House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP and the Minister for Health and Aged Care, the Hon Dr Michael Wooldridge, MP))

Chapter 4 - Premium reduction scheme

Explanation of the amendments

4.1 The premiums reduction scheme in Chapter 3 of the PHII Bill allows an individual who is covered by appropriate health insurance policy to register with his or her health fund in order to obtain a reduction in premiums that are payable under the policy.

Participation in the premiums reduction scheme

4.2 Part 5 of the PHII Bill sets out which individuals are eligible to register under the premiums reduction scheme, whether an individual is a participant in a particular financial year and the calculations used to determine the reduction in the premium. It also sets out matters relating to the registration process such as notification requirements imposed on applicants in relation to their registration, requirements imposed on health funds to notify the HIC in relation to applications made and requirements imposed on the HIC in relation to refusals or a revocation of a registration.

Who is eligible to claim a premium reduction?

4.2 An individual is eligible to participate in the premium reduction scheme for a financial year in respect of a private health insurance policy if:

•

the policy is an appropriate private health insurance policy - see paragraphs 4.3 to 4.5 below which describe this term;

•

the health fund that issued the policy is, for the year, a participating fund - see paragraphs 4.46 to 4.50 which describe the steps a fund must take to become a participating fund; and

•

the individual is eligible to apply to be registered in respect of a policy under the scheme - see paragraphs 4.9 to 4.10 below which describe which individuals are eligible to register in respect of a policy. [New section 10-5]

Meaning of appropriate private health insurance policy

4.3 This term is defined in new section 20-5 as a private health insurance policy which meets the following criteria:

•

the policy provides hospital cover , ancillary cover or combined cover (see descriptions of these terms in the table below); and

•

each of the persons covered by the policy is a person who is eligible to claim benefits under Medicare.

4.4 The term private health insurance policy is defined in new section 20-5 as a contract of insurance entered into by a health fund in the course of carrying on a health insurance business within the meaning of section 67 of the National Health Act 1953. A health fund is defined in new section 20-5 to mean a registered organisation within the meaning of Part VI of the National Health Act 1953 .4.5 The terms hospital cover , ancillary cover and combined cover are defined in new section 20-5 as follows:

How do individuals participate in the scheme?

Registration by HIC

4.6 Individuals who are eligible to register under the premiums reduction scheme for a financial year must apply to the health fund which issued the policy to be registered by the HIC in respect of the policy for that year. [New subsection 11-5(1)]

4.7 Once a health fund has received an application for registration it is required to notify the HIC of the application received. [New subsection 11-5(2)]

4.8 The HIC, on receiving a notice of an application from a health fund, must register the applicant in respect of the policy for the financial year if the HIC is satisfied that the individual is eligible to participate in the scheme. [New subsection 11-5(3)]

4.9 The HIC must notify a health fund when it registers an applicant in respect of an appropriate private health insurance policy issued by the health fund. [New subsection 11-5(4)]

Who is eligible to register?

4.10 Individuals who are eligible to apply for registration are individuals covered by the policy, other than dependent children. If every individual covered by the policy is a dependent child then a parent of any of the dependent children can apply for registration. [New subsection 11-10(1)]

4.11 An individual is not eligible to register for a financial year if another individual has already applied for registration in respect of a policy and the HIC has not refused to register that individual or that person's registration has not been revoked. [New subsection 11-10(2)]

Applications for registration

4.12 An application for registration under the scheme is required to be in a form approved by the Minister and must state the following details:

•

the name of the health fund to which the application is made;

•

the applicant's full name;

•

the applicant's date of birth;

•

the applicant's residential address;

•

the applicant's Medicare card number;

•

the fund membership number of the policy;

•

whether the policy covers only one individual or more than one individual;

•

the full name and date of birth of each individual covered by the policy (other than the applicant);

•

whether any of the above individuals covered are dependent children; and

•

any other information determined in writing by the Minister. [New subsection 11-15(1)]

4.13 In relation to the last dot point in paragraph 4.12, the Minister cannot determine that an individual provide the tax file number of any person. [New subsection 11-15(2)]

4.14 Determinations referred to in the last dot point in paragraph 4.12, are disallowable instruments for the purposes of section 46A of the Acts Interpretation Act 1901 . [New subsection 11-15(3)]

4.15 An individual can make an application before or during the financial year concerned. [New subsection 11-15(4)] This means that, under the new scheme, an application for a premium reduction cannot be made after the end of the financial year in which a premium is paid.

