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Final element of medical indemnity legislation introduced.



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Media Release

The Hon Tony Abbott MHR Minister for Health and Ageing

13 May 2004 ABB060/04

Final element of medical indemnity legislation introduced

The Australian Government today introduced into Parliament legislation for the government-guaranteed medical indemnity Run-off Cover Scheme (ROCS) to come into effect from 1 July 2004.

“Once this legislation is passed the government’s full medical indemnity package will be in place. Doctors will be able to practice with affordable medical indemnity insurance, and retire safe in the knowledge that future claims against them will be met without any further premium payments,” the Minister for Health and Ageing, Tony Abbott, said.

“This was one of the key recommendations of the Medical Indemnity Policy Review Panel which reported to the government last year, and I am pleased to say that the government has delivered in full.”

The cost of the scheme will be incorporated into doctors' normal annual premiums through a charge on insurers passed on to members uniformly.

The scheme can only be terminated in the future with 12 months notice and, if the government does not provide at least an equivalent replacement arrangement, doctors will be refunded their total ROCS contributions plus interest.

The government will fund the liabilities of doctors who have already retired (the "start up" liability) and will meet the costs to the Health Insurance Commission of administering the Run-off Cover Scheme.

“The medical profession and the medical indemnity insurance industry worked closely with the government to develop and implement a practical and workable solutions to ensure doctors can continue to work with confidence.”

The government’s medical indemnity package is worth $560 million over four years, including more than $100 million a year in ongoing funding for the High Cost Claims Scheme and the Premium Support Scheme.

A summary of the latest legislation is attached.

Media contact: Kate Jordan, 0417 425 227

Attachment

Run-off Cover Scheme

The Run-off Cover Scheme (ROCS) will provide security to practising doctors by ensuring that they will have access to indemnity cover on their retirement without any need to pay a premium at that point. ROCS will also cover doctors who die, become permanently disabled, go on maternity leave, or leave the private medical workforce for more than three years. The scheme will also assume the estimated $40 million cost of liabilities arising from claims that have not yet been notified for an estimated 10,000 doctors who have already retired.

While doctors used to have access to free retirement cover under claims incurred medical indemnity arrangements, changes to the international reinsurance market have led insurers to only offer cover on a claims made basis. This would require doctors to continue to purchase insurance into retirement to cover claims that might emerge once they had retired. The ROCS will remove this requirement by providing cover free of charge when doctors retire.

Under the scheme, insurers will issue ROCS contracts to doctors who meet the eligibility criteria, and as claims emerge they will be managed by insurers as part of their normal business. Once claims are resolved the Government will reimburse insurers for damages awards and associated costs.

Preliminary actuarial analysis suggests that the scheme will accrue liabilities of around $20 million annually as successive cohorts of doctors become eligible for ROCS.

The government will recover these costs through a charge on premiums received by medical indemnity insurers, set at 8.5 per cent for those insurers issuing renewal notices in coming weeks for the 2004-05 financial year.

For the insurer which operates on a calendar year renewal basis (AMIL) the charge will be set 1.0625 per cent higher for the 2005 calendar year and the next three years of the scheme. This will make up the shortfall in funding that would otherwise result from AMIL not making a contribution for the period 1 July to 31 December 2004.

The government does not expect that premiums will rise by the full extent of the charge on insurers, as premiums already include an element for funding DDR (death, disability and retirement) cover which will now be assumed by ROCS. However, premiums do not currently provide for the costs of run-off cover for doctors taking maternity leave or retiring before age 60.

The legislation provides for the scheme to be wound up with twelve months notice at some future date. The government intends that this would only happen if the insurance market developed to the point that it could make adequate provision for retirement cover, and a government scheme was no longer required.

The medical profession has raised concerns that doctors who had implicitly contributed to ROCS during

their working lives but not become eligible for the scheme before it was wound up would be disadvantaged. The government acknowledges these concerns, and the legislation provides that if the scheme is wound up and not replaced by an equivalent or better alternative, doctors who have contributed will have access to a refund of their contributions with interest to purchase alternative indemnity cover.

Exceptional Claims Scheme

The legislation also provides for regulations to be made to extend the scope of the Exceptional Claims Scheme (ECS) to cover treatment provided by Australian doctors accompanying Australian sport teams and cultural groups travelling overseas. The ECS provides 100 per cent government support for claims that exceed a specified threshold (currently $20 million).

The government believes it is important that doctors who are covered by their indemnity insurers for providing treatment overseas should be able to access the ECS in the same way they would be able to access the ROCS for domestic claims.