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Thursday, 25 March 1999
Page: 4396


Dr SOUTHCOTT (12:15 PM) —Thank you for the opportunity to speak on the Health Legislation Amendment Bill (No. 3) 1999 . The previous speaker, the member for Calwell, mentioned that he was parliamentary secretary for health during the last government. I suggest to the Minister for Health and Aged Care that we offer him a briefing from the Department of Health and Aged Care just to let him know that, contrary to what he said in his speech, the government has been very successful in containing costs. This has been one of the real success areas. Health expenditure is about 8½ per cent of GDP and that is where it has remained for some years.

It is just wrong to say that costs in radiology and pathology services are exploding. He has actually picked two of the areas in which the minister has negotiated agreements to cap the fees—pathology and radiology. I suggest that it might be time for the good doctor, the member for Calwell, to have a refresher course in the areas of health, to find out what the situation is and what the government's achievements have been in those areas of cost containment over the last three years.

This bill deals with two areas. It is continuing to draw on the recommendations of the Industry Commission's report into private health insurance and it also addresses some of the issues raised with the 30 per cent rebate and helps to streamline that and make it more efficient. Today is a red-letter day because today we have been debating a bill on private health insurance which the Labor Party are not going to oppose. We now know that the Labor Party define themselves by opposition to government policies. On tax reform, they oppose us. On labour market reform, they oppose us. On health reform, they oppose us. On economic reform, they oppose government policy. They now react to government policy. They are now a reactionary political party. Regardless of whatever the merits are of reform, they oppose it.

We have previously heard from the opposition spokesperson for health a diatribe on changes to the private health industry. It is important to point out that the public hospital system already receives over $6 billion a year to treat less than 70 per cent of the population. That does not take into account self- insurance. Thirty per cent of the population have private health insurance and they do not necessarily use the public hospital system. They receive the 30 per cent rebate, which is a subsidy of $1½ billion, which does save the Commonwealth revenue in the public hospital system. That is the important role of private health insurance—to take the pressure off the public hospital system. There is no use saying that this money would have been better off being put into the public hospital system. You would then have a continuing decline in private health insurance and you would have the majority of people being treated in the public hospital system. If you want to know what that looks like, it looks like the UK's National Health Service. They have a very small private health system for the elite and a very large inefficient public health system.

The aim of this bill is to address the concerns that were raised in the 1997 Industry Commission report on private health insurance relating to prudential regulation of the private health industry. This amends the National Health Act, the Private Health Insurance Incentive Act and also the Health Insurance Commission Act. The second purpose, as I said, is to streamline the government's 30 per cent rebate. By improving the prudential regulation of health insurance, it will create consistency with the industry to other prudentially regulated products. It will also enable private health insurance to be more responsive and flexible to market changes. It will address the concerns that were raised in the Industry Commission report from consumer groups, and it addresses the concerns of private health industry as well. The changes will also improve the financial accountability of those who manage private health insurance business.

At the moment there are different agencies controlling private health insurance, predominantly the Department of Health and Aged Care and also the Private Health Insurance Administrative Council. This bill will remove responsibility for solvency requirements and so on to the Private Health Insurance Administrative Council, which will be independent of the department. PHIAC will also have the ability to approve registration and mergers which are now controlled by the Department of Health and Aged Care. To make PHIAC's role consistent with other insurance regulators, the deregulation provisions will be strengthened. What this means is that the day-to-day regulation of the industry will be simplified by transferring and strengthening the industry function of PHIAC.

PHIAC—and this was a recommendation by the Industry Commission—is the best agency suited to respond to the prudential regulatory needs of consumers and the industry. PHIAC will have the power to quickly appoint an administrator when a fund is at risk of insolvency. That is an improvement on the current arrangements. They will ensure that the interests of the health fund and the contributors are paramount at all times.

Turning to the 30 per cent rebate, there is already anecdotal evidence that the 30 per cent rebate has been successful in attracting new members and young, fit and healthy members back into private health insurance. The funds and the government have moved very quickly from the voting on it in early December to the implementation in January. Mr Deputy Speaker, you would have seen advertisements outside the health funds and so on about the 30 per cent rebate. We are rewarding people for being private health members. They are the ones who are saving the Commonwealth and state governments money by opting out of the public hospital system.