Notifying the HIC

4.16 A health fund, on receiving an application for registration, must notify the HIC of the application within a period determined by the Managing Director. [New subsection 11-20(1)]

4.17 The notice must be in such a form, and contain such details, as the Managing Director determines in writing. [New subsection 11-20(2)]

4.18 For the purposes of new subsection 11-20(2) , the Managing Director of the HIC cannot determine that the participating fund provide the tax file number of any person, or any information about the physical, psychological or emotional health of any person. [New subsection 11-20(3)]

4.19 The Managing Director must also not seek information which relates to individuals other than the applicant or other persons covered by the policy. [New subsection 11-20(4)]

4.20 Determinations made by the Managing Director for the purpose of new subsection 11-20(2) are disallowable instruments for the purposes of section 46A of the Acts Interpretation Act 1901 . [New subsection 11-20(5)]

Refusal to register

4.21 If the HIC refuses to register the applicant, it must provide notification in writing to the applicant. The notice must include the reasons for the refusal of the application. [New subsection 11-25(1)]

4.22 The applicant will be taken to be properly registered if the HIC does not notify the applicant of refusal within 14 days after the HIC has received the application from the health fund. [New subsection 11-25(2)]

4.23 A decision by the HIC to refuse to register an individual in respect of a policy is a decision reviewable by the Administrative Appeals Tribunal.

Notification requirements - registered persons

4.24 An individual who is registered in respect of a policy for a financial year must notify the health fund which issued the policy if a detail stated in the application changes and the detail concerns:

•

the number of individuals covered by the policy; or

•

the status of individuals as dependent children;

and the change is of such a kind that the incentive amount (see paragraph 4.44) applicable to a policy changes. [New subsection 11-30(1)]

4.25 An individual is guilty of an offence if a detail of the kind referred to in new subsection 11-30(1) changes and the individual fails to notify the health fund within 30 days. The maximum penalty is 60 penalty units. [New subsection 11-30(2)]

4.26 Section 4K of the Crimes Act 1914 does not apply to the obligation to provide information referred to in new subsection 11-30(2) . [New subsection 11-30(3)]

4.27 An individual who is registered in respect of a policy for a financial year may notify the health fund in writing if he or she no longer wishes to be registered in respect of the policy for the financial year. [New subsection 11-30(4)] It should be noted that because of new subsection 12-10(1) an individual will be taken to be registered in respect of the 1998-99 financial year under the premiums reduction scheme if the individual is registered under PHIIS for that year.

Notification requirements - health funds

4.28 If a health fund receives a notice of the kind referred to in new section 11-30 , the health fund must advise the HIC within a period determined by the Managing Director. [New section 11-35]

Revocation of registration

4.29 The HIC must revoke an individual's registration for a financial year if the HIC is satisfied that the individual is not eligible to participate in the premiums reduction scheme for that year. [New subsection 11-40(1)]

4.30 The revocation of a registration by the HIC does not affect an individual's right to make another application for registration. [New subsection 11-40(2)]

4.31 A decision by the HIC to revoke a registration is a decision reviewable by the Administrative Appeals Tribunal.

Variation of registration

4.32 A health fund is required to notify the HIC if the type of cover provided by a policy, ie. hospital, ancillary or combined in respect of which an individual is registered is varied. [New subsection 11-45(1)]

4.33 The HIC, onreceiving a such notice from a health fund, must vary the details of the registration accordingly. [New subsection 11-45(2)]

Retention of applications by health funds

4.34 A health fund must retain applications for a period of 5 years. The period for retention commences on the day the application was made. [New subsection 11-50(1)]

4.35 The health fund may retain the application in any form (including an electronic form) that has been approved by the Managing Director. [New subsection 11-50(2)]

4.36 The application received in such a form must be received in all courts and tribunals as evidence as if it were the original. [New subsection 11-50(3)]

How is the reduction in premiums calculated?

