Annual Report - Outcome 9 – Private Health

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Part 3: Management Arrangements

Part 4: Accountability Reporting

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Outcome Summary

Outcome 9 aims to provide the community with access to a choice of quality and innovative private health care services within a viable and cost-effective private health insurance industry. The Department worked to achieve this outcome by managing initiatives under the programs outlined below.

Program Administered Under Outcome 9 (Program Objectives in 2008–09)

Program 9.1 – Private Health Insurance

Fund private health insurance rebates to reduce the cost of premiums and to make private health insurance more affordable for individuals and families.
Encourage consistent performance reporting to enhance quality of care.
Increase the scope and proportion of chronic disease management programs and hospital-substitute episodes delivered to private patients.

This chapter reports on the major activities undertaken by the Department during the year, addressing each of the key strategic directions and performance indicators published in the Outcome 9 chapters of the 2008–09 Health and Ageing Portfolio Budget Statements and 2008–09 Health and Ageing Portfolio Additional Estimates Statements. It also includes a table summarising the estimated and actual expenditure for this outcome.

Outcome 9 was managed in 2008–09 by the Acute Care Division.

Major Achievements for the Outcome:

The Department worked closely with private health insurers in assessing applications for premium increases helping to ensure the affordability and value of private health insurance as a product for the Australian community. In a period where insurer benefit outlays increased by more than 10 per cent, premium increases were kept to 6.02 per cent; and
Implemented changes resulting from increases in the Medicare Levy Surcharge income thresholds from $50,000 to $70,000 per year for individuals and from $100,000 to $140,000 per year for couples/families with annual indexation, ensuring that the income thresholds are correctly targeted (see Ensuring Consumers Have Access to Affordable Private Health Insurance).

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A Challenge for the Outcome:

Grouping reviews of neurosurgical and some orthopaedic prostheses were not finalised in 2008–09 as expected (see Ensuring Consumers Have Access to Affordable Private Health Insurance).

Key Strategic Directions for 2008–09 – Major Activities

Ensuring Consumers Have Access to Affordable Private Health Insurance

Making affordable private health insurance accessible to consumers promotes the sustainability of private health services. The Department ensures consumers have access to affordable private health insurance by assessing private health insurance premium increase applications, and improving regulatory arrangements for private health insurance, including legislated benefits for hospital treatment and prostheses and private health incentives.

Assessment of Private Health Insurance Premium Applications

The Department worked closely with private health insurers, the Private Health Insurance Administration Council and the Australian Government Actuary to assess applications for increases in private health insurance premiums in 2009. This required scrutinising all applications and advising the Minister for Health and Ageing in relation to exercising her powers under section 66–10 of the Private Health Insurance Act 2007 to: keep premium increases to the minimum necessary to ensure insurer solvency; support benefits outlays; and meet prudential standards, at the same time ensuring affordability and value for money for the Australian community.

The Minister for Health and Ageing approved an average private health insurance premium increase of 6.02 per cent from 1 April 2009. The need for this increase is attributed to increased benefits paid to patients, rising health service costs, and investment losses from the global financial crisis. The Department will consider requests for the 2010 premium round from 20 November 2009 onwards, analysing and assessing applications to ensure that the increases sought by insurers are necessary, and undertaking any necessary negotiations with insurers.
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Prostheses Arrangements

Under the Private Health Insurance Act 2007, private health insurers pay benefits for a range of prostheses including cardiac pacemakers, defibrillators and stents, hip and knee joint replacements, intraocular lenses, and human tissue such as heart valves, corneas, bone and muscle.

In 2008–09, the Department managed a process of continuous improvement for prostheses, which included funding expert clinicians to sort similar prostheses into groups to inform benefit negotiations between sponsors and the Prostheses and Devices Negotiation Group. Once completed, this work will lead to a less burdensome application and assessment process for manufacturers and help keep the costs of prostheses to private health insurers and their members at an appropriate level. The Prostheses and Devices Committee, which is supported by the Department, has forecast this grouping will be completed by February 2011.

