply to the Minister for approval of such a scheme. A scheme will not have any effect unless the Minister has given approval.
Proposed subsection 73BDD(5) states that the regulations must provide for:
- the form and content of, and the manner of dealing with, applications for approval of such schemes
- criteria to be taken into account by the Minister in deciding whether to approve a scheme (5)
- the power of the Minister to impose and vary conditions on the operation of schemes.
The regulations must also specify that the Minister must be satisfied that the operation of the gap cover scheme wi ll not have an inflationary impact ( proposed subsection 73BDD(6) ).
Any regulations made by the Minister may be disallowed by either House of Parliament under section 48 of the Acts Interpretation Act 1901 .
Proposed subsection 73BDD(3) makes clear that schemes must comply with competition law (ie the Trade Practices Act 1974 and the Competition Codes of the States and Territories). The section means that schemes will have to be designed in such as way as to ensure that they do not result in agreements which restrict dealing or affect competition, fix prices or involve the misuse of market power. In a statement endorsing the proposals contained in this Bill, the AMA acknowledged that strong adherence to the AMA’s list of fees in a gap cover scheme could raise trade practices concerns. (6) It is not clear whether the Minister will seek the advice of the Australian Competition and Consumer Commission on the issue of the compliance of a particular scheme with competition law before granting his or her approval.
Arrangements under a gap cover scheme do not capture agreements of a formal contractual nature under the NHA ( proposed subsection 73BDD(4) ). As noted above medical purchaser-provider agreements and practitioner agreements currently facilitate medical gap cover at the moment. However as the Minister noted in his second reading speech, parts of the medical profession are of the view that these agreements have formal contractual requirements which are ‘completely unacceptable.’ (7)
Regulation making power is also bestowed by proposed section 73BDE. These provisions cover the operation of gap cover schemes after Ministerial approval has been given.
The regulations must state that health funds are required to provide the Minister with an annual report on the operation of the gap cover scheme and to send a copy of the report to the Private Health Insurance Administration Council - the industry regulator ( proposed subsection 73BDE(2) ).
In addition, these regulations may also provide for:
- periodic review of the schemes
- the power of the Minister to revoke such schemes
- the capacity of funds to seek to vary the schemes or conditions, and
- the review, under the Administrative Appeals Tribunal Act 1975, of the decisions of the Minister approving or revoking gap cover schemes or imposing conditions on such schemes ( proposed subsection 73BDE(4) ).
Item 7 expands the functions and powers of the Private Health Insurance Administration Council under section 82 to include receiving reports about gap cover schemes and advising the Minister on the operation of those schemes.
Currently, health insurance funds may refund more than 25 per cent of the Medicare benefits schedule fee where a medical practitioner’s charge for the service is greater than the schedule fee and a medical purchaser-provider agreement (MPPA) is in place between the fund and the practitioner.
Item 8 will allow a fund to pay out a greater amount if the service is rendered under a gap cover scheme. As with the present MPPAs, the item will permit a health fund to pay the difference between the Medicare rebate and the total cost of the service.
The greater availability of gap cover schemes will be of benefit to consumers, both contributors and non-contributors. The Expla natory Memorandum discusses in some detail the impact on contributors of the measures in the Bill.
The Explanatory Memorandum points to a range of benefits for contributors, but it can also be argued that while the measures contained in this Bill are designed to assist contributors and prospective contributors, the Bill suffers from a similar problem to the 1995 legislation. That is, the schemes it permits will be designed by and for providers (medical practitioners) and payers (health funds) and approved by the Minister for Health and Aged Care, in order to remedy a problem faced by consumers (contributors). Consumers will have increased choice but the choice is likely to be one of continuing to pay out-of-pocket medical costs through the policies currently available or to pay (the likely) higher premiums for the increased cover offered by the new gap cover schemes. The Explanatory Memorandum to the Bill states that all stakeholders have been consulted on the Bill, including consumer groups.