Reduction in premiums

4.37 The amount by which a premium will be reduced under the premiums reduction scheme depends on whether or not an individual is registered or entitled to be registered under PHIIS in respect of the policy for the 1998-99 financial year. A person would be taken to be entitled to be registered before 1 January 1998 if he or she satisfied the eligibility criteria and started to pay premiums before that date. The premium reduction is calculated so that the benefit available under the new scheme is no less than that which would have been available under PHIIS had a person been registered or entitled to be registered in respect of a policy under that scheme in the 1998-99 financial year.

4.38 New subsection 12-5(1) provides that, if an individual is a participant in the premiums reduction scheme in relation to an appropriate private health insurance policy for a financial year, the premium that is payable for the financial year is reduced in accordance with the rules set out in new section 12-5 .

Premiums paid under a policy for the 1998-99 financial year

4.39 The premium reduction for premiums payable in respect of a policy for the 1998-99 financial year is determined as follows:

•

if the policy was not subject to a premium reduction under PHIIS in respect of the 1998-99 financial year, the premium reduction is 30% of the premiums payable;

•

if the policy was subject to a premium reduction under PHIIS in respect of the 1998-99 financial year, the premium reduction is the greater of:

-

30% of the premium payable, or, if the premium was reduced by an incentive amount under PHIIS, 30% of the premium that would have been payable if it had not been so reduced; and

-

the incentive amount for the policy for the financial year. [New subsection 12-5(2)]

Example 1:

Johnpaid a premium of $901.85 on 1 December 1998 in respect of a family policy to provide cover for the 6 month period 1 January 1999 to 30 June 1999. John had registered under PHIIS to claim a premium reduction, so the premium was reduced from $1,125. The reduction under PHIIS was calculated as the annual incentive amount ($450) pro-rated for half the financial year $450 * 181/365 ($223.15). John is a participant under the premiums reduction scheme in respect of the 1998-99 financial year (see new subsection 12-10(1) ). John is notionally entitled to a premium reduction which is the greater of:

(i)

30% of $1,125 ($337.50); and

(ii)

the incentive amount of $223.15.

So while John is notionally entitled to a premium reduction of $337.50 under new subsection 12-5(6) the premium reduction will be reduced by $223.15 as this amount by which the premium has already been reduced under PHIIS.

Example 2:

Stephanie took out a single policy for hospital cover as from 1 July 1998. The premiums payable under the policy are $260 per annum or $10 per fortnight. In the financial year 1998-99, Stephanie was registered under PHIIS to claim a reduction in premiums. If PHIIS had continued from 1 January 1999 she would have been entitled to a reduction of $100 (ie the annual incentive amount for a single policy providing hospital cover is $100) for the 1998-99 financial year. However, Stephanie would have received only $50.41 through fortnightly premium reductions up to 31 December 1998 when the PHIIS closed, assuming her last fortnightly payment was for cover up to 31 December 1998. Stephanie is a participant under the premiums reduction scheme in respect of the 1998-99 financial year (see new subsection 12-10(1) ).

Under the new scheme Stephanie is entitled to a premium reduction equal to the greater of:

(i)

30% of $260 * 181/365 ($38.68); and

(ii)

the incentive amount of $100 * 181/365 ($49.59).

Under the new scheme Stephanie is, therefore, entitled to a premium reduction of $49.59 for the period 1 January 1999 to 30 June 1999.

