House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Health, the Honourable Greg Hunt MP)

Attachment A - Estimated Regulatory Cost

Private Health Insurers

IT system update costs (Reforms 1, 2, 4, 6, 11)

Private health insurers will require updates to their IT systems to be able to support the changes to product categories and information provision.

The Department of Health understands that the majority of the 37 insurers are supported by 3 system developers, and that 4 insurers have their own in-house system developers.

The estimated cost for IT system updates is $46.25 million.

This figure was based on each of the 37 insurers incurring a cost of $1.25 million for these IT changes based on similar updates made by the industry for other required changes.

Staff training costs (Reforms 1, 2, 4, 6, 11)

The estimated cost for staff training is $1.92 million. This figure is based on:

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there being 2 large, 3 medium and 32 small insurers;

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staff receiving an estimated 6 hours of training each;

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each large insurer would train 1,200 staff;

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each medium insurer would train 400 staff;

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each small insurer would train 5 staff;

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staff wage cost is $68.79/hour ^[9] ; and

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develop training materials: 2 weeks per insurer for 1 person (8 hours/day at $126/hour - based on $150,000 annual salary plus on-costs). Total cost per insurer is $10,080.

Table 1: Cost of training by insurer size

Re-design of private health insurance products (Reforms 1, 2, 4, 6, 11)

The estimated cost to re-design private health insurance products is $5.8 million. This figure was based on:

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there being 2 large, 3 medium and 32 small insurers;

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a large insurer would require a team of 3 actuaries and 10 marketing specialists;

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a medium insurer would require a team of 2 actuaries and 8 marketing specialists;

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a small insurer would require a team of 1 actuary and 4 marketing specialists;

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the cost of each actuary and marketing specialist at $168/hour ($96/hour plus $72/hour for on-costs - based on $200,000 annual salary); and

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each actuarial team and marketing team would be required for 4 weeks.

Table 2: Cost of product design by insurer size

Standard Information Statement updates (Reforms 1, 2, 4, 6, 11)

The estimated cost to update the Standard Information Statement is $137,580. This figure is based on:

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updating 2000 products; and

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1 hour per product at a rate of $68.79/hour.

Website updates (Reforms 1, 2, 4, 6, 11)

The estimated cost for insurers to update their websites is $2.5 million. This figure is based on:

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large and medium size insurers updating their websites in-house using existing web teams. Team of 4 people for 4 weeks ($126/hour - based on $150,000 annual salary plus on-costs) = $80,640 per insurer; and

•

small size insurer will need to outsource the work to update their websites. This is a higher cost but generally lower complexity product offering and therefore the estimate is 80% of the cost of large and medium insurers. 80% of $80,640 = $64,512 per insurer (the cost for small insurers is based on data from the 2017 premium round).

Table 3: Cost of website updates by insurer size

Updating promotional/marketing material (Reforms 1, 2, 4, 6, 11)

The estimated cost for updating and re-printing brochures is $420,000. This figure is based on:

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large insurers updating and re-printing 10,000,000 brochures at $0.01/brochure ^[10] ;

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medium insurers updating and re-printing 1,000,000 brochures at $0.02/brochure; and

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small insurers updating and re-printing 100,000 brochures at $0.05/brochure.

Information provision (Reforms 1, 2, 4, 6, 11)

The estimated savings for the standard information statement, lifetime health cover and tax statement mail outs is $29.3 million. This figure is based on:

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a cost of $2 per letter, $0 per email (based on advice that the cost of sending an email is negligible);

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an administration cost (fixed) for each insurer per mail out to set up email distribution ($2752 per insurer per mail out - 1 person for 40 hours at $68.79/hour);

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an estimate of 75% of private health insurance policy holders (75% of 9.75 million ^[11] individuals) receive information via mail ($14.6 million per mail out);

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an estimate of 25% of private health insurance policy holders already receiving this information via email ($101,824 administration cost);

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an estimate of an additional 50% of policy holders will choose to receive this information via email (cost per mail out will be reduced to $4.9 million);

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an estimate of 25% of policy holders will continue to receive this information via mail ($101,824 administration cost); and

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information is required to be sent to 9.75 million individuals for each mail out (standard information statement, lifetime health cover and tax statement).

In relation to changes to coverage of natural therapies, a mail out will be required for general treatment policy holders to inform them of a change that is or might be detrimental. ^[12] The estimated cost for this mail out is $4.98 million. This figure is based on:

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an estimated 25% of policy holders will receive this information via mail and 75% of policy holders will receive this information via email;

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2.44 million people will receive this information via mail (25% of 9.75 million individuals);

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a cost of $2 per letter, $0 per email (based on advice that the cost of sending an email is negligible); and

•

an administration cost (fixed) for each insurer to set up email distribution ($2752 per insurer - 1 person for 40 hours at $68.79/hour).

Ongoing costs

No ongoing costs are required.

Estimated annual regulatory costs over 10 years

Table 4: Summary of regulatory costs for insurers

Brokers

IT system update costs (Reforms 1, 2, 4, 6, 11)

Brokers will require updates to their IT systems to be able to support the changes to product categories and information provision required to be implemented by insurers.

The estimated cost for IT system updates is $17.5 million.

This figure was based on each of the 14 brokers incurring a similar cost of $1.25 million for IT changes based on similar updates made by the industry for other changes.

Staff training costs (Reforms 1, 2, 4, 6, 11)

The estimated cost for staff training is $310,343. This figure is based on:

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there being 3 large and 11 small brokers;

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staff receiving an estimated 6 hours of training each;

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each large broker will train 100 staff;

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each small broker will train 10 staff;

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staff wage cost is $68.79/hour;

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develop training materials: 2 weeks per broker for 1 person (8 hours/day at $126/hour - based on $150,000 annual salary plus on-costs). Total cost per broker is $10,080.

Table 5: Cost of training by broker size

Website updates (Reforms 1, 2, 4, 6, 11)

The estimated cost for brokers to update their websites is $0.95 million. This figure is based on:

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large size brokers updating their websites in-house using existing web teams. Team of 4 people for 4 weeks ($126 per hour - based on $150,000 annual salary plus on-costs) = $80,640 per broker; and

•

small size brokers will need to outsource the work to update their websites. This is a higher cost but generally lower complexity product offering and therefore the estimate is 80% of the cost of large brokers. 80% of $80,640 = $64,512 per broker.

Table 6: Cost of website updates by broker size

Ongoing costs

No ongoing costs are required.

Estimated annual regulatory costs over 10 years

Table 7: Summary of regulatory costs for brokers

Summary of Estimated Regulatory Cost

Table 8: Summary of regulatory costs for insurers and brokers