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Thursday, 25 March 1999
Page: 4384


Ms MACKLIN (11:08 AM) —The Health Legislation Amendment Bill (No. 3) 1999 that we are debating today is a further step in the government's piecemeal development of policy on the private health insurance industry. This bill makes a number of amendments to the National Health Act 1953. The objective of the government is to address various concerns raised in the Industry Commission's report No. 57 into private health insurance by adding to the powers and functions of the Private Health Insurance Administration Council, commonly known as PHIAC.

I refer the government to the Industry Commission's conclusions on page 364 of that report, where it stated:

The over-riding purpose of any regulatory regime should be the protection of consumers and not the protection of inefficient funds.

The commission made three other points which are relevant to the bill before us. It recommended that there was a need to separate the regulator from the policy making bureaucracy, a need to exclude representation by stakeholders in the management of the regulator and a need to hire specialist skills.

Tacked onto the end of this bill there is a large number of amendments to the Private Health Insurance Rebate Scheme that everyone will recall was rushed through parliament last December. In fact, there are no fewer than 19 pages of amendments to the original bill which are necessary to deal with a wide range of what the government probably sees as administrative glitches and unforeseen consequential problems. With the original bill being only 48 pages long, it is pretty remarkable in that the amendments are nearly half the length of the original. I will come to the problems associated with these later.

This bill is the third piece of legislation brought forward by this government as part of what we could call `its obsession' with private health insurance. Any international visitor coming to this country would be excused from thinking that private health insurance was the dominant source of finance within Australia's health sector—and it is not. Members opposite might be interested to know that, until last year, member contributions through health funds amounted to just over $4 billion a year—and I stress that that is under 10 per cent of the total cost of running the health system.

The ideological commitment of this government to propping up the private health insurance industry is based on the view that, as money is drawn in through private funds, the public hospital system will be relieved of pressure. So far, the government's actions have proved completely counterproductive to this goal. If there is no substantial increase in the number of people with health insurance—and this is the important thing—


Mr Truss —There will be.


Ms MACKLIN —And the Minister for Community Services opposite says that there will be—the result will be that private contributions to funds will have slumped to around $3 billion, or just seven per cent of the total health bill. Further, the government will have picked up the enormous costs of the rebate. Estimates are that it will be spending up to $1.7 billion a year to further meet a cost which private contributors were previously meeting. In other words, the proportion of the health system not paid for by private health insurance premiums will have increased under this government from 90 to 93 per cent. Talk about getting it the wrong way around! In the meantime there is no evidence of a reduction of pressure on the public system; such reduction, of course, could have been achieved for far less than the government has spent on the private health insurance rebate.

I would emphasise a comment I made in the House just a couple of weeks ago. That is, rather than being the saviour of the health insurance industry, this government is turning out to be its worst enemy through its inconsistent and ill thought out attempts to prop up the industry without addressing its glaring and deep faults.

I just want to remind the government of what has been achieved so far with the 30 per cent rebate. As we approach the end of the third month of the rebate, the government has now handed out over $300 million to existing health fund members who have been queuing up to get their money. Private comments by the funds indicate that only a small number of new members have been joining up for hospital coverage. For example, Medibank Private has reported that only 6,000 new members signed up for hospital insurance in January, and that fund represents a quarter of the market.

The government's very modest target—given the money being spent—of 33 per cent of the population having private health insurance by the end of this year requires 500,000 new members to take out health insurance. The industry gave sworn evidence only three months ago that it believed the rebate would fix all its problems in attracting over 2½ million new members and boosting the participation rate to 45 per cent. Of course, the issues in private health insurance are gaps and value for money. But this government seems to be deaf to the public who are voting with their feet, deserting the funds and supporting Medicare.

This minister seems unable to come to terms with these facts and instead simply is hoping that the industry itself will one day sort out its problems. One significant benefit of the bill we are debating is that the power of the Private Health Insurance Ombudsman to examine complaints about the payment of the rebate is to be confirmed. I understand in practice this is already happening and that there was a steady stream of complaints from people to that ombudsman in January and February of this year. It is certainly the case that electorate officers from both sides of the House around Australia have received a wave of complaints from people who have been misled by the government's advertisements for the 30 per cent private health insurance rebate. This was because the government's advertisements conflicted with the advice the insurance funds were giving to members and did not fully disclose the conditions attached to the rebate. Many people found that the rebate produced only a small reduction in their actual health insurance bill because the government abolished the previous means tested assistance for pensioners and low income families. Just as the opposition warned, the people who need it the most got the least. Instead of the advertised cuts of up to $600 many people found that they got as little as $100 extra off their bill.