Premiums paid under a policy for a financial year after 1998-99

4.40 The premium reduction for premiums paid in respect of a policy for a financial year after the 1998-99 financial year is the greater of:

•

30% of the amount of the premium paid; and

•

the incentive amount for the policy for the financial year. [New subsection 12-5(3)]

Example 3:

On 1 May 1999, Greg renews a twelve month family policy for combined cover for Greg and his dependent child. The premium paid is $1,400. Greg was registered under PHIIS to claim a premium reduction in the 1998-99 financial year. Greg is a participant in the premiums reduction scheme in respect of the 1998-99 financial year (see new subsection 12-10(1) ) and registers with his health fund to become a participant in the 1999-2000 financial year.

For the 1998-99 financial year, Greg's premium reduction is calculated as the greater of:

(i)

30% of $1,400 * 61/365 ($70.10); and

(ii)

61/365 * $450 ($75.21).

For the 1999-2000 financial year the amount of the premium reduction is the greater of:

(i)

30% of $1,400 * 304/365 ($349.81); and

(ii)

304/365 * $450 ($374.79).

The total amount of premium reduction to which Greg is entitled is $75.21 + $374.79 ($450).

Example 4:

Tom and Sylvia, who have a couple policy providing combined cover in the financial year 1999-2000, pay a premium of $100 per fortnight. Tom and Sylvia were ineligible to claim a benefit under PHIIS in 1998-99 because they did not satisfy the income test under that scheme in that year. Tom makes the premium payments out of his fortnightly salary. If Tom or Sylvia register with their health fund under the new scheme then from 1 January 1999, the premiums Tom has deducted from his salary will be reduced by $30.

No reduction allowable where an amount received as an incentive payment

4.41 An individual is not entitled to a reduction under the premiums reduction scheme in respect of a premium payable if an individual has received an incentive payment in respect of the premium. [New subsection 12-5(4)]

Entitlement where premiums relate wholly or partly to a period before 1 January 1999

4.42 New subsection 12-5(5) is a transitional measure that deals with premiums paid for an appropriate private health insurance policy that relates to a period before 1 January 1999. An individual who has paid the premium cannot claim a premium reduction to the extent that the premium relates to a period before 1 January 1999. Where a premium covers a period before 1 January 1999 and after 31 December 1998, the premium reduction must be determined on a pro rata basis.

Example 5:

On 1 May 1998 Ted makes a premium payment of $1,400 for an appropriate private health insurance policy for the period 1 July 1998 to 30 June 1999. There was no entitlement to a reduced premium or tax offset under PHIIS. Ted is entitled to premium reduction under the premiums reduction scheme in relation to the period 1 January 1999 to 30 June 1999. The premium will therefore be reduced by 30% of $1,400 * 181/365 ($208.27).

Effect on entitlement where premium was reduced under PHIIS

4.43 New subsection 12-5(6) is a transitional measure that applies to premiums paid on or before 31 December 1998 for an appropriate private health insurance policy and the premium has been reduced under PHIIS. Where the premium payable in respect of a period after 31 December 1998 is less than otherwise would have been payable because a premium reduction has already been obtained under PHIIS, the premium reduction under the new scheme for that period is reduced accordingly.

Meaning of incentive amount

4.44 New subsection 20-10(1) provides a meaning for the term incentive amount . This is the same as the annual incentive amounts included in section 5-4 of the PHIIA. The amount of the incentive depends on whether premiums are paid for the whole or part of the financial year:

•

if the premiums are paid for the whole of the financial year the incentive amount is as follows:

•

if the premiums are paid for part of a financial year the incentive amount is calculated on a pro rata basis. The amount is calculated using the formula in new subsection 20-10(2) . The result of the formula is that the full year incentive amount applicable to the circumstances is apportioned according to the amount of the year (ie. number of days) the premiums cover.