Further possible concerns for the consumer arise from the flexibility of the proposed arrangements. For example, what sort of consumer protection regime is envisaged? Will a health insurance fund guarantee the no gap or known gap if a medical practitioner decides to walk away from the arrangements for a particular patient/procedure? What sanctions will deter practitioners from acting in a manner likely to disadvantage contributors? The Private Health Industry Ombudsman would be likely to have a role here. It is possible also that the criteria for the establishment and approval of the gap cover schemes, which are to be specified by regulation, may deal with some or all of these consumer issues.
The proposed gap cover schemes will most likely appeal (in the first instance at least) to existing members who hold top cover. Contributors with lower levels of coverage could be faced with a significant premium increase if they wished to upgrade to the new top cover, although the 30 per cent rebate may be a factor in influencing the perception of contributors about the relative cost of premiums. In addition, the 'gap' is not necessarily of concern to all contributors because it only becomes a reality when a contributor undergoes a hospital episode and receives medical treatment.
Over time, the perception of consumers (both insured and uninsured) of private health insurance's value for money may change, but this is unlikely to be a rapid process. According to the latest private health insurance survey by the Australian Bureau of Statistics, uninsured people are concerned about the 'gap' but list their greatest concern as the cost of private health insurance. (8) As this survey was conducted prior to the introduction of the 30 per cent rebate (but during the previous means tested incentives scheme) it is possible that there has been a change already in the community's perception of private health insurance's value for money.
The introduction of new, more flexible, arrangements for the provision of gap cover schemes should be a 'win-win' situation for all participants in the private health insurance industry. It may mean, for example, that more people are attracted to private h ealth insurance or it may mean the difference between a contributor deciding to remain covered or dropping out. However, the success or otherwise of the proposed measures will hinge on the negotiating ability of the health insurance funds and the good faith of the medical profession. The outcome of negotiations to limit the out-of-pocket medical costs faced by contributors, particularly for those procedures where very large out-of-pocket costs have become the norm, will determine the uptake of the new policies, as will the extent of any premium increases.
The Explanatory Memorandum to the Health Legislation Amendment (Gap Cover Schemes) Bill 2000 states that the Bill "will have no significant impact upon the finances of the Commonwealth". (9) However, if the measures contained in the Bill lead to a greater number of people contributing to private health insurance and/or existing members upgrading their cover, there will inevitably be flow-on costs to the Commonwealth through the 30 per cent rebate arrangements.
1 Health Legislation Amendment (Gap Cover Schemes) Bill 2000, Explanatory Memorandum , p. 8 .
2 Australian Medical Association, 'Health Insurance Breakthrough', Media Release , 15 December 1998.
3 Health Legislation Amendment (Gap Cover Schemes) Bill 2000, Explanatory Memorandum , p. 10 .
4 Explanatory Memorandum p. 13.
5 The Explanatory Memorandum suggests that the criteria will require the Minister to consider factors such whether:
the scheme is a genuine scheme that would reduce or eliminate gaps;
the scheme contains proposals under which patients are offered informed financial consent, that is, a contributor to a fund is informed of any amounts that they can reasonably be expected to pay in respect of the professional service, including the amount of any Medicare benefit, health insurance benefit and the amount (if any) that the contributor may be liable to pay for the professional service;
the scheme provides for simplified billing arrangements;
the fund can demonstrate the scheme will not have an inflationary impact;
arrangements are made by the fund to ensure that contributors will not be disadvantaged by revocation of the scheme;
the scheme requires all parties to maintain the professional freedom of medical practitioners involved in the scheme, within the scope of accepted clinical practice, to identify appropriate treatments in the rendering of professional services to which the scheme applies.
6 Australian Medical Association, 'Bridging the Gap without Contracts', Health Economics , April 1999.
7 The Hon. Dr Michael Wooldridge, Second Reading Speech , House of Representative, Debates , 17 February 2000, p. 1367 0.
8 Australian Bureau of Statistics, Health Insurance Survey June 1998, Australia (Cat No. 4335.0), 30 September 1999, p. 23 .
9 Health Legislation Amendment (Gap Cover Schemes) Bill 2000, Explanatory Memorandum , p. 2 .
Paul Mackey and Mark Tapley
13 March 2000
Bills Digest Service
Information and Research Services
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