Other problems that have been complained about include that the funds wrote to their members saying that the 30 per cent rebate was not available to people who had paid for their insurance in advance. The funds extended the term of insurance rather than providing a reduction in premiums. Funds charged the full rate of insurance in January because they had been unable to alter their computer programs and access to cash rebates was delayed for many members until mid February. So the 30 per cent rebate turned out not to be 30 per cent for many people and not available as a rebate.

This confusion was added to by the government's advertising which failed to explain that many people would get much less than 30 per cent off their current bills and failed to mention that the rebate did not apply to unregistered funds. The amendments in this bill attempt to paper over some of these cracks and fix up the administrative procedures associated with the rebate. I will return to the detail of that in a moment.

First of all, I want to address the substance of the bill which concerns the Private Health Insurance Administration Council. This body—PHIAC—was established in June 1989 as an essentially administrative and advisory body when a new part 6AA was inserted into the National Health Act. The functions that had previously been the responsibility of the then Department of Human Services and Health were transferred to the new council. Initially the council was responsible for mainly procedural matters and giving policy advice. This was reflected in the membership of the council which included various representatives from the private health funds. There have since been several amendments to its legislation as PHIAC has slowly evolved into a more independent entity. Additional functions were given to it in 1995 including the dissemination of information about private health insurance.

In 1998 further changes were made conferring more functions and changing the structure from an advisory council to an independent board. As a result the insurance funds representatives were removed from the council in July 1998. Yet further changes were proposed in the Health Legislation Amendment Bill (No. 4) of 1998 which is currently before the parliament. The government has proposed to divest its responsibility for approval of premium increases to PHIAC which it represented as being an arms-length industry regulated body suited to this task. But we actually happen to just be debating this bill now. The opposition did not support this move when it was debated in the House of Representatives a couple of weeks ago and we have not supported it in the Senate because at this stage PHIAC is not properly constituted as an independent regulator and because the government must retain accountability for premium increases because of the huge amount of public funds it has now poured into the 30 per cent health insurance rebate. I am pleased that the Senate has agreed with this view and has rejected these amendments.

Once again, the government has put the cart before the horse because it lacked an overall plan and this lack of an overall plan is also evidenced by the toe-dipping approach that we see here to the reconstituting of PHIAC. There needs to be a much more fundamental review if it is really to be turned into the sort of body which would have independent responsibility for pricing, prudential control and overall regulation of a $4 billion industry.

The proposals that are now before us in this bill will leave the organisation as it is but extend PHIAC's responsibility for regulating the industry and remove the direct involvement of the minister and the department except for policy matters. Schedule 1 of the bill will transfer further functions and powers from the Department of Health and Aged Care to PHIAC to enhance its role as an industry regulator and this includes the power to register funds, cancel registrations and approve mergers.

The opposition does support the thrust of this approach but we are concerned about the ad hoc way in which PHIAC has developed as an organisation. A better approach would have been to establish a strong and clearly focused private health insurance regulatory authority with responsibility for supervision of the industry. I will return to this alternative when I discuss the prudential regulatory provisions contained in schedule 2.

Schedule 1 includes a range of other amendments which impact on the expanded functions of PHIAC, and I want to touch on those briefly. Firstly, the bill will require all funds to incorporate as companies. Members of the House may be surprised to find that at present three of the private health insurance funds are unincorporated associations and others are incorporated but do not have full company status under the Corporations Law. This provision in the bill is highly desirable as it will ensure that all funds are run in a professional way subject to the normal checks and balances that fund members would expect to protect their interests.

Another requirement is that registered companies must be constituted so that health insurance is their primary purpose and so payment by health funds is to be used only for health insurance business purposes. This too reflects the desirable evolution of the funds into organisations which are focused on their principal task. The bill also requires business decisions to be taken giving priority to the interests of the contributors to the funds. The bill goes further to allow the courts to set aside transactions which manifestly are not in the interest of contributors. Finally, the bill creates a new civil penalty regime for directors where serious contraventions have occurred without taking reasonable steps to avoid them.

These are all appropriate measures to establish a more accountable industry, and they have the support of the opposition. However, they continue the pattern, as I say again, of piecemeal change to the evolution of PHIAC. What we would like to see is a fresh start. The degree of government regulation of the industry and the heavy subsidies from the government are two powerful reasons why there should be a strong and independent regulatory authority for the private health insurance industry.

