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Health Legislation Amendment Bill (No. 1) 2001
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Health Legislation Amendment Bill (No. 1) 2001
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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HEALTH LEGISLATION AMENDMENT BILL (NO. 1) 2001
SUPPLEMENTARY EXPLANATORY MEMORANDUM
Amendments to be Moved on Behalf of the Government
(Circulated by the authority of the Minister for Health and Aged Care,
the Hon Dr Wooldridge MP)
HEALTH LEGISLATION AMENDMENT BILL (NO 1) 2001
This amendment to Health Legislation Amendment Bill (No.1) 2001 (the ‘Bill’) will add a power to the National Health Act 1953 (the ‘Act’) to enable the Minister for Health and Aged Care (the ‘Minister’) to disallow private health insurance premium increases on the grounds of public interest. The new power will also include two accountability mechanisms: the new power will not be delegable and any declaration made under the new power will be tabled in Parliament.
Over recent years the Government has initiated a number of reforms to introduce greater balance between the private and public health sectors. In particular, the Government introduced the 30% Rebate and Lifetime Health Cover and broadened legislation to allow funds to pay benefits above the Medicare Benefit Schedule without the need for contracts. These initiatives have resulted in a significant growth in the membership of health insurance funds (‘health funds’).
The 30% Rebate, in particular, has helped to make private health insurance more affordable for all Australians who choose private cover.
The gains made by these initiatives in providing a better balance between the public and private sectors, providing more choice for consumers, more affordable private health cover could be jeopardised by premium increases not in the public interest.
Financial Impact Statement
The Amendment will have no significant impact upon the finances of the Commonwealth.
REGULATION IMPACT STATEMENT
Health funds specify their premium levels for particular insurance products in health fund rules. A change to any health fund rule, including premium rates, is subject to Ministerial scrutiny according to certain criteria.
The Act requires private health insurance funds to notify the Secretary of the Department of Health of changes to the funds’ constitution, articles of association and the rules: subsection 78(1). This includes changes to premiums.
Subsection 78(4) of the Act provides that where the Minister may declare that the change shall not come into operation if he is of the opinion that such a change:
(a) Would or might result in a breach of the Act or of a condition of registration of an organisation;
(b) Imposes an unreasonable or inequitable condition affecting the rights of any contributors; or
(c) Might, having regard to the advice of the Private Health Insurance Administration Council (PHIAC)  , adversely affect the financial stability of a health benefits fund.
Currently, the Minister assesses all fund premium increase notifications in accordance with the above conditions. However, there is no scope for the Minister to take into account broader public interest grounds under these conditions. For example a broader ground might be the potential for premium increases to undermine public confidence in the private health industry.
Following the recent large increase in the participation levels in the private health industry after the introduction of Lifetime Health Cover in July 2000 there is a public expectation that the resulting improvement in the risk profile of insurers should negate the need for premium increases in 2001 which are not absolutely necessary for the ongoing viability of the health fund concerned. This expectation is also strengthened because the private health industry is already highly regulated and monitored in terms of ongoing viability and solvency.
To allow the Government to determine that a premium increase that is contrary to the public interest shall not come into operation.
Option 1: Market forces determine premium rates - maintain status quo
Allow health funds to set their premiums within the current regulatory environment and allow competition between funds to control premium levels.
Option 2: Enable the Minister to take account of the public interest when considering applications for premium increases
The Minister would take account of public interest when considering whether or not to permit applications for premium increases. This option would require a change to the Act . This option will expand the existing powers of the Minister to disallow rule changes from funds. It allows all factors relevant to public interest to be considered by the Minister when considering changes to rates of contribution by contributors.
The groups primarily affected are:
· the public;
· health fund members;
· private health insurance funds; and
· the Commonwealth Government.
Option 1 Market forces
The major potential cost of this option is that if a small part of industry were to impose a premium increase not in the public interest, it may undermine confidence in the private health insurance industry as a whole. Additionally, there exists a public expectation that Government can already prevent such behaviour.
The industry has already changed its commercial practices in order to maintain public confidence in the industry and therefore recognises the importance of maintaining public support and confidence: in 1998 Government and Industry came to an agreement that premiums would only be changed once a year to counteract public perception that premiums were always increasing.
