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COMMUNITY AFFAIRS LEGISLATION COMMITTEE
08/05/2000
Health Legislation Amendment (Gap Cover Schemes) Bill 2000

CHAIR —I welcome officers from the Department of Health and Aged Care. I remind you that the giving of evidence to the committee is protected by parliamentary privilege. However, the giving of false or misleading evidence may constitute contempt of the Senate. Additionally, I also remind you that you will not be required to answer questions on the advice that you may have given in the formulation of policy or to express a personal opinion on matters of policy. The committee has before it your submission. Do you wish to make any alterations to that submission?

Dr Wooding —No, Chair.

CHAIR —Thank you. I invite you to make any opening statement that you would care to make.

Dr Wooding —We have already given one submission and answered a number of questions. At this stage I do not think we will make an opening statement, so I am happy to take questions.

CHAIR —Thank you. Senator Evans.

Senator CHRIS EVANS —Perhaps I could start where I left with the last witness. What is the department's view about the inflationary impact of this measure? What do you expect to be fed into the cost of premiums as a result of the no gaps measures?

Dr Wooding —The minister made it very clear in his second reading speech that what we are talking about here is the inflationary impact of the schemes over and above what would have been the inflationary impact of, say, medical purchaser provider agreements under the 1995 legislation. We are saying that we anticipate these schemes to be more successful—well, we are hoping that they will be more successful—than was the case with the MPPAs, but it will be a question of where the scheme would have enabled a higher cost to the fund and to the consumer than would have been the case with an MPPA. It will be hard to measure, but the key will be inflation in terms of premiums and out-of-pocket prices. I do not have a prediction on what that would be.

Senator CHRIS EVANS —On that comparison with the other contracts, given that there has been a small take-up I do not understand the stress on that comparison. Surely the key issue is: what is it going to mean for consumers and what is it going to mean for us as you fund the 30 per cent of the government's contribution to whatever that cost increase is? When will we start to see the impact of that in terms of the applications by health funds for premium increases?

Dr Wooding —We have seen that some health funds are already operating with reasonably large numbers of medical purchaser provider agreements above scheduled fee payments. In those states where they operate and they have reasonably high coverage, although nationally the cover is not that high, their premiums are competitive in a marketplace with other funds who perhaps have not offered as many of these above scheduled fee payments. So it may well be that it will be fairly hard to detect any substantial change. We are hoping that if the schemes make the product more attractive, as some of the previous witnesses have suggested, then that also will militate against substantial premium increases, so we are not predicting any particular increase.

Senator CHRIS EVANS —We have had discussions before about hopes and best wishes, Dr Wooding. Sometimes they are fulfilled and often they have huge blow-outs. What hard analysis have we got about what the cost of this measure is?

Dr Wooding —We have given some analysis in the information we provided to the Senate in our submission that the estimated premium increase, if all existing gaps were fully covered by health funds, is 6.2 per cent. So it would require, for all existing gaps currently provided to be covered, an increase of 6.2 per cent. To come up with an exact figure you would need to have an exact estimate of what the impact of these schemes is going to be in terms of take-up, and I guess it is a bit early to make such an estimate.

Senator CHRIS EVANS —Have you done any projections on take-up?

Dr Wooding —No. However, we do note the AMA's findings from their surveys that 80 per cent of their members are interested in these sorts of schemes. I might add to my previous evidence that that 6.2 per cent assumes no change in membership, so any increase in membership as a result of these schemes would tend to reduce that impact on premiums as well.

Senator CHRIS EVANS —Why?

Dr Wooding —Because there would be more people coming into the schemes contributing more money and you would hope that that would actually help to—

Senator CHRIS EVANS —But wouldn't they be getting their gaps funded as well?

Dr Wooding —It would depend—on average, new members tend to use fewer services.

Senator CHRIS EVANS —I have seen that stated a number of times in submissions; I just have not had anyone explain to me the logic to it. What is it about more membership that means that the insurance of the gap does not have an inflationary effect?

Dr Wooding —We have found that new members tend to be better risks than existing members—this was the sort of issue that we discussed at the time of lifetime health cover as well—so we would anticipate that would be the case. But, as I said, 6.2 per cent is the worst case if the membership had the same profile as existing membership.