A challenge occurred in 2008-09 when grouping reviews for neurosurgical and some orthopaedic prostheses were not finalised. These groups of prostheses do not sit within the Clinical Advisory Groups established by the Prostheses and Devices Committee and there have been significant issues with engaging sufficient numbers of expert clinicians to provide adequate input into developing grouping schemes for these prostheses. This was coupled with difficulties associated with device sponsors not agreeing with the grouping schemes developed by the clinicians, which delayed an outcome to the reviews. The lack of available clinicians to assess some types of prostheses is a continuing challenge, and the assessment of some new applications for listing had to be deferred from the August 2009 Prostheses List.

The Department updated the Prostheses List in July 2008 and February 2009, informing consumers, doctors, hospitals, insurers and device sponsors of the private health insurance benefits paid for specific prostheses; and continued reviewing prostheses classifications to ensure payment of similar benefits for similar items. In addition, the Department commenced examining benefits for human tissue items under Part B Human Tissue of the Prostheses List, in response to the Review of the Prostheses Listing Arrangements undertaken by Robert Doyle in 2007.

In 2009–10, the Department will focus on developing a fair and equitable prostheses reimbursement framework, to ensure private health insurance expenditure is directed to clinically and cost-effective prostheses. It will also continue to implement recommendations from the Doyle Review and any recommendations from the Health Technology Assessment Review. This, among other actions, will include removing products from the Prostheses List that do not have an Australian Register of Therapeutic Goods number, or are not associated with a procedure listed on the Medicare Benefits Schedule.
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Medicare Levy Surcharge

The Medicare Levy Surcharge is a 1 per cent surcharge of taxable income paid by Australian residents to help fund health costs. A major achievement for the Department this year was the increase of the Medicare Levy Surcharge thresholds from $50,000 to $70,000 per year for individuals, and from $100,000 to $140,000 per year for couples/families. This change helped ensure that the Medicare Levy Surcharge was refocused to avoid affecting low-income earners, whilst encouraging high income earners to take out private health insurance.

To ensure that the thresholds continue to apply to higher income earners, the thresholds have been indexed annually to full time adult average weekly ordinary time earnings. The changes to the thresholds were enacted through the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Act (No 2) 2008. The May 2008 Budget originally proposed Medicare Levy Surcharge thresholds of $100,000 for individuals and $150,000 for families. The May 2009 Budget proposed to both means-test the private health insurance rebate and increase the Medicare Levy Surcharge for people earning above the Medicare Levy Surcharge thresholds.

Funding for the above activities was sourced from Program 9.1 – Private Health Insurance.

Empowering Consumers to Make Informed Decisions

Consumers need information to make sound decisions relating to their health care. Informed financial consent is the provision of cost information to patients, including notification of likely out-of-pocket expenses (gaps) by all relevant service providers, preferably in writing, prior to admission or treatment.

A survey of consumers in 2007 showed that 83 per cent had either given informed financial consent for all the services involved in their treatment, or did not have a gap to pay. However, the remaining 17 per cent of consumers reported having a surprise gap.

In 2008–09, the Department worked with the Australian Medical Association to increase the incidence of informed financial consent obtained by medical specialists who have limited patient contact, such as anaesthetists and pathologists. This work resulted in the development of an informed financial consent toolbox for practice managers and a best practice billing model for pathologists. The Department also provided comments on the informed financial consent components of the Australian Medical Council Code of Conduct.

Funding for the above activities was sourced from Program 9.1 – Private Health Insurance.
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Encouraging Innovative Models of Service Delivery

Hospital Prevention and Substitute Services

International evidence demonstrates that illness prevention activities result in a healthier community, a lowering of costs to the health system, and reduced health costs over time. During 2008–09, the Department encouraged private health insurers to develop products that prevent illness or offer a substitute for hospitalisation. Most health insurers now offer cover for services that support people with chronic disease to manage their conditions or prevent or delay the onset of chronic disease for a person with identified multiple risk factors for chronic disease.