Who is a participant in the premium reductions scheme

4.45 An individual is a participant for a financial year in respect of an appropriate insurance private health policy if:

•

where the financial year is the financial year that began on 1 July 1998 - the individual is registered under PHIIS immediately before 1 January 1999 in respect of the policy;

•

where the financial year is the financial year that began on 1 July 1998 or a later financial year - the individual has registered or applied to be registered under the premiums reduction scheme in respect of the policy for the financial year and the registration has not been refused. [New subsection 12-10(1)]

4.46 An individual who is registered in respect of a policy on 30 June in a financial year is taken to be a participant for the month of July in the subsequent financial year even if they have not submitted an application for the subsequent financial year. [New subsection 12-10(2)] This provision allows an individual a month at the end of the financial year to renew registration for the following financial year.

Reimbursement of health funds

4.47 Part 6 of the Bill sets out how health funds can participate in the premiums reduction scheme and how the Government reimburses them for the reductions in premiums made under the scheme.

How do health funds become participating funds?

4.48 A health fund that was for the purposes of PHIIS a participating fund for the 1998-99 financial year will be taken to be a participating fund in respect of the same financial year for the purposes of the new premiums reduction scheme. [New subsection 14-5(1)]

4.49 A health fund may apply to the Minister to become a participating fund for the 1998-99 financial year or a later financial year. [New subsection 14-5(2)]

4.50 The fund will be a participating fund if the Minister approves the application. [New subsection 14-5(3)]

Requirement for applications

4.51 The application must:

•

be in a form determined by the Minister;

•

include such information as determined in writing by the Minister;

•

be signed by the person who is the public officer of the health fund for the purposes of the National Health Act 1953 ; and

•

include an undertaking from the public officer of the fund that the fund will participate in the premium reduction scheme until the end of the financial year in question. [New subsection 14-10(1)]

4.52 The application must be made no later than 2 months, or such shorter period as is determined by the Minister, before the start of the financial year in question. If a fund becomes registered under Part VI of the National Health Act 1953 during a financial year, the application must be made as soon as practicable after the fund is registered. [New subsection 14-10(2)]

Consideration of applications

4.53 The Minister is required to approve an application by a health fund to be a participating fund subject to the condition set out in new subsection 14-15(2) . [New subsection 14-15(1)] A rejection by the Minister of an application is a decision reviewable by the Administrative Appeals Tribunal.

4.54 The Minister must not approve an application by a health fund for a financial year if the health fund failed to comply in the previous financial year with any of the conditions for participation in the premium reduction scheme which are prescribed by regulation. [New subsection 14-15(2)]

Notice of Minister's decision

4.55 The Minister must notify the applicant health fund in writing of a decision to approve or reject an application to participate in the premium reduction scheme within 28 days of receiving the application. [New subsection 14-20(1)]

4.56 If the Minister rejects an application, the notice must set out reasons for the rejection. [New subsection14-20(2)] A decision by the Minister to reject an application is a decision reviewable by the Administrative Appeals Tribunal.

How are health funds reimbursed?

4.57 A health fund that is a participating fund in a financial year may claim reimbursement for premium reductions from the HIC on a monthly basis. [New subsection 15-5(1)]

4.58 The HIC must pay to the health fund the amount calculated for a month in accordance with new section 15-15 . [New subsection 15-5(2)]

Requirement for claims

4.59 A claim by a health fund for a month must be made to the HIC on or before the last day of the notification period for the following month. New section 20-5 defines notification period to be the period starting on the first day of the month and finishing on the seventh day of the month. [New subsection 15-10(1)]

4.60 A claim by a health fund must contain such information as the Managing Director of the HIC determines in writing. [New subsection 15-10(2)]

4.61 The details that the Managing Director may determine in writing includes, but is not limited to, details about any or all of the following private health insurance policies issued by the health fund:

•

policies that were on the first day of the month policies in respect of which persons were participants in the scheme;

•

policies that had been at any time before that day policies in respect of persons who were participants in the scheme. [New subsection 15-10(3)]

4.62 For the purposes of new subsection 15-10(2) , the Managing Director of the HIC cannot determine that the participating fund provide the tax file number of any person or any information about the physical, psychological or emotional health of any person. [New subsection 15-10(4)]