Senator CHRIS EVANS —I am by no means asserting there will be a 6.2 per cent flow-on effect. I am trying to understand what it might be and what the cost of this proposition might be, both to the taxpayer and also to the price of premiums.

The other reason people do not renew their private health insurance is that premiums go up, which we have discussed previously as well. I guess it is a balancing act. We are trying to decide whether by looking to fix one problem we actually exacerbate the other. That is why it would be good to have some sort of understanding of what we think will be the impact on the price of premiums.

Dr Wooding —Yes. But I come back to my opening point. Above-schedule fee payments are already possible under medical purchaser-provider agreements, and we think this is simply removing a barrier that exists, in some cases, to doctors participating in above-schedule fee payment arrangements. It is a sort of momentum issue, so it will hard to draw a distinction between the gap cover schemes and the existing situation.

Senator CHRIS EVANS —But we could just do a figure on the number of patients in total schemes, couldn't we? Is it that hard?

Dr Wooding —We have given you a figure of 6.2 per cent, if all the gaps were covered.

Senator CHRIS EVANS —I think you were talking about a figure of $200 million on the cost of it. I think the AMA had it at $249 million. Is that just different base years?

Dr Wooding —Our figure is $215.6 million on the basis of the period January 1999 to December 1999. That is the figure we have.

Senator CHRIS EVANS —Did you hear the evidence from Mr Sullivan about concern that this would add to pressure not to increase payments made to private hospitals, as the funds struggle to keep prices down and introduce gap insurance? Have you given any consideration to those issues?

Dr Wooding —Before I answer that, I have just had advice that the difference between the AMA figure and our figure is that the AMA figure covers all gaps, not just the ones for privately insured patients. Ours was based on privately insured people only, so that is the difference there.

Senator CHRIS EVANS —Who are the other set?

Dr Wooding —Uninsured patients. A certain number of uninsured patients use the private health sector and self-insure—pay for their own costs—so they also face a gap between the MBS and what the doctor charges.

Moving on to the hospitals: certainly we hear many concerns from the hospitals about their level of remuneration. I think they are two separate issues. The issue we are trying to address here is the gap faced by patients in terms of medical fees. The funds obviously have the ability to negotiate with hospitals on the remuneration received by hospitals. It is really two separate issues.

Senator CHRIS EVANS —What is your process for negotiating with the funds their increases? I know it is signed off by the minister. Is there a negotiation process or a discussion process? When we express these hopes about what this means for premiums and increases in costs of premiums, I guess that leads us to the question of what control do we, as a 30 per cent part owner of all this, have, over these issues. What process of discussion or negotiation occurs between the department and funds about their applications for premium increases?

Dr Wooding —The funds explain to us the basis, including the actuarial basis, for what their costs will be over the next year and why they need the premium increases. It is a bit unusual for a premium increase to be rejected. I am not aware of such a situation. Certainly there is discussion on that basis—on what the requirement is in terms of the fund's overall costs in the next year. Certainly, that would be an issue: if the funds are expecting an increase in costs relating to paying above-schedule fee payments to doctors, that would be something that would be discussed in that context.

Senator CHRIS EVANS —For argument's sake, can we consider what the flow-on from gap insurance being widely accepted would be? I think your evidence was you have not set any targets. Is there a figure at which we think the scheme will be a success or otherwise?

Dr Wooding —That is not something we have set.

Senator CHRIS EVANS —Assuming that it is a moderate success and there is a fairly good take-up rate and say the flow-on, for argument's sake, is two per cent to total costs, would the funds have to justify that two per cent to you? Would they have to produce the evidence to justify that two per cent or whatever they are seeking, the increase next year, brought about by gap health insurance related measures?

Dr Wooding —Not specifically. They produce evidence on all the costs that they are experiencing which is requiring the premium increase, and that would obviously be part of that evidence.

Senator CHRIS EVANS —I am just not getting a feel for what that means when they produce it to you. Is it that they, as a courtesy, send you a copy and forward it for a tick to the minister, or do they say, `We are after eight per cent this year, but Dr Wooding put us through the griller for two days and we come back and we will settle for six'? Is that the sort of process?