The government should look at a broader approach to carve out a clear future for this industry in a manner which would complement Medicare, not constantly be in competition with it. A new strong industry regulator would be able to ensure that the funds become more professional and competitive with each other. It could establish proper prudential standards and enforce them. It could promote a more efficient industry by promoting mergers to create fewer but larger funds or groups of funds to negotiate collectively with hospitals and doctors. This would enable more control on costs. It could give a new focus on increasing accountability to consumers and delivering more consumer friendly products. Above all else, it should be exercising some discipline on the industry to contain costs, eliminate gap payments and offer value for money. This would be the road back to industry health, and it is time the government and the industry took on this task.

Schedule 2 of the bill strengthens the powers of PHIAC in regard to prudential regulation of registered funds. A number of funds have operated below the current minimum reserve requirements for some years. The bill proposes to strengthen PHIAC's oversight role and gives it power to order the winding up of a fund and the appointment of an administrator.

It is proposed that the current reserve requirement that funds hold two months operating funds be replaced with more relaxed solvency and capital adequacy standards. The new standards are to be adopted by the council after consultation with the Australian Government Actuary. PHIAC reported that, as of 30 June last year, five out of the 44 funds were in breach of these solvency standards. This was down from nine funds operating below the minimum requirements a year earlier and the funds involved are mainly small. However, it is unsettling that a significant part of the industry is operating close to the minimum requirements. During 1997-98 the average reserves in contribution months declined from 2.75 to 2.68, and the recent 22 per cent premium increase required by the Defence Health Benefits Fund, which came 15 months after an earlier 12 per cent increase, indicates how vulnerable some funds have become to changes in claim behaviour.

The opposition has several concerns about the proposed amendments which substantially alter the way that health insurance providers are prudentially regulated. While not necessarily opposed to the government's proposals, the opposition is concerned that we are being asked to vote on a bill on which we do not have the full information.

Specifically, schedule 2, part 1, item 2 of the bill repeals sections 73BAB and 73BAC of the National Health Act, which state that, as a condition of registration as a health benefits fund, the fund must at all times maintain assets of a value which exceed a minimum prescribed amount, which is defined as $1 million or a higher amount if prescribed. These set the minimum capital reserves that must be maintained by health benefits funds and the methods in which health benefits funds can seek exemption from the minimum levels. There are also a range of other conditions in the sections which a health benefits provider must meet in order to remain a registered organisation. This includes a provision for the minister on the advice of the council to set an additional amount which is deemed necessary.

What the current law is stating is that the parliament considers that a health benefits provider must meet certain capital adequacy and solvency standards if it wishes to be registered as a provider. It is a clear message from all of us—the elected representatives—that we expect certain standards to be met by these organisations if they wish to operate as legitimate health benefit providers.

In place of this very clear message—which is the current law on capital adequacy and solvency—the government is proposing in division 3A of the bill we are currently debating that solvency standards and capital adequacy standards can be set by PHIAC. In other words, the government is removing from the direct jurisdiction of the parliament the capacity for the parliament to set capital adequacy and solvency standards and is giving this power to the unelected board of PHIAC. This is a very substantial increase in responsibility and should be accompanied by a rethink on the make-up and range of skills needed on the board of PHIAC to carry out this role.

What the government is proposing is a fundamental shift in the capital adequacy and solvency setting arrangements for health benefit fund providers. I would like to emphasise that the opposition is not in-principle opposed to this type of arrangement. For example, we gave our in-principle support to this type of arrangement in the Managed Investments Act 1998 and went on to support the capital adequacy provisions proposed in the Senate for that act.

But, just as with the Managed Investments Act 1998, the opposition has concerns about this type of shift in capital adequacy and solvency arrangements. While we are prepared to let this bill go through the House unopposed, we do reserve our right to make amendments after an investigation of this issue by an appropriate Senate committee. I point out that when we did go through a similar process on the Managed Investments Bill in 1998 the government was most helpful in providing answers to opposition concerns and questions and was also helpful during Senate negotiations. I hope that the Minister for Health and Aged Care will consider adopting a similar approach should the need arise.

In terms of the capital adequacy and solvency standards required under the government's proposals, the bill will require PHIAC to establish in writing a capital adequacy and solvency standard which may set different standards for various health benefits organisations. In setting such a standard, PHIAC is required to consult with the Australian Government Actuary concerning that standard. These standards would be a disallowable instrument of the parliament.

