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Outcome 9 – Private Health

Improved choice in health services by supporting affordable quality private health care, including through private health insurance rebates and a regulatory framework

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PDF printable version of Outcome 9 Private Health (PDF 1373 KB)

Outcome Strategy

Outcome 9 aims to promote the sustainability of private health insurance and support consumer choice in health care. The department worked to achieve this Outcome by managing initiatives under the program outlined below.

This chapter reports on the major activities undertaken by the department during the year, reporting against each of the major activities and performance indicators published in the Outcome 9 chapter of the 2010-11 Health and Ageing Portfolio Budget Statements (PB Statements) and the 2010-11 Health and Ageing Portfolio Additional Estimates Statements (PAES). It also includes a table summarising the estimated and actual expenditure for this Outcome.

Outcome 9 was managed in 2010-11 by the Medical Benefits Division and the Acute Care Division.

Program NameProgram Objectives in 2010-11
Program 9.1:
Private Health Insurance
  • Support the sustainability of the private health insurance rebate by ensuring that payments by the Government are targeted at those people who need them most.
  • Promote the affordability of private health insurance and the sustainability of the private health insurance sector by ensuring that premium increases are the minimum necessary to ensure insurer solvency, support forecast benefit outlays, and meet prudential standards concerning capital adequacy, while also ensuring the affordability and value of private health insurance products for consumers.
  • Encourage insurers and providers of private health services to provide better value for money to consumers, through improvements in the regulatory framework.
  • Improve information for consumers of private health services, enabling informed decision-making and encouraging a high quality private health industry.

Major Achievements

  • Kept private health insurance premium increases in 2011 to a minimum for more than 11 million privately insured Australians.
  • Implemented reforms that replaced the Prostheses and Devices Committee with the Prostheses List Advisory Committee.
  • Developed a new Overseas Students Health Cover Deed.
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Challenges

  • Delayed introduction of means testing for the private health insurance rebate.

Program 9.1: Private Health Insurance

Program 9.1 aims to support the sustainability of the private health insurance rebate by ensuring that payments by the Government are targeted at those people who need them most. The program also aims to promote the affordability of private health insurance and the sustainability of the private health insurance sector by ensuring that premium increases are the minimum necessary to ensure insurer solvency, support forecast benefit outlays, and meet prudential standards concerning capital adequacy, while also ensuring the affordability and value of private health insurance products for consumers. Further, the program encourages insurers and providers of private health services to provide better value for money to consumers, through improvements in the regulatory framework, and improve information for consumers of private health services, enabling informed decision-making and encouraging a high quality private health industry.

Ensure the Sustainability of the Private Health Insurance Rebate

Means testing the private health insurance rebate

In the 2010-11 Budget, the Australian Government reaffirmed its commitment to making the private health insurance rebate more sustainable by rebalancing the current policies supporting private health insurance. All privately insured Australians who are eligible for Medicare currently receive a rebate of 30% of the cost of their private health insurance premium (35% for people 65 to 69 years of age and 40% for people 70 years of age and over). The planned means testing would mean higher income earners receive lower rebates in future. This will ensure those with a greater capacity to pay for their health insurance do so, reducing the cost of the private health insurance rebate to taxpayers.
Qualitative KPI:Private health insurance rebates are delivered in an efficient, effective and transparent way.
2010-11 Reference Point:Private health insurance rebates are delivered to agreed standards of efficiency, effectiveness and transparency.
Result: Indicator met.
The department continued to work with Medicare Australia to ensure rebates were delivered in accordance with the Business Practice Agreement. All agreed performance standards were met in 2010-11.
In addition to means testing the private health insurance rebate, it is planned that Medicare levy surcharge rates will be raised for higher income earners who do not have private hospital insurance. The Medicare levy surcharge is currently a 1% surcharge of taxable income paid by Australian residents without appropriate private hospital insurance.

Lifetime Health Cover, another component of the private health insurance incentive structure will remain. Lifetime Health Cover increases the premiums for hospital cover for people who do not take out private hospital insurance until later in life by 2% for each year a person is over 30 years of age.

In 2010-11, the department continued to work with stakeholders, including Medicare Australia and the Australian Taxation Office, to consider and respond to challenges that might arise from the implementation of means testing of the rebate (e.g. raising consumer awareness of the new tiers and how people will be affected, procedural and computer system changes required within stakeholder organisations). The department also worked closely with the Department of the Treasury and the Office of Parliamentary Counsel in relation to minor technical changes to the legislation.

The legislation, twice rejected by the Senate in 2009-10, was reintroduced on 7 July 2011.

