House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Health and Ageing, the Honourable Tony Abbott MP)

Outline and financial impact statement

Outline

This Bill amends the Private Health Insurance Incentives Act 1998 and the Income Tax Assessment Act 1997 to maintain the affordability of private health insurance for older people.

The Bill amends the existing provisions that provide incentives for private health insurance, commonly known as the 'Private Health Insurance Rebate' (PHI Rebate) or the 'Federal Government 30% Rebate on private health insurance'. The current PHI Rebate helps Australians with private health cover, by reducing the cost of their premiums by 30%. These amendments will increase the rebate from 30% to 35% for policies covering at least one person aged 65 years to 69 years and to 40% for policies covering at least one person aged 70 and older.

The changes will take effect from 1 April 2005.

The changes in this Bill recognise that older people are more likely to need health care and that the affordability of private health insurance for people aged 65 and over is especially important. The changes mean that existing policy holders who have contributed to private health insurance for most of their adult lives are assisted in meeting the costs of their private health insurance at a time when they are likely to be on fixed and low to moderate retirement incomes.

As with the current PHI Rebate the higher rebate for older people will be available for hospital, ancillary and combined cover and can be claimed as a premium reduction from private health insurance funds, a direct payment from Medicare offices, or a tax offset in annual income tax returns. The increased rebate will apply to the whole premium for private health insurance policies where one or more of the individuals covered qualify for the age threshold.

Where a person is entitled to an increased rebate because someone else on the policy is 65 or older, he or she will continue to be entitled to the higher rebate if the older person leaves the policy, due for example to death, divorce or separation provided that the policy is not replaced by a couples or family policy with another person (other than adding a dependent child). The savings provision will not apply where its application would result in less rebate being payable.

Over the last decade the Government has initiated a number of reforms to introduce greater balance between the private and public health sectors. For example, the Government introduced the Medicare Levy Surcharge, PHI Rebate and Lifetime Health Cover. These initiatives have resulted in a significant growth in the membership of the private health insurance funds. They are also part of the Government's commitment to giving Australians greater choice in health care. By supporting a private health sector that complements the public health system, the Government is ensuring a sustainable and balanced health system for the future.

This Bill builds on the gains already made by these initiatives by increasing the affordability of private health insurance for older Australians.

Lifetime Health Cover and Department of Veterans' Affairs Gold Card

The Bill also makes a minor consequential amendment to the National Health Act 1953. The amendments extend protection from the application of Lifetime Health Cover, established via the Health Legislation Amendment (Private Health Insurance Reform) Act 2004, to persons issued with a Gold Card from 1 July 2004 under the Military Rehabilitation and Compensation Act 2004.

Financial impact statement

The financial impact of these changes will be to increase the cost of the administered appropriations for the existing Federal Government 30% Rebate. The application of this legislation from 1 April 2005 means the costs for 2004-05 are only those that occur in the last 3 months of the financial year.

Notes on clauses

Section 1: Short Title

This clause provides that this Act may be cited as the Private Health Insurance Incentives Amendment Act 2004.

Section 2: Commencement

This clause provides that this Act commences on the day it receives the Royal Assent.

Section 3: Schedule(s)

This clause provides that each Act that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule has effect according to its terms.

Schedule 1 - Changes to the Private Health Insurance Rebate for people aged 65 and over

Part 1 - Amendment of the Private Health Insurance Incentives Act 1998

Item 1: Subsections 4-10(5) and (6)

Item 1 repeals subsections 4-10(5) and (6) and substitutes new subsections 4-10(5) and (6).

New subsections (5) and (6) make changes necessary to introduce the 35% and 40% private health insurance rebate where the choice is made to make a direct claim for the rebate from Medicare offices.

New subsections (5) and (6) continue the distinction between persons who were registered or eligible to apply for registration before 1 January 1999 under the Private Health Insurance Incentives Act 1997, in respect of the policy for the financial year that began on 1 July 1998, and persons who were not.

Subsection (5) provides that if no person was so registered or eligible to apply for registration, the amount payable is the sum of the following amounts:

a.

30% of the amount of the premium paid by an individual, or by their employer as a *fringe benefit for the individual, under the policy in respect of days in the later financial year on which no person covered by the policy was aged 65 years or over;

b.

35% of the amount of the premium paid by an individual, or by their employer as a *fringe benefit for the individual, under the policy in respect of days in the later financial year on which:

•

at least one person covered by the policy was aged 65 years or over; and

•

no person covered by the policy was aged 70 years or over;

c.

40% of the amount of the premium paid by an individual, or by their employer as a *fringe benefit for the individual, under the policy in respect of days in the later financial year on which at least one person covered by the policy was aged 70 years or over.