Monitoring Participation

Private health insurance data is collected by the Private Health Insurance Administration Council and supplied to the Department quarterly. The Department and the Private Health Insurance Administration Council closely monitor and report on this data to ensure health insurers comply with their legislated requirements, and to determine participation rates for innovative models of service delivery.

In 2008–09, the Department analysed trends, monitored the effect of policy initiatives on private health insurance coverage, and improved data quality. The Department also monitored and reported on private health insurance coverage, risk equalisation and Broader Health Cover initiatives, such as chronic disease management programs and hospital-substitute episodes. Some results for 2008–09 are reported in the following ‘Key Facts for 2008–09’.

Funding for the above activities was sourced from Program 9.1 – Private Health Insurance.

Key Facts for 2008–09: Private Health Trends

At 30 June 2009, the number of people with private hospital cover was 9.7 million compared with 9.5 million at 30 June 2008.
Insurers paid out $9.1 million in benefits in the 12 months to 30 June 2009 for chronic disease management programs compared with $4.0 million in the previous 12 months.
The number of chronic disease management programs increased 98 per cent in the 12 months to 30 June 2009 to 19,557 compared with 9,901 programs in the previous 12 months.
Insurers paid out $3.6 million in benefits for hospital-substitute treatment in the 12 months to 30 June 2009, an increase of 21 per cent compared with $3.0 million in the previous 12 months.
Hospital-substitute episodes increased in the 12 months to 30 June 2009 to 12,932 from 12,884 episodes in the previous 12 months.

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Figure 2.3.9.1: Number of People with Private Hospital Cover

Source: PHIAC A Reports, Various quarters (available at www.phiac.gov.au).

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Enhancing Links between the Private and Public Health Care Systems to Improve Service Delivery

Improving links between the private and public health systems is important to ensure that consumers receive quality service wherever they seek care. The Department worked to achieve this in 2008–09, through collaboration with the State and Territory Governments and private health insurers, and the introduction of private health insurance accreditation rules.

Public Sector Service Delivery Agencies and Private Health Insurers

During 2008–09, the Department worked with the State and Territory Governments through the Australian Health Ministers’ Conference and the Australian Health Ministers’ Advisory Council, industry committees and bilateral meetings to identify opportunities for fostering relationships between health insurers and health care providers, including State and Territory health authorities, to encourage collaborative development of innovative and flexible health care services for consumers. This was particularly relevant in relation to the cessation of mandatory benefits for outreach programs for private health insurance purposes. As of 1 June 2009, insurers and public and private hospitals were able to directly negotiate to determine what hospital-in-the-home services would be insurable.

Private Health Insurance (Accreditation) Rules

The Private Health Insurance (Accreditation) Rules commenced on 1 July 2008. These rules provide private patients with confidence that they will receive treatment from qualified health care providers, whether in the public or private health sectors. During 2008–09, the Department continued to consult with private health insurers and the providers of complementary services to assist them in understanding the requirements of the new rules. The Department also worked with providers of complementary services, who had been given an additional 12 months to comply with the rules, to ensure that they were compliant by 1 July 2009.

Funding for the above activities was sourced from Program 9.1 – Private Health Insurance.

Increasing Performance Reporting to Enhance Quality and Safety in Health Care

To continue to be eligible for private health insurance benefits, all hospitals and day hospital facilities needed to be declared by the Minister for Health and Ageing or her delegate as a hospital facility under the Private Health Insurance Act 2007 by 1 July 2008. The hospital declaration process enables private and public hospitals to receive private health insurance benefits for the treatment of private patients. To maintain the currency of the declarations, facilities must continue to hold a current hospital accreditation certificate and provide data reports to the Department. During 2008–09, the Department implemented processes to check hospitals’ accreditation renewals.

The Department will further improve patient safety and the quality of services in 2009–10, by developing performance indicators to measure private hospital performance. These indicators will be consistent with those developed by the Council of Australian Governments for public hospital measurement.