Dr Wooding —Senator, I think we are getting close to the issue of what I advise the minister, but I guess we—

Senator CHRIS EVANS —I am not interested in what you advise the minister; it is a process question. Is it a negotiation process or is it just straight ministerial approval?

Dr Wooding —It is a discussion process.

Senator CHRIS EVANS —Who does the discussing?

Dr Wooding —Departmental officers discuss the matter with the funds.

Senator CHRIS EVANS —Not with the minister's chief of staff?

Dr Wooding —Not in the process that I participate in. It is the department that discusses it with the funds.

Senator CHRIS EVANS —When does the department do that?

Dr Wooding —When they put submissions in.

Ms Francis —Yes, when they put submissions to the minister.

Senator CHRIS EVANS —It is an annual round, isn't it?

Ms Francis —Yes, and once approved the schemes will be reviewed annually. They will have to come back to the department with evidence that they are continuing to meet the criteria against which they have been approved.

Dr Wooding —We basically do it annually. Under an agreement between the minister and the funds we receive a submission proposing their premium increase. We discuss that with them at that time, in terms of the details of what they have provided as to the need for the increase.

Senator CHRIS EVANS —They send you a submission and you contact them to organise a meeting to discuss it with them?

Dr Wooding —Officers discuss the issue with them in meetings, over the telephone or in correspondence. There is a variety of ways in which that takes place.

Senator CHRIS EVANS —And as a result of that do health funds occasionally resubmit a different proposition?

Dr Wooding —It happens sometimes.

Senator CHRIS EVANS —Therefore, it is not a regular occurrence that there is a change in a submission as a result of that process?

Dr Wooding —Most of the health funds are basically explaining what their cost structures are and what they expect their costs to be over the next 12 months. That is a fairly transparent process.

Senator CHRIS EVANS —And you cannot recall having told them to go away and make another submission or change their request?

Ms Francis —The only reason we would go back to them is if they have nor provided sufficient evidence for us to make a judgment about the actual increase. There are certain criteria within the legislation that we operate under, and they are the only discussions we would have with them.

Senator CHRIS EVANS —I think this year there was quite a large variance in the increases sought by different funds. Some were quite small and others were quite large.

Ms Francis —No, I think it ranged from zero to about 11 per cent. Eleven was about the maximum.

Senator CHRIS EVANS —Is that not a large variation?

Dr Wooding —There were only a very few members affected by the 11 per cent.

Senator CHRIS EVANS —But they do have quite different approaches at times, don't they?

Dr Wooding —They have different starting premiums, they have different anticipated costs and cost pressures on them because they operate in different regions of Australia and they have different membership profiles. So, of course, there will always be a variation.

Senator CHRIS EVANS —I was struck by the variation when I looked at the list between the different funds.

Dr Wooding —There is a variation every year.

Senator CHRIS EVANS —I am not saying it is different; I am just trying to ascertain how the process works. When would we first see, in terms of this process, any impact from gap products being offered under this bill?

Dr Wooding —We have already seen, presumably, some impact on existing premiums for the funds that have significant gap products already. By 30 June, under the life of the private health insurance rebate legislation, they are required to offer a no gap or a known gap product in order to continue to receive the rebate and to be able to claim the rebate on behalf of members. We are advised by funds that they are making big progress towards establishing no gap and known gap schemes. We will see that happening even in the absence of this legislation and in a larger way next year. I suppose, the legislation would add to that momentum, as I previously said, and we would see hopefully an even bigger takeup.

Senator CHRIS EVANS —So it would be fair to say that we are likely to see the major impact in the round of applications for premium increases next year.

Dr Wooding —It would be in the next several years I suppose. Next year would be part of it but it would be beyond next year as well, I would imagine, given the evidence given by the AMA and others that doctors will want to participate in these arrangements. You would expect the takeup to take place over a number of years.

Senator CHRIS EVANS —So you think it might well take two or three years for the full flow-on of that to come through the system?

Dr Wooding —It will take more than one year, I think.

Senator CHRIS EVANS —Does the department expect the gap cover schemes to have a common approach to what constitutes informed financial consent?