An individual does not include an individual in the capacity of a trustee or employer: subsection 1-15(5) of the Private Health Insurance Incentives Act 1998 (the Act). A fringe benefit is defined in section 20-5 of the Act. Subsection (5) refers to 'later' financial year, because subsection 4-10(2) of the Act applies for the 1998-99 financial year.

Subsection (6) provides that if a person was so registered or eligible to apply for registration, the amount payable is the greater of:

a.

the sum of the amounts referred to in paragraphs 4-10(5)(a), (b) and (c); and

b.

the *incentive amount for the policy for the later financial year.

The phrases *fringe benefit and *incentive amount are defined in sections 20-5 and 20-10 of the Act. Subsection (6) refers to 'later' financial year, because subsection 4-10(3) of the Act applies for the 1998-99 financial year.

Item 2: After section 4-10

Item 2 inserts section 4-12.

The new section 4-12 establishes a savings provision which is intended to protect a person ('the first person') covered by a policy (and who may not otherwise be eligible in their own right for the higher rebate) where the person eligible for the higher rebate ('the entitling person') ceases to be covered by the policy.

The purpose of the savings provision is to ensure that the change in family circumstances covered by section 4-12 will not lead to an overpayment and a debt to the Government.

The section applies to a person (the first person), other than a *dependent child, if:

•

they were covered by an *appropriate private health insurance policy; and

•

due to the age of the entitling person the higher 35% or 40% rebate was payable; and

•

the entitling person ceases to be covered by the original policy.

The section operates to continue the first person's eligibility for the higher private health insurance rebate if the person:

•

is covered by an *appropriate private health insurance policy (whether the original policy or not); and

•

each other person (if any) covered, since the entitling person ceased to be covered by the original policy, by an *appropriate private health insurance policy that also covered the first person is a *dependent child, or a person who was covered by the original policy.

The phrases *appropriate private health insurance policy and *dependent child are defined in section 20-5 of the Act.

The savings provision does not operate if its application would result in the amount of the rebate payable being less than it would otherwise have been.

Item 3: Subsections 12-5(2A) and (3)

Item 3 repeals subsections 12-5(2A) and (3) and substitutes new subsections 12-5(2A) and (3).

New subsections (2A) and (3) make changes necessary to introduce the 35% and 40% private health insurance rebate where the choice is made to receive the rebate as a premium reduction through private health insurance funds.

New subsections (2A) and (3) continue the distinction between persons who were registered or eligible to apply for registration before 1 January 1999 under the Private Health Insurance Incentives Act 1997, in respect of the policy for the financial year that began on 1 July 1998, and persons who were not.

Subsection (2A) provides that if the financial year is a later financial year, and no person was so registered or eligible to apply for registration, the amount of the reduction is the sum of the following amounts:

c.

30% of the amount of the premium payable under the policy in respect of days in the later financial year on which no person covered by the policy was aged 65 years or over;

d.

35% of the amount of the premium payable under the policy in respect of days in the later financial year on which:

•

at least one person covered by the policy was aged 65 years or over; and

•

no person covered by the policy was aged 70 years or over;

e.

40% of the amount of the premium payable under the policy in respect of days in the later financial year on which at least one person covered by the policy was aged 70 years or over.

Subsection (2A) refers to 'later' financial year, because subsection 12-5(1B) of the Act applies for the 1998-99 financial year.

Subsection (3) provides that if the financial year is a later financial year and a person was so registered or eligible to apply for registration, the amount of the reduction is the greater of:

f.

the sum of the amounts referred to in paragraphs 12-5(2A)(a), (b) and (c); and

g.

the *incentive amount for the policy for the later financial year.

The phrase *incentive amount is defined in section 20-10 of the Act. Subsection (3) refers to 'later' financial year, because subsection 12-5(2) of the Act applies for the 1998-99 financial year.

Item 4: After section 12-5

Item 4 inserts section 12-7.

The new section 12-7 establishes a savings provision which is intended to protect a person ('the first person') covered by a policy (and who may not otherwise be eligible in their own right for the higher rebate) where the person eligible for the higher rebate ('the entitling person') ceases to be covered by the policy.

The purpose of the savings provision is to ensure that the change in family circumstances covered by section 12-7 will not lead to an overpayment and a debt to the Government.

The section applies to a person (the first person), other than a *dependent child, if:

•

they were covered by an *appropriate private health insurance policy; and

•

due to the age of the entitling person the higher 35% or 40% rebate was payable; and

•

the entitling person ceases to be covered by the original policy.

The section operates to continue the first person's eligibility for the higher private health insurance rebate if the person:

•

is covered by an *appropriate private health insurance policy (whether the original policy or not); and

•

each other person (if any) covered, since the entitling person ceased to be covered by the original policy, by an *appropriate private health insurance policy that also covered the first person is a *dependent child, or a person who was covered by the original policy.