This bill also makes some minor amendments to enable the 30 per cent rebate to function more efficiently. It will enable people who are claiming the 30 per cent rebate as a premium rebate not to have to register annually. It will also improve the method for health funds to claim the 30 per cent rebate as a premium reduction. It will ensure that people are paid the 30 per cent rebate when extending cover into the next financial year. It is only by removing some of the constraints that presently suffocate the private health insurance funds that they can provide the best outcomes for their members.

Going back to the Industry Commission report in 1997, they pointed out that enhancing prudential regulation plays a key role in helping consumer confidence. The current system is that the funds must operate with reserves of either two contribution months or $1 million. Small funds have been exempt from that provision of having $1 million in reserve. The Industry Commission raised the question: is $1 million an appropriate level for the fund reserves when you have such a wide variety of funds? They also pointed out that the reinsurance pool pools the risk of patients who stay more than 35 days anyway. They said that these reserve requirements are quite inflexible when you consider that there are a wide diversity of funds. Whatever the optimal reserve for each individual fund is depends on what its market is and what its membership is.

Having one suit fits all fund reserve requirement is not necessarily optimal. Small funds can have random fluctuations in claims. This does not recognise that some, although not most, of the funds are for-profit funds and some of the insurers are quite large. What this does is allows more appropriate capital adequacy reserve requirements to be introduced. Also, at present assets do not have to be held in liquid form. There is no requirement for the funds to have asset diversification. One of the advantages of allowing PHIAC to regulate private health insurance is that it will allow private health insurance to be more flexible, cheaper and more protective of consumers.

The Industry Commission also recommended that the regulator should be separated from the policy making bureaucracy. They suggested that you exclude representation by stakeholders in the management of the regulator. PHIAC needs to be independent. The government has done that and it now has an independent board. By overseeing fund solvency, PHIAC will extend beyond an industry focus to a consumer focus. The Industry Commission also looked at some important issues on the governance of the private health funds.

When you consider the Labor Party's opposition to reforms to private health insur ance and the way they react to any initiatives the government has with private health insurance, one of the problems really is the name—that is, `private'. They do not like things that are private. They do not like the private sector. When you look at the 47 funds in Australia, only three of them are for-profit funds. Most of them are mutuals and friendly societies. They are not owned by some sort of foreign multinational. They are owned by the members. The members hold them. There are no returns to the shareholders. Any profits that are made by the fund are basically redistributed in the form of lower premiums or changed premiums.

Changing the governance arrangements can decrease the cost and also allow scrutiny of funds by fund members. One of the problems, if you have funds which are operating more like a publicly listed company, are the potentially large transaction costs in that they have to spend more money notifying people of annual general meetings, what the directors are doing, election for directors and so on. There is also no scope for hostile takeovers. Hostile takeovers in the corporate world do play an important role in increasing competitive pressure. This bill will allow mergers to occur more easily and streamlining, if necessary, of the industry.

As I have said before, the bill transfers the prudential regulatory responsibilities to PHIAC. It deletes the minimum reserve thresholds in liquidity. It allows PHIAC to set new and more appropriate solvency and capital adequacy standards. Essentially, it puts the funds on a more commercial footing. This will be good for the small funds especially. It allows PHIAC to appoint an administrator. It allows mergers and it should increase consumer confidence. This means that PHIAC will move from having an industry focus to now having a consumer focus as well. It allows the funds to be regulated under the National Health Act and the Corporations Law.

The achievements of this government in the area of private health insurance are something that we can be proud of. Without that, we know Labor's record. When they came to office in 1983 some 66 per cent of people were privately insured. When they left office in 1996 that had declined to about 33 per cent. There was a rapid drop-out. That put much more pressure on the public hospital system. This government believes in a balance between private health insurance and the public system. We believe in both. I used to work in both. I worked more in the public hospital system. We believe in that sort of balance. The Labor Party does not. I commend this bill to the House.