Dr Wooding —No, I think in the end it is up to the health funds. We have already seen with the AMA and others—and, of course, ourselves in some of the material provided to the committee in our submission—that there are different types of forms being proposed and different ideas around. I expect there to be a fair amount of commonality based on the principle of some sort of quote, some sort of concept of what the procedure is to be and how much you would be expected to be charged and how much out of pocket you would need to pay.

Senator CHRIS EVANS —Are you not working on some best practice stuff?

Dr Wooding —We have our form, yes, which we are promoting through our circulars, but it is between the fund and the doctor in the final analysis as to what type of informed financial consent arrangement they would like to use.

Senator CHRIS EVANS —So there is no obligation. We can get a whole hybrid of different—

Dr Wooding —Yes. But if they are all effective I do not necessarily see that as a problem. As I said, I expect them all to have a certain basic form which would be that the fees will be specified for the procedure and there will be some sort of statement that if something happens other than what is intended in the procedure different circumstances might apply. That would be the basic format we would expect to see.

Senator CHRIS EVANS —Can you explain to me what inflationary means in terms of the regulation and how we are going to measure that?

Dr Wooding —As I said, as compared to an existing MPPA type arrangement, inflationary has to cover not only the effect of the bond premiums but also the effect on the out-of-pocket costs. In other words, obviously if you pay a little bit more through your premium but you are no longer paying an out-of-pocket cost that could cancel itself out and there is a trade-off there. We are talking about monitoring the effect compared to an MPPA contract type arrangement.

Senator CHRIS EVANS —How are you going to do that?

Dr Wooding —We are going to ask the funds. In the first place the funds are required to explain that in their proposed scheme to the minister and the minister will approve the scheme only if the minister is satisfied that that is not going to happen. Then, of course, we will be monitoring the effect of the schemes and the minister will have the power to revoke.

Senator CHRIS EVANS —What is the safeguard in terms of monitoring—just the power to revoke? Is there a regular review?

Dr Wooding —Yes. There will be an annual report to PHIAC on the operation of the schemes. We imagine that the schemes will include some sort of description of the safeguards that would be in some way measurable in the sense that if you say these safeguards are going to apply there will be some sort of performance indicator possible there. We would then monitor that performance. At the moment it will be up to the funds, I suppose, to devise schemes so we do not want to be too restrictive on how that would work.

Senator CHRIS EVANS —I do not think anyone is going to accuse us of that at the moment. We are leaving a lot to their discretion. At the moment, the only check in all this is that the minister has to give it the approval, isn't it? I am not saying that is not important.

Dr Wooding —It is a very significant check.

Senator CHRIS EVANS —Yes; but this is very much framework legislation and the detail of all this is left to the funds to draw up. Are you issuing them with any guidelines or are you involved with them in the design of the schemes?

Dr Wooding —No. We have the regulations and, obviously, if the funds wish to discuss these schemes with us we are more than willing to do that. But we are not requiring them to discuss their schemes with us.

Senator CHRIS EVANS —What about the transparency of the sorts of contracts that underpin these schemes? What access is there to those and what public transparency is there about those?

Dr Wooding —There are no contracts underpinning the schemes. The schemes basically work without contracts.

Senator CHRIS EVANS —Is it fair to say it `can work without contracts'? It does not say it does work without contracts.

Dr Wooding —A contract is different to a scheme. I have listened to some of the debate this afternoon with interest. The way I was envisaging it would be that these schemes basically involve the medical practitioner having the right, for each service they give, to decide to charge a particular fee or not or sort of participate in the scheme. They can do that. They can actually choose to vary that between patients. With regard to the concern that there would be some sort of managed care or some sort of attempt by the funds to tell the doctors how to deliver their medicine, the doctor could choose not to participate in the scheme on each occasion that anything like that applied to particular sorts of services.

Senator CHRIS EVANS —How does that work for the consumer, if they have signed up? I have heard this explained to me. I thought that undermines the whole basis of the scheme. If I am a consumer and I have signed up for no gap, then you tell me that the doctor can decide almost on a whim whether he is in or out. He was in when I went in for my ingrown toenail but he is out now when I go in to see him about something else. How do I know that I have bought this service?