While members can change funds in response to premium increases many members are reluctant do so because choosing another fund and product may be difficult and long term members feel loyal to their fund and they may lose any loyalty bonuses.
The benefit of this option is premium rates are subject to market forces. Therefore, the rest of the industry should act as a moderating influence on funds wishing to increase their premiums.
Option 2 Public interest power
The Government has a major role in the private health insurance industry as a regulator, through the 30% Rebate scheme, and in terms of national health policy. As such there is a strong public expectation that the policyholders should be protected from premium increases not in the public interest. The direct link between premium increases and the concurrent increase in public expenditure due to the 30% Rebate strengthen this expectation. 
This option benefits fund members by protecting them from premium increases not in the public interest. It also protects the industry as a whole against any individual fund whose actions might undermine public confidence in private health insurance industry, which in turn benefits the public health sector by maintaining an appropriate balance between public and private health sectors.
The Act provides funds with a safeguard to ensure they remain viable through solvency and capital adequacy standards. These standards ensure both financial soundness of the health funds in a going concern sense and provide adequate capital for the conduct of the health insurance business. These existing provisions ensure that the Minister could not make a public interest case that overrode advice received from PHIAC regarding the specific solvency and viability status of the fund concerned.
Although it is expected only very few funds would ever be affected by this option there is a high risk in not having this change come into effect, as outlined above. It is expected that the existence of this change to the legislation would be a sufficient deterrent to any fund considering imposing a premium increase not in the public interest.
Relying on market forces, option 1, is no longer appropriate because of the major interest the Government has in the well being the private health sector and the potential impact it’s operations have on the health system as a whole. A minor change to an existing regulatory framework would benefit consumers, the public generally and the private health industry as a whole. The preferred option is to amend the Act to allow the Minister to disallow premium increases in the public interest. It is not expected that this power would be used often but its presence in the Act will itself act a deterrent to individual funds making premium increases not in the public interest. Administratively the option will be incorporated into the existing premium increase assessment process.
Implementation and Review
The preferred option will be implemented by a change to existing legislation. Funds will be informed of the change via a health fund circular  . Administratively this change will have a very minimal impact both for funds and Government in that no addition process is required to enable the option to function.
The application of this provision would be reviewed after the next set of premium increases due to occur in March 2002.
NOTES On CLAUSES
Amendment (1) - Application
This amendment provides that the new power to disallow premium increases will commence on royal assent and will apply to all proposed changes notified to the Secretary before the commencement of these amendments that have not already come into effect.
Amendment (2) - Schedule
This amendment inserts a new Schedule 4 in the Bill. Schedule 4 amends the Act by providing the Minister with a new power to declare that a premium (rate) increase will not come into operation if the Minister considers that the increase would be contrary to the public interest.
Item 1 inserts a paragraph in subsection 6(1) of the Act to ensure that the Minister’s power under new subsection 78(4A) is not delegable.
Item 2 inserts new subsection (4A) and (4B) in section 78 of the Act to establish the power to prevent rate increases, and to ensure that any declaration made under the new power in subsection (4A) is tabled in Parliament.
Items 3 to 6 make consequential amendments to section 78, which are the result of the creation of the new power in subsection 78(4A):
· Item 3 amends subsection 78(5) to ensure that the Secretary notifies PHIAC of any declaration under new subsection 78(4A);
· Item 4 amends subsection 78(6) to ensure that the Secretary notifies the health fund that it is not permitted to increases its rates;
· Item 5 amends subsection 78(7) to require a health fund to notify its contributors where the Minister has not made a declaration under new subsection 78(4A) preventing a rate increase from occurring; and
· Item 6 amends paragraph 78(9)(b) to note that the report to Parliament required under subsection 78(8) does not have to refer to rates where the Minister has made a declaration under new subsection 78(4A) to prevent a rate increase.
 PHIAC monitors the financial activities and viability of health funds.
 The 30% Rebate funded by the Government provide policyholders with a 30% rebate on the full cost of their private health insurance premiums.
 This is the normal process used to inform the private health insurance industry of changes in government regulations.