Again I stress that the opposition is not fundamentally opposed to this type of arrangement. However, if we are to accept this we must first be assured that the standard set by PHIAC will be appropriate. Remember, PHIAC will be taking over a role which it did not previously have.

In addition, there are complex provisions of the Corporations Law that will apply if this bill passes in its current form. Will PHIAC have the expertise to deal with this new power? During the debate on the Managed Investments Act, the government encouraged the Australian Securities and Investments Commission to draft and release its proposed policy on how it would set and apply these capital adequacy standards for single responsible entities. The opposition would be interested in seeing a similar draft policy or document for PHIAC outlining the policies and practices that it will be adopting.

Another issue that should be considered is that PHIAC is only required to consult with the Australian Government Actuary on the issue of these capital adequacy and solvency standards. The Australian Government Actuary is an appropriate body to advise PHIAC on the issues of such standards. However, under this bill there is no obligation on the part of PHIAC to actually follow the Australian Government Actuary's advice. Without knowing how the government will strengthen PHIAC and ensure it has the necessary skills, I am still uncomfortable with the prospect that PHIAC has the power to ignore expert advice and decide its own standards.

If PHIAC is too close to the insurance funds or can be influenced by them, it could make a choice which was not in the best long-term interests of the industry. The board of PHIAC will also need to draw on a high level of expertise to assist them, and for this they will need appropriate staffing and funding to carry out the new roles that they have been given and to apply the new provisions of the Corporations Law. We would also like to know whether the health insurance funds have made the commitment to pay significant increased levies to provide the necessary resources.

The government did consider transfer of the prudential requirements to the Australian Prudential Regulatory Authority but decided to retain PHIAC's role on the grounds that the industry required specialist knowledge and—

more time to move to a more commercially oriented regulatory framework.

The basic issue is that health insurance is still a non-risk rated form of insurance and heavily regulated whereas, of course, general insurance is not.

So the opposition does accept the argument that private health insurance will be better off, at least in the short term, under a stand-alone prudential regulator. However, from my point of view, the government's arguments really do need to be further explained, and the question of the comparative powers and resources between APRA and PHIAC examined to see whether or not the Private Health Insurance Administration Council in its current form is capable of doing the equivalent job. The opposition can see a strong case for a new private health insurance regulatory authority with its own act and clear powers and functions, including the equivalent prudential functions that apply to the general insurance industry under the Australian Prudential Regulatory Authority.

Two other matters are dealt with in schedule 2. They are the replacement of the current judicial management and winding up arrangements with an administrative scheme. Court approval would still be required to force compliance with the winding up order. Funds can also elect to have a voluntary wind-up. Health fund contributors would be given priority in the winding up of funds and directors could be made liable for losses where they failed to show due diligence. The opposition supports both of these measures.

I want to turn briefly to schedule 3 of the bill which will make a number of changes to overcome problems that have arisen in the implementation of the 30 per cent private health insurance rebate. These changes are essentially administrative and reflect a number of defects in the 1998 legislation as well as unforseen complications. Among other things, these amendments will resolve doubts about who is the eligible person to receive the rebate by requiring the fund to issue receipts to the payee who may be a person other than the insured person—for example, a relative or an employer.

The Health Insurance Commission will be required to pay claims within 14 days. Fund members who have had a claim rejected will be able to seek a review by the Health Insurance Commission before having to go to the Administrative Appeals Tribunal as currently applies.

The bill removes the requirements for annual registration to reduce the amount of paperwork. This does introduce a risk of incorrect payments being made but equally makes administration much simpler. The minister will be able to revoke the registration of a fund as would be necessary to enforce Senator Harradine's amendments should a fund not offer no gap or known gap policies by July 2000. There will be a tightening up of other reporting and auditing requirements.

The opposition will agree to these amendments but once again highlights the hurried and, I would have to say, ill-prepared way in which the legislation for the 30 per cent rebate was prepared. These amendments would not have been necessary if the government had done its homework in the first instance.

I conclude by repeating that the opposition has considerable concerns about the way in which the government has tackled the regula tion of the private health insurance industry. I do hope that some of our concerns will be able to be addressed via a Senate committee. It is certainly my view that rather than taking this piecemeal approach to the long-term role of PHIAC it would be much better for the government to start afresh and get a proper regulatory authority for this very important industry. The opposition is not opposing the bill but will reserve its right to propose amendments in the Senate after some of the issues that I have talked about today have been further explored.