Dr Wooding —In the final analysis, because it is entirely in the hands of the medical practitioner what fee they are ultimately going to charge for any service—and that is their right at the moment—there is no guarantee. However, what we would hope is that medical practitioners who agree to participate in these schemes will choose to charge, if they are going to agree to charge no gap—they will choose to do that for all their services. From anecdotal information from the funds involved in a large scale with medical purchaser-provider agreements, we have found that most doctors are coming into them now on the basis that they do not have to participate on every occasion—that they can pick and choose. But most of them are choosing to charge the no gap on each occasion.

Senator CHRIS EVANS —We cannot have it both ways, though, can we? We cannot have certainty for the consumer and then have what seems to me a bit of a pretence that there is not an arrangement existing between the players and the system. I understand certain parties have ideological problems and a history of concerns about all these things. But you are saying, and we are expecting the Australian parliament to say to people, `You sign up for no gap; you have no gaps.' This is Commonwealth legislation. We are putting the framework in place, and then you tell me the doctor can be in or out or change his mind. That is just a way of hiding the fact that there will be arrangements in place, the system can only work with arrangements in place, but we are not going to be told what those arrangements are.

Dr Wooding —Once again, on the issue of being told what the arrangements are, we expect the funds to explain the arrangements to the public in terms of—

Senator CHRIS EVANS —I am not talking about the arrangements between the fund and the patient. I am talking about the arrangement between the fund and the hospital or the fund and the doctor.

Dr Wooding —But the nature of these schemes is that there is no arrangement as in a contract or an agreement between the fund and the doctor.

Senator CHRIS EVANS —Is that right?

Dr Wooding —That is right.

Senator CHRIS EVANS —Then how do you assure me as a consumer that there is any certainty that I am getting what I paid for? You cannot have it both ways, can you? Am I missing something here?

Dr Wooding —I think the point that has been made by other witnesses still applies, which is that this certainty cannot be provided in every case but that is not a reason against moving forward to attempt to increase the number of cases in which there will be no gap or a known gap.

Senator CHRIS EVANS —So it is not `no gap' but it is `maybe there is no gap'?

Dr Wooding —That is right. There is no gap, known gap, or some doctors are not going to participate, or some doctors are not going to participate on all occasions, and then there will also be some occasions when there will be a gap that is not known. We would hope that all doctors who participate in these arrangements would at least also participate in informed financial consent on all occasions. That would be our expectation.

Senator CHRIS EVANS —I do not quite understand, if there are no arrangements in place, how we are providing anything for the consumer by this?

Dr Wooding —What we are providing for the consumer is an increased likelihood of there being no gap or a known gap.

Senator CHRIS EVANS —A likelihood? That is the point, we are perpetrating a great myth if we do not actually provide no gap.

Dr Wooding —We cannot have a cast-iron guarantee in the absence of cast-iron contract or some sort of legislative restriction on what the doctors charge. So, in that situation, we can only have a likelihood.

Senator CHRIS EVANS —So if I go and buy no gap insurance from my private health insurance company in June, I will have a likelihood that I have purchased no gap insurance but I do not have a guarantee that I have got that. Is that correct?

Dr Wooding —I can only stay with the answer I gave last time.

Senator CHRIS EVANS —I am just trying to tease out what it means for the consumer, that is all. Thank you, Madam Chair.

Senator DENMAN —Could you tell me whether it is possible that some of the funds will refuse to cover people for specific existing conditions?

Dr Wooding —There are two sorts of situations that currently apply. One is that, obviously, anyone who joins a health fund with a pre-existing ailment is not able to claim for that ailment for the first 12 months. That is an actual part of the overall system. A second element is that some funds offer what are called exclusion products where in some cases people agree to pay a lower premium in exchange for having certain conditions not fully covered by the insurance.

Senator DENMAN —And this is not likely to change?

Dr Wooding —There is nothing in this legislation that deals with that particular issue, no.

Senator DENMAN —Could I please come back to my specific question again about rural Australia? Is it possible that there are any solutions to the fact that specialists, when there is only one specialist in a region, charge exactly what they like. Is there any way we can have some sort of rural scheme that would cover that?