Promote an Affordable and Sustainable Private Health Insurance Sector

Premium Approval Process

In 2010-11, the department worked closely with the Private Health Insurance Administration Council to provide advice to the Minister for Health and Ageing about premium increases sought by private health insurers. This advice supported the Minister in exercising her powers under section 66-10 of the Private Health Insurance Act (2007), and contributed to ensuring that premium increases were the minimum necessary to ensure insurer solvency, support forecast benefit outlays, and meet prudential standards concerning capital adequacy, while also ensuring the affordability and value of private health insurance products for Australian consumers.

On 25 February 2011, the Minister announced that private health insurers would increase premiums by an average of 5.56% from 1 April 2011. The need for this premium increase was generally attributable to increasing insurance benefits paid to patients and rising health service costs. In 2010-11, the department improved transparency in the premium approval process by providing consumers and insurers with a better understanding of the Government’s role in assessing and approving proposed premium increases. At the time of announcing the 2011 approved premium increase, average premium increases for individual private health insurers and reasons for the increase at the industry level were published, along with a media release on the department’s website.97

In addition, information on the premium application and approval process was released on the department’s website. The department also conducted a series of debriefing information sessions with private health insurer peak bodies and insurers during June 2011.
Qualitative Deliverable:Provide consumers with information regarding the premium assessment process and average premium increases.
2010-11 Reference Point:Relevant and timely information is made available on the department’s website.
Result: Deliverable met.
In 2010-11, the department improved transparency in the premium approval process to provide consumers and insurers with a better understanding of the Government’s role in assessing and approving proposed premium increases.
At the time of announcing the 2011 approved premium increase, average premium increases for individual private health insurers and reasons for the increase at the industry level were published, along with a media release on the department’s website. In addition, information on the premium application and approval process was released on the department’s website.
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Monitoring Participation

Private health insurance data is collected by the Private Health Insurance Administration Council98 and supplied to the department quarterly. In 2010-11, the department closely analysed this data to monitor participation trends and the effect of policy initiatives on private health insurance coverage, to ensure health insurers comply with their legislative obligations, and to improve data quality. The department also monitored and reported on risk equalisation and Broader Health Cover initiatives, such as chronic disease management programs and hospital-substitute episodes. The data analysis underpinned modelling, policy development, and compliance work undertaken by the department. Figure 2.4.9.1 illustrates the number of people with private hospital cover in Australia from 1971 to 2011 and identifies key milestones in health insurance policy.

Quantitative KPI:Maintain the number of people covered by private health insurance hospital treatment cover.
2010-11 Target:9.8m2010-11 Actual:10.3m
Result: Indicator met.
In June 2011, 10.3 million people had private health insurance hospital treatment cover compared with 10.0 million in June 2010. This is an increase of 281,811 people since June 2010. This indicator has been met for each of the previous three years.

Figure 2.4.9.1: Number of People with Private Hospital Cover, 1971-201199

Number of People with Private Hospital Cover, 1971-2011
Text version of this chart

Improve the Regulatory Framework

Prostheses Arrangements

Under the Private Health Insurance Act 2007, private health insurers must pay minimum benefits for medical treatment, accommodation and prostheses when their members go to hospital. The Prostheses List forms part of this regulation of minimum benefits. If a prosthesis is on the Prostheses List, the insurer must pay the listed benefit where that prosthesis is provided to a member as part of an insured visit to hospital. In 2010-11, the department progressed implementation of recommendations of the Review of Health Technology Assessment in Australia100 (HTA Review) relevant to the prostheses list. This will ensure the Prostheses List continues to include quality, cost-effective devices, and that new technology has been assessed as comparatively clinically effective and cost-effective.
Qualitative Deliverable:Implementation of the recommendations of the Review of Commonwealth Health Technology Assessment in Australia relating to the prostheses listing arrangements.
2010-11 Reference Point:The Review of Commonwealth Health Technology Assessment in Australia recommendations actioned within agreed timeframes.
Result: Deliverable met.
Recommendations 10, 11 and 12a have been implemented with Recommendation 12b-e due to be implemented in 2012. A phased approach was approved by the Minister; phase 1 will be completed in time for the August 2011 Prostheses List with phases 2 and 3 implemented in time for the February 2012 Prostheses List. Timetable for implementation is on target.

Relevant to the prostheses listing arrangements, Recommendation’s 10, 11 and 12a have been implemented. They involve the establishment of a new committee, the Prostheses List Advisory Committee (PLAC) including new terms of reference and an independent chair, formalisation of communication channels between the PLAC and the Therapeutic Goods Administration, and acceptance of applications for new listings and amendments to the Prostheses List on a continuous basis. The Prostheses List is still being published every six months in February and August. The Minister approved a phased approach to the implementation of Recommendation 12b-e, and a committee, consisting of key private health stakeholders