4.63 Determinations under new subsection 15-10(2) are disallowable instruments for the purposes of section 46A of the Acts Interpretation Act 1901 . [New subsection 15-10(5)]

Amounts payable to the health fund

4.64 The amount payable to the health fund in respect of the month is determined according to the amount by which premiums paid for the month have been reduced under the premiums reduction scheme. [New subsection 15-15(1)]

4.65 The amount must be paid to the health fund on or before the 15th day of the following month (or if that day is not a business day, the first business day after that day). New subsection 15-15(2)]

4.66 The amount must be paid in a manner determined, in writing, by the Managing Director of the HIC. [New subsection 15-15(3)]

Notifying health funds if amount is not payable

4.67 The HIC must notify a health fund if it decides that an amount to reimburse a health fund for a premium reduction is not payable in respect of a private health insurance policy. [New subsection 15-20(1)]

4.68 The notice must include reasons for the decision. [New subsection 15-20(2)]

4.69 The HIC is taken to have decided that the amount is payable if it does not give notice of its decision that the amount is not payable on or before the 15th day of the following month (or, if that day is not a business day, the first business day after that day) if the amount had been payable or would have been payable on or before that time. [New subsection 15-20(3)]

Reconsideration of decisions

4.70 A health fund may request the HIC to reconsider its decision not to pay a claim for reimbursement. [New subsection 15-25(1)]

4.71 The request must:

•

be in writing;

•

set out the reasons for the request; and

•

be made on or before the first day of the month following the month during which the HIC gave the notice (or if that day is not a business day then the first business day after that day). [New subsection 15-25(2)]

4.72 The HIC must reconsider the decision and affirm, vary or revoke the decision as soon as practicable after receiving the request. [New subsection 15-25(3)]

4.73 Decisions by the HIC on reconsideration are decisions reviewable by the Administrative Appeals Tribunal.

4.74 If the HIC revokes a decision, revocation is taken to be a decision that the amount in question is payable. [New subsection 15-25(4)]

4.75 If the HIC varies a decision, the decision has effect, and is taken to always have had effect in accordance with the variation. [New subsection 15-25(5)]

4.76 The HIC is required to notify the health fund stating its decision on the reconsideration of a decision together with a statement of its reasons for its decision. [New subsection 15-25(6)]

4.77 The HIC is taken to have revoked the decision if it does not notify the health fund of its decision on the reconsideration within 28 days after receiving the request. [New subsection 15-25(7)]

Administration provisions

Audits by the HIC

4.78 The HIC may, at any time, audit the accounts and records of health funds that are or have been participating in the premium reduction scheme. [New subsection 16-5(1)]

4.79 An audit must relate only to the fund's accounts and records to the extent that they deal with participation by persons in the premiums reduction scheme, reduction of the premiums under the scheme, and receipt of money from the HIC under the scheme. [New subsection 16-5(2)]

4.80 The HIC must not carry out an audit unless it has notified a fund in writing that it intends to conduct an audit. [New subsection 16-5(3)]

4.81 Health funds are required to ensure that the HIC has access to all accounts, papers, records and documents necessary for the audit. [New subsection 16-5(4)]

4.82 Persons carrying out the audit may make copies of, or take extracts from, any documents relevant to the audit. [New subsection 16-5(5)]

4.83 The HIC may take into account a report under section 82PA of the National Health Act 1953 in considering whether or not to conduct an audit. [New subsection 16-5(6)]

HIC may require production of applications

4.84 The HIC may, by written notice to a health fund, require the health fund to produce to the HIC, within the period and in the manner specified in the notice, registration applications retained by the health fund, or to make copies of these applications and give them to the HIC within the period and in the manner specified in the notice. [New subsection 16-10(1)]

4.85 The period specified in the notice requiring the health fund to produce registration applications must not be less than one month. [New subsection 16-10(2)]

4.86 A health fund is entitled to be paid by the HIC reasonable compensation for complying with a request to make copies of applications and providing them to the HIC. [New subsection 16-10(3)]