The phrases *appropriate private health insurance policy and *dependent child are defined in section 20-5 of the Act.

The savings provision does not operate if its application would result in the amount of the rebate payable being less than it would otherwise have been.

Part 2 - Amendment of the Income Tax Assessment Act 1997

Item 5: Subsections 61-340(5) and (6)

Item 5 repeals subsections 61-340(5) and (6) and substitutes new subsections 61-340(5) and (6).

New subsections (5) and (6) make changes necessary to introduce the 35% and 40% private health insurance rebate where the choice is made to receive the rebate as a tax offset in annual tax returns.

New subsections (5) and (6) continue the distinction between persons who were registered or eligible to apply for registration before 1 January 1999 under the Private Health Insurance Incentives Act 1997, in respect of the policy for the financial year that began on 1 July 1998, and persons who were not.

Subsection (5) provides that if no person was so registered or eligible to apply for registration, the amount of the *tax offset is the sum of the following amounts:

h.

30% of the amount of the premium, or of the amount in respect of a premium, paid by the individual, or by their employer as a *fringe benefit for the employee, under the policy in respect of days in the later income year on which no person covered by the policy was aged 65 years or over;

i.

35% of the amount of the premium, or of the amount in respect of a premium, paid by the individual, or by their employer as a *fringe benefit for the employee, under the policy in respect of days in the later income year on which:

•

at least one person covered by the policy was aged 65 years or over; and

•

no person covered by the policy was aged 70 years or over;

j.

40% of the amount of the premium, or of the amount in respect of a premium, paid by the individual, or by their employer as a *fringe benefit for the employee, under the policy in respect of days in the later income year on which at least one person covered by the policy was aged 70 years or over.

An individual does not include an individual in the capacity of an employer: subsection 61-335(1), Income Tax Assessment Act 1997. A fringe benefit is defined in section 995-1, Income Tax Assessment Act 1997. Subsection (5) refers to 'later' income year, because subsection 61-340(2) applies for the 1998-99 income year.

Subsection (6) provides that if a person was so registered or eligible to apply for registration, the amount of the *tax offset is the greater of:

k.

the sum of the amounts referred to in paragraphs 61-340(5)(a), (b) and (c); and

l.

the incentive amount for the policy for the later income year.

Incentive amount is defined in section 61-345, Income Tax Assessment Act 1997. Subsection (6) refers to 'later' income year, because subsection 61-340(3) applies for the 1998-99 income year.

Item 6: After section 61-340

Item 6 inserts section 61-342.

The new section 61-342 establishes a savings provision which is intended to protect a person ('the first person') covered by a policy (and who may not otherwise be eligible in their own right for the higher rebate) where the person eligible for the higher tax offset ('the entitling person') ceases to be covered by the policy.

The purpose of the savings provision is to ensure that the change in family circumstances covered by section 61-340 will not lead to an overpayment and a debt to the Government.

The section applies to a person (the first person), other than a dependent child, if:

•

they were covered by an appropriate private health insurance policy; and

•

due to the age of the entitling person the higher 35% or 40% tax offset applied; and

•

the entitling person ceases to be covered by the original policy.

The section operates to continue the first person's eligibility for the higher tax offset if the person:

•

is covered by an appropriate private health insurance policy (whether the original policy or not); and

•

each other person (if any) covered, since the entitling person ceased to be covered by the original policy, by an appropriate private health insurance policy that also covered the first person is a dependent child, or a person who was covered by the original policy.

The savings provision does not operate if its application would result in the amount of tax offset being less than it would otherwise have been.

Part 3 - Application

Item 7: Application of amendments

Item 7 provides that the amendments made by this Schedule apply to amounts of premium, and amounts in respect of premium, paid or payable in respect of a period beginning on or after 1 April 2005.

This means the additional Rebate will apply on and from 1 April 2005.

Schedule 2 - Gold Cards

National Health Act 1953

Item 1: Paragraph 4(2)(a) of Schedule 2

This item removes the reference in paragraph 4(2)(a) of Schedule 2 to "under the Veterans' Entitlement Act 1986". The reference will be replaced via the amended definition in subclause 4(3) of Schedule 2 which references Gold Cards issued under both the Veterans' Entitlement Act 1986 and the Military Rehabilitation and Compensation Act 2004.

Item 2: Subclause 4(3) of Schedule 2 (definition of Gold Card)

This item repeals the current definition of Gold Card and substitutes it with a new definition which references Gold Cards provided in accordance with both the Veterans' Entitlement Act 1986 or the Military Rehabilitation and Compensation Act 2004.

Item 3: Application of Amendment

This item gives the amendments in item 2 retrospective operation to ensure that person's issued with a Gold Card via the Military Rehabilitation and Compensation Act 2004 from 1 July 2004 are covered by the amendment, and protected from the application of a Lifetime Health Cover loading from this date.