Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)Chapter 13 - Private Health Insurance Risk Equalisation Levy
Outline of chapter
13.1 Chapter 12 relates to amendments to the Risk Equalisation Levy Act.
13.2 Unless otherwise stated, all references in this Chapter relate to the Risk Equalisation Levy Amendment Bill.
Summary of new law
13.3 The Risk Equalisation Levy Amendment Bill amends the Risk Equalisation Levy Act to give APRA the functions of the Council under the Risk Equalisation Levy Act.
Comparison of key features of new law and current law
| New law | Current law |
| Reflects current legislation | The Risk Equalisation Levy is imposed to allow for cross-subsidisation of high-cost policy holders between insurers, to assist insurers offset the costs of complying with the community rating principle. |
| Reflects current legislation | Risk Equalisation Levy imposition days are set by the Health Minister in the Private Health Insurance (Risk Equalisation Levy) Rules. A maximum of four days per financial year may be set, plus a maximum of two supplementary imposition days. |
| The rate of the Risk Equalisation Levy is determined in writing by APRA. APRA must comply with the Private Health Insurance (Risk Equalisation Levy) Rules when setting the rate of levy. | The rate of the Risk Equalisation Levy is determined in writing by the Council. The Council must comply with the Private Health Insurance (Risk Equalisation Levy) Rules when setting the rate of levy. |
| Reflects current legislation. | A maximum of two supplementary risk equalisation levy days and the rate of supplementary levy may be set through determinations made by the Health Minister. The Minister must comply with the Private Health Insurance (Risk Equalisation Levy) Rules when setting the rate of supplementary levy. |
| Before setting supplementary risk equalisation levy days and the rate of any supplementary levy, the Minister must obtain and take into account advice from APRA. | Before setting supplementary risk equalisation levy days and the rate of any supplementary levy, the Minister must obtain and take into account advice from the Council. |
| Reflects current legislation | Health Minister may make Private Health Insurance (Risk Equalisation Levy) Rules required or permitted or necessary or convenient for operation of Act. |
| Reflects current legislation | Governor-General may make regulations required or permitted or necessary or convenient for operation of Act. Before the Governor-General makes regulations, the Minister must take into account any relevant recommendation by APRA. |
| No equivalent provisions in Act as amended. | Amounts purportedly determined by the Council before 1 July 2004 that registered health benefits organisations had to pay into the Reinsurance Trust Fund taken to have been validly levied on organisation. Any associated late payment penalty taken to have been validly imposed on organisation. |
Detailed explanation of new law
13.4 The Risk Equalisation Levy Act provides for the imposition of the Risk Equalisation Levy on private health insurers.
13.5 The Risk Equalisation Levy supports funding for the Private Health Insurance Risk Equalisation Special Account (formerly known as the Risk Equalisation Trust Fund). The purpose of the Risk Equalisation Special Account is to ensure that no insurer is unduly impacted by costly claims because of the risk profile of its members. It does this by allowing for internal cross-subsidisation for aged, chronic and long-term acute care patients and other high-cost policy-holders within the private health insurance industry. This assists insurers to offset the effects of complying with the principle of community rating established under the PHI Act.
13.6 The Health Minister will retain overall policy responsibility for the Risk Equalisation Levy, with APRA having a similar role administering the Account as the Council had administrating the Risk Equalisation Trust Fund. APRA will not assume any of the Council's existing powers under Division 313 of the PHI Act. APRA will have the power to investigate in relation to the Risk Equalisation Levy under Part 6 of the Prudential Supervision Bill.
Definitions
13.7 APRA has been defined in the Risk Equalisation Levy Amendment Bill as the Australian Prudential Regulation Authority [Schedule 1, Part 1, Item 1].
13.8 The definition of Council, registered health benefits organisation and Risk Equalisation Trust Fund have been repealed as they are no longer needed. [Schedule 1, Part 1, Items 2 and 3]
Rate of risk equalisation to be imposed on a risk equalisation levy day
13.9 As was previously the case, the Risk Equalisation Levy is imposed on an insurer on each day (to a maximum of four) as specified in Private Health Insurance (Risk Equalisation Policy) Rules made by the Health Minister (see section 6 of the Risk Equalisation Levy Act).
13.10 Subsections 7(1) and (2) of the Risk Equalisation Levy Act has been amended to give APRA the Council's former function of determining in writing the rate of risk equalisation levy to be imposed on a risk equalisation levy day. [Schedule 1, Part 1, Item 5]
13.11 In determining the rate of risk equalisation levy APRA must comply with the Private Health Insurance (Risk Equalisation Policy) Rules, as did the Council. [Schedule 1, Part 1, item 5]
Imposition of risk equalisation on a supplementary risk equalisation levy day
13.12 As well as the maximum of four risk equalisation levy days for a financial year, the Risk Equalisation Levy may also be imposed on insurers on up to two additional supplementary risk equalisation levy days determined by the Health Minister (see section 6 of the Risk Equalisation Levy Act). The rate of levy to be imposed on supplementary risk equalisation levy days is determined by the Health Minister (see section 7 of the Risk Equalisation Levy Act).
13.13 Section 8 of the Risk Equalisation Levy Act has been amended to require the Health Minister, before exercising his or her powers, to determine supplementary risk equalisation levy days and the rate of risk equalisation levy to be imposed on those days, to obtain and take into account, advice from APRA on:
- •
- whether to determine a supplementary risk equalisation levy day and the day or days that are to be supplementary risk equalisation levy days; and
- •
- the rate of risk equalisation levy to be imposed on the supplementary risk equalisation levy day or days. [Schedule 1, Part 1, items 6 and 7]
13.14 The Minister formerly obtained this advice from the Council.
Repeal of redundant validation provisions
13.15 Sections 9 and 10 of the Risk Equalisation Levy Act validated amounts that the Council purported to require registered health benefits organisations (as insurers were known under the National Health Act 1953) to pay to the Reinsurance Trust Fund before 1 July 2004. There were concerns that these amounts had not been validly levied on registered health benefits organisations due to a technical defect in the method of imposition.
13.16 Sections 9 and 10 have had effect to validate relevant amounts and the opportunity has been taken to repeal them. The repeal of the sections does not affect their previous operation or liabilities incurred under them (see section 7 of the Acts Interpretation Act 1901). [Schedule 1, Part 1, item 8]
Regulation making power
13.17 Under section 11 of the Risk Equalisation Levy Act the Governor-General may make regulations prescribing matters required or permitted to be prescribed by the Act, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.
13.18 Subsection 11(2) has been amended so that prior to the Governor-General making regulations the Health Minister must take into consideration any relevant recommendations made to the Minister by APRA. The subsection previously referred to recommendations made to the Minister by the Council. [Schedule 1, Part 1, Item 9]
Application and transitional provisions
13.19 Any determinations made by the Council under section 7 of the Risk Equalisation Levy Act setting the rate of Risk Equalisation Levy, or by the Health Minister under sections 6 and 7 setting supplementary risk equalisation levy days and the rate of the supplementary levy, and which are in force immediately before the commencement of the Risk Equalisation Levy Amendment Bill, will continue to have effect as if made in accordance with the Risk Equalisation Levy Act as amended by the Risk Equalisation Levy Amendment Bill. [Schedule 1, Part 1, Item 10]