Funding for the above activities was sourced from Program 9.1 – Private Health Insurance.
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Performance Information for Outcome 9 Administered Programs

Program 9.1 – Private Health Insurance
Indicator:	Maintain the number of people covered by private health insurance – hospital treatment cover within government policy parameters.
Reference Point/Target:	9.3 million people or 44.4% of Australians had private hospital cover in December 2007, compared with 8.9 million or 43.2% in December 2006.
Result: Indicator met.
In June 2009, 9.7 million (44.6%) people had private health insurance for hospital treatment compared with 9.5 million (44.5%) in June 2008. This is an increase of 0.2 percentage points (rounded) from June 2008.
Indicator:	Increase in the scope and proportion of chronic disease management programs and hospital-substitute episodes delivered to private patients.
Reference Point/Target:	An increase in the scope and proportion of chronic disease management programs and hospital-substitute episodes delivered to private patients compared to 2007–08.
Result: Indicator met.
The number of chronic disease management programs increased 98% from 9,901 programs in 2007–08 to 19,557 programs in 2008–09. Hospital-substitute episodes increased from 12,884 in 2007–08 to 12,932 in 2008–09.

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Performance Information for Outcome 9 Departmental Outputs

Output Group 1 – Policy Advice
Indicator:	Quality, relevant and timely advice for Australian Government decision-making, measured by ministerial satisfaction.
Reference Point/Target:	Ministerial satisfaction.
Result: Indicator met.
Ministers were satisfied with the quality, relevance and timeliness of advice provided for Australian Government decision-making.
Indicator:	Production of relevant and timely evidence-based policy research.
Reference Point/Target:	Relevant evidence-based policy research produced in a timely manner.
Result: Indicator met.
Research and analysis were used to make improvements to private health insurance policy and legislation, including through changes to the Private Health Insurance Act 2007 and the associated private health insurance rules.

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Output Group 2 – Program Management
Indicator:	Administered budget predictions are met and actual expenses vary less than 0.5% from budgeted expenses measured by comparison of actual expenses against budget.
Reference Point/Target:	0.5% variance from budgeted expenses.
Result: Indicator not met.
The actual Administered expenses for Outcome 9 was 3.0% greater than budgeted expenses. The Private Health Insurance Rebate is demand driven and as such the expenditure is covered under a Special Appropriation. Private health insurance participation growth was higher than anticipated.
Indicator:	Stakeholders participate in program development through a range of avenues, such as surveys, conferences, meetings and submissions on departmental discussion papers.
Reference Point/Target:	Stakeholders participate in program development.
Result: Indicator met.
The Department consulted with insurers, the Private Health Insurance Administration Council, the Private Health Insurance Ombudsman, and State and Territory Governments on amendments to the Private Health Insurance Rules and the Health Insurance Amendment Act 2007. The ongoing review of prostheses listing arrangements involved regular consultation with clinicians, sponsor representative organisations, insurers and other key stakeholders.

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Outcome 9 – Financial Resources Summary

	(A) Budget Estimate 2008–09 $’000	(B) Actual 2008–09 $’000	Variation (Column B minus Column A) $’000	Budget Estimate 2009–10 $’000
Program 9.1: Private Health Insurance
Administered Items
Annual Appropriation Bill 1 (Ordinary Annual Services)	1,404	204	(1,200)	10,773
Special appropriations
Private Health Insurance Act 2007	3,875,106	3,992,723	117,617	3,923,291
Departmental Outputs
Annual Appropriation Bill 1 (Ordinary Annual Services)	10,523	10,867	344	9,863
Revenues from other sources	3,517	3,630	113	3,528
Subtotal for Program 9.1	3,890,550	4,007,424	116,874	3,947,455
Total Resources for Outcome 9	3,890,550	4,007,424	116,874	3,947,455
Outcome 9 Resources by Departmental Output Group
Department of Health and Ageing
Output Group 1: Policy Advice	9,959	10,526	567	9,723
Output Group 2: Program Management	4,081	3,971	(110)	3,668
Total Departmental Resources	14,040	14,497	457	13,391
Average Staffing Level (Number)	73	81	8	76

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