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Medical indemnity arrangements.



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Media Release

The Hon Tony Abbott MHR Minister for Health and Ageing

Senator the Hon Helen Coonan Minister for Revenue Assistant Treasurer

17 December 2003 ABB097

Medical Indemnity Arrangements

The Australian Government has largely adopted the recommendations of the Medical Indemnity Policy Review Panel.

The Panel comprised Health Minister Tony Abbott as chairman, Assistant Treasurer Helen Coonan, former Reserve Bank Deputy Governor John Phillips, Clayton Utz insurance partner Nancy Milne, AMA President Dr Bill Glasson, AMA indemnity representative Dr Andrew Pesce, Chairman of the Council of Procedural Specialists Professor Don Sheldon and Rural Doctors Association President Dr Sue Page.

The Panel recommended that the existing High Cost Claims Scheme be extended to cover 50 per cent of the cost of all claims against doctors over $300,000.

● This recommendation has been adopted at the cost of $11 million a year in 2004-5.

The Panel recommended that claims against retired doctors, doctors on maternity leave and doctors who have been permanently out of the workforce for more than three years be met by a government backed Run-off Reinsurance Vehicle funded by a charge over medical insurers. In effect, this provides doctors with the security of “claims incurred cover”. The Panel also recommended that incurred but not reported (IBNR) claims against doctors who have become eligible for cover under the Run-off Reinsurance Vehicle should be assumed by the vehicle.

● These recommendations have been adopted.

The Panel recommended that the existing premium subsidy scheme be replaced by premium support paid to medical insurers for doctors whose actuarially assessed premiums passed a “trigger” percentage of private medical income.

● The Government has decided to pay premium support to medical insurers to ensure that doctors

are supported for 80 per cent of the amount their premiums exceed 7.5 per cent of gross private medical income. Under the new premium support arrangements, the standard premium for a NSW orthopaedic surgeon with under $200,000 medical income would fall from $40,000 to $20,000 a year. The standard premium for a NSW orthopaedic surgeon with $475,000 income would fall from $67,000 to $42,000 a year. The Government will ensure that no currently subsidised doctor is worse off under the new arrangements which will cost an additional $24 million in 2004-5.

The Panel noted that stability in the medical work force would be best achieved if doctors paid no further levies under the INBR scheme but considered that, if the Government decided to retain a levy, it should be set at a small percentage of doctors’ current income.

● The Government has decided to replace the IBNR levy with UMP support arrangements. Doctors

who were members of UMP in 2000 and who have medical incomes above $5000 a year will pay whichever is the least of: the former IBNR annual levy, 2 per cent of gross private medical income or $5000. This amount will be added to the doctor’s standard insurance premium and will attract premium support. Doctors who had been members of UMP for a year in 2000 will pay UMP support for one year; doctors who had been UMP members for two years will pay UMP support for two years and so on up to a maximum of six years. This will cost $7 million in forgone revenue in 2004-5.

The UMP IBNR liability assumed by the Government is currently estimated at $483 million. Of this, $233 million will be covered by the High Cost Claims Scheme and levy exemptions funded by the government. Of the remaining $250 million, $120 million will be met by the Government and $130 million paid by doctors through the Run-off Re-insurance Vehicle and the UMP support arrangements. Overall, the Government will pay three quarters of the estimated UMP liability.

In practical terms, the new arrangements mean that the total annual medical insurance costs paid by a typical full-time NSW orthopaedic surgeon would fall from $85,000 (which is the current premium plus the former IBNR levy) to $43,000 (which is the subsidised premium including UMP support arrangements).

The Panel called on the states and territories to continue the process of tort law reform and the work on developing a scheme for the long-term care of the catastrophically injured.

● The Government supports this recommendation.

The Panel recommended that, within 18 months, the Government convene a new working group, including senior medical representatives, to consider the effectiveness of these recommendations - including further tort law reform - and, if necessary, the feasibility of a doctor-owned monopoly medical insurer.

● This recommendation has been adopted.

New measures adopted in response to the Review Panel’s recommendations will cost $181 million over four years. This is on top of previous commitments of $438 million over the same period. The Government considers that this is fair to doctors, patients and taxpayers and believes that, on this basis, doctors have no reason to proceed with resignations submitted in September and October.

Full details of the Government’s decisions are attached. The Report of the Review Panel can be found at www.health.gov.au.

Media inquiries: Kate Jordan, 0417 425 227 (Minister Abbott’s office) Jane McMillan, 0438 690 305 (Senator Coonan’s office)

Details of the New Medical Indemnity Arrangements

New Guaranteed Run-Off Reinsurance Vehicle (RRV) Currently doctors need to arrange for their own insurance cover when they cease practice. The RRV will provide free Government guaranteed run-off cover to doctors when they leave the workforce either permanently or on maternity leave.

● The cost of run-off cover under the RRV would be incorporated into normal premiums to ensure

that run-off was available free of charge at the time the doctor needed it. ● Doctors who are aged 65 or more and permanently retire from the workforce or are forced to

retire prematurely due to disablement, doctors on maternity leave, and other doctors who have permanently left the workforce for three or more years will now have the security of a Government guaranteed run-off vehicle.

Premium Support Scheme (PSS) (Additional funding of $100m over four years) At present the Government provides funding to assist certain high-risk specialties with the cost of their medical indemnity premiums. The current arrangements only apply to neurosurgeons, obstetricians, procedural GPs and GP registrars undertaking procedural training, and do not take into account doctors’ incomes.

● The PSS will provide funding for 80 per cent of a doctor’s medical indemnity costs if these

exceed 7.5 per cent of his or her gross income. ● The PSS will be provided directly through doctors’ medical indemnity insurers so that doctors do

not have to make a separate application. The scheme will start to make payments with effect from 1 January 2004 and will come into full operation on 1 July 2004. ● No doctor currently receiving a subsidy will receive less support under the new arrangements

(which will replace the current specialty-based subsidies). ● As part of the PSS, insurers will be required to have premium income bands for each specialty

that have regard to doctors’ actual incomes. Furthermore, they will be required to offer cover at a pro-rata cost to full year premiums (after allowance for any genuinely fixed costs) to doctors seeking cover for less than one year. ● Under the PSS there will be an independent audit of premium setting to ensure that premiums are

set at actuarially fair rates.

More help for procedural GPs in rural areas (Additional funding of $13m over four years) Procedural GPs currently receive funding of 50 per cent of the difference between their premiums and the premiums of GPs who do not do procedures.

● The PSS will improve on these arrangements by providing funding direct to insurers for 75 per

cent of the difference between premiums for procedural GPs working in rural areas and those for non-procedural GPs in similar circumstances.

Lower Threshold for High Cost Claims Scheme (HCCS) (Additional funding of $41m over four years) The HCCS currently funds 50 per cent of all claims above a $500,000 threshold to provide assistance to doctors in meeting the costs of large claims.

● The HCCS will be improved by funding 50 per cent of all claims above a $300,000 threshold up

to a doctor’s limit of insurance. ● Furthermore, the Exceptional Claims Scheme will be retained.

UMP liability contributions Currently, doctors who were in UMP are required to make an IBNR contribution equal to 50 per cent of their 2000-01 premiums, unless they are exempt from the contribution. The IBNR contribution could extend for 10 or more years.

Under the new arrangements:

● The Government will now meet the costs of around half of what the doctors are currently

expected to pay for the liability. This is in addition to the $231million in net present value (NPV) terms the Government already contributes to the IBNR liability. ● The 18-month moratorium on annual levy payments over $1000 will continue.

● No doctor will make a contribution beyond the 2008-09 financial year.

● A doctor’s IBNR contribution will be calculated as the lesser of his or her initial IBNR bill, 2%

of income or $5000. ● IBNR contributions will be counted for support under the PSS.

● Doctors who earn less than $5000 in any year will not make a contribution in the following year.

● The length of time a doctor has to pay the levy will be linked to the period the doctor belonged to

UMP before 30 June 2000 (doctors who are members for only one year will pay the levy for one year etc). ● The IBNR liability for doctors covered by the RRV will be transferred to the RRV. UMP

doctors, along with all other doctors, will contribute to those costs through their premiums (which are in turn eligible for the PSS). ● The calculation of the liability and contributions will be made more transparent to doctors.

Further work (additional expenditure of $1m).

● Implementation of the new arrangements will be undertaken in consultation with the medical

profession and medical indemnity organisations. ● A working party will be set up in 2005 to evaluate the effectiveness of these new arrangements.