House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)

Chapter 12 - Private Health Insurance Supervisory Levy

Outline of chapter

12.1 Chapter 12 relates to the new Private Health Insurance Supervisory Levy Imposition Bill 2015 (Supervisory Levy Imposition Bill).

12.2 Unless otherwise stated, all references in this Chapter relate to the Supervisory Levy Imposition Bill.

Summary of new law

12.3 The Private Health Insurance Supervisory Levy Imposition Bill effectively replaces the Private Health Insurance (Council Administration Levy) Act 2003, which is being repealed by item 183 of the Consequential Amendments and Transitional Provisions Bill.

12.4 The Supervisory Levy Imposition Bill establishes the legislative framework for the calculation, and collection, of a supervisory levy to recover APRA's costs incurred in regulating the private health insurance industry. It will be administered by APRA.

12.5 In 2015-16, the levy will be collected on a quarterly basis in line with the existing Private Health Insurance (Council Administration Levy) Rules 2007.

12.6 From the 2016-17 financial year, the new levy will be collected annually from private health insurers and will be calculated for each insurer with reference to the number of single equivalent units that they provide health insurance products to.

Comparison of key features of new law and current law

Detailed explanation of new law

12.7 The Supervisory Levy Imposition Bill is a Bill to impose a levy on bodies registered as private health insurers under the Prudential Supervision Bill.

12.8 The supervisory levy will be collected to recover APRA's costs of regulating private health insurers and be deposited in APRA's Special Account. APRA collects similar levies for the other industries that it prudentially regulates, including life and general insurers. Consistent with the collection of APRA's other supervisory levies, the levies will be set by a determination from the Minister.

12.9 In line with the Government's Cost Recovery Guidelines, the amount to be collected is based on what APRA expects to expend in the regulation of the private health insurance industry in the coming year. This amount, and the method of allocating it within the private health insurance industry (that is, the rate per single equivalent units), will be outlined in an annual discussion paper released after the Commonwealth Budget. The Government welcomes submissions on this paper.

12.10 At the end of each financial year, APRA also publish a Cost Recovery Impact Statement to demonstrate how the costs of their activities have been allocated to each industry.

12.11 Where APRA collects more to supervise an industry than is required, APRA endeavours to return these funds to industry (through an adjustment to levies applying in subsequent years) as soon as possible.

12.12 Sections 1 and 2 (the short title and commencement provisions) are taken to commence when the Supervisory Levy Imposition Bill receives Royal Assent. Sections 3-8 (the substantive provisions) are taken to take affect at the same time as section 3 of the Prudential Supervision Bill commences [Part 1,section 2].

12.13 Section 3 notes that the Supervisory Levy Imposition Bill binds the Crown in each of its capacities [Part 1, section 3].

12.14 Section 4 extends the application of the Supervisory Levy Imposition Bill to Norfolk Island on and after the commencement of Part 1 of Schedule 2 to the Norfolk Island Legislation Amendment Act 2015 [Part 1, section 4].

12.15 Section 5 inserts the following definitions [Part 1, Section 5]:

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census day for a financial year means the day that specified as the census day for the financial year in the levy determination;

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complying health insurance policy has the same meaning as in the PHI Act;

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levy determination means the legislative instrument referred to in subsection 7(4) determining the levy amount that is payable in respect of a complying health insurance policy;

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levy imposition day, in relation to a private health insurer for a financial year, means:

(a)

if the private health insurer is a private health insurer on 1 July of the financial year-that day; or

(b)

in any other case-the day, during the financial year, on which the private health insurer becomes a private health insurer.

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private health insurer has the same meaning as in the Prudential Supervision Bill.

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supervisory levy means a levy payable in accordance with subsection 8(4A) or (4C) of the FISLC Act.

12.16 Section 6 imposes a levy payable in accordance with subsection 8(4A) or (4C) of the FISLC Act, as amended by the Consequential Amendments and Transitional Provisions Bill. Subsection 8(4A) relates to the 2015-16 financial year and subsection 8(4C) relates to subsequent financial years. [Part 1, section 6].

12.17 Section 7 establishes the amount of supervisory levy payable for quarters in the financial year starting on 1 July 2015 (ending 30 June 2016). For these quarters, the amount of levy payable is the amount of the Council Administration Levy that would have been payable in the relevant quarter under the Private Health Insurance (Council Administration Levy) Rules 2007, as if that instrument and other relevant legislation had continued to be in effect. [Part 1,section 7, Subsections (1) and (2)]

12.18 This is in order to align the levy payable by private health insurance entities in 2015-16 with the levy that they would have paid to the Council if it had continued to operate.

12.19 Section 8 establishes how the amount of the supervisory levy payable by a private health insurer will be determined for the 2016-17 (and later) financial years. It applies to any levy amounts payable in accordance with subsection 8(4C) of the FISLC Act, as amended by the Consequential Amendments and Transitional Provisions Bill. [Part 1, section 8, Subsection (1)]

12.20 Subsection 8(2) states that the amount of supervisory levy payable will be the sum of the levy amounts (that is, the amounts for both complying single and joint health insurance policies) calculated using the levy determination for the relevant year. The number of complying single and joint health insurance policies will be calculated on either:

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the census day for the financial year; or

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if the levy imposition day for an insurer for the levy year is later than that census day, the levy imposition day. [Part 1, section 8, Subsection (2)]

12.21 Subsection 8(3) provides the mechanism to calculate the levy payable if the levy imposition day for the private health insurer is later than 1 July in the financial year. This will be relevant where an insurer is registered as a private health insurer after 1 July in a particular year.

12.22 This formula prorates the levy that would have been payable by the insurer if their levy had been calculated on 1 July on the basis of the number of days remaining in the year (including the levy imposition day).

12.23 That is, if the levy payable for an insurer would have been $365 for a financial year if the imposition day was 1 July, but instead it is to be calculated on a separate 'levy imposition day' (for example, on July 30), the levy payable will equal to: $365/655 x (1+334). That is, $335. [Part 1, section 8, Subsection (3)]

12.24 Subsections 8(4) to 8(7) outline that from 1 July 2016 [Part 1, item 8, Subsection (4)] the Minister must make a levy determination to determine the levy amount payable or a method for calculating the levy amount payable. [Part 1, section 8, Subsection (6)] This determination must:

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specify a day in the financial year as the census day [Part 1, section 8, Subsection (5)]; and

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provide for the levy amount to be calculated with regard to the number of complying health insurance policies on issue on the census day, to be calculated by applying different levy amounts depending on the number of people insured (for example to single and joint health insurance policies), and may determine a levy amount of zero [Part 1,section 8, Subsection (7)(a),(b), and (c)]; and

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ensure that the levy amount per single health insurance policy cannot exceed $2 and the levy amount for all other health insurance policies cannot exceed $4 [Part 1, section 8, Subsection (7)(d)].