Dr Wooding —A rural scheme?

Senator DENMAN —Yes, to cover patients in rural areas who have only got access to one specialist who is charging exactly what he or she likes?

Dr Wooding —Certainly this legislation would enable that specialist to participate in a gap cover arrangement.

Senator DENMAN —But if they choose not to then the patient does not have choice?

Dr Wooding —They have the choice of seeking other care.

Senator DENMAN —They don't, because in rural areas they have got transport problems. Where I live you have got a five-hour drive, which is not practical for a lot of people. I know that is not much to you in your state, but these people do not have access to public transport. The patient does not have a choice.

Dr Wooding —I agree that this is a matter of concern. I would hope with these arrangements in place that there will be greater opportunity for these practitioners to feel they would participate in a no gap arrangement. They will have an opportunity to receive more remuneration without a concern about agreements or contracts in relation to these patients, but in the end, as I have said to Senator Evans previously, we have no power to compel doctors to charge any particular fee or to participate in these schemes.

Senator DENMAN —So there is no way you would look at a rural scheme.

Dr Wooding —No.

Senator DENMAN —Thank you.

Senator CHRIS EVANS —I meant to raise this when we were discussing the question of how much this is going to cost in terms of the flow-on of premiums and the Commonwealth subsidy of those premiums. The explanatory memorandum says that the Health Legislation Amendment (Gap Cover Schemes) Bill 2000 will have no significant impact upon the finances of the Commonwealth. Is that true, or is it just no known impact? The reality is it will have quite a significant impact, won't it?

Dr Wooding —The way this legislation is usually drafted is that it is not seeking additional money or attempting to change—

Senator CHRIS EVANS —Technically, you are right. I accept your point that the actual bill does not do that, but in terms of the debate we were having earlier about 6.2 per cent, what percentage of that flows on? There will of necessity be a flow-on cost to the Commonwealth of this measure, won't there, even on a conservative estimate of take-up and flow-on of no gap cover? The bit that is currently paid by the patient is going to be paid by somebody else. The somebody else is going to be the health insurance premium of which the taxpayer pays 30 per cent. Is that correct?

Dr Wooding —Yes, obviously any take-up will have some impact, in that, as you say, there will be some additional out-of-pocket payments by patients to be replaced by health insurance payments, of which 30 per cent is covered by the rebate. That is correct.

Senator CHRIS EVANS —But you are not able to give us any costing because you have not been able to work out what the flow-on is?

Dr Wooding —As I say, we are not setting any targets or making any specific predictions, but we have given you indicative costings of the implications of certain scenarios, including 100 per cent take-up.

Senator TCHEN —Dr Wooding, looking at pages 13 to 15 of your submission, there seems to me to be a compelling indication that gap cover insurance is absolutely essential. I notice that you have consulted extensively with providers, practitioners, industry groups and also consumer groups in preparing this legislation. Did you come across any opinions which disagree with the indication here? Did anyone argue that a gap cover scheme is not necessary?

Dr Wooding —We did, didn't we?

Ms Francis —In all of the consultations, which included over 100 people, I think there was one person who actually spoke out and suggested that for him it was not an issue. I believe he was a general practitioner.

Senator TCHEN —Did you get the same sort of result about the draft legislation itself?

Dr Wooding —Support for the legislation?

Senator TCHEN —Yes.

Dr Wooding —Yes.

Senator TCHEN —The same sort of support?

Dr Wooding —A very high level of support from those we consulted, yes.

Ms Francis —Certainly it was more support than opposition, and it was more wanting to see the regulations which were a part of the consultation as well. We took along with us the draft bill and at that stage we had drafted the regulations as well, so people were very keen to see the regulations—that was their main interest.

Senator TCHEN —Was this support uniform across the different groups—providers, practitioners and so on? No one group stands out as opposing it?

Dr Wooding —I think you can see from the submissions that were made to this committee that there is support from health funds, from practitioners, from consumers representatives and from hospital representatives as well, so there is a fair degree of support—not universal, but a high level of support—and it is diverse.

CHAIR —Thank you very much for your time. Thank you to all participants. I declare the meeting closed.

Committee adjourned at 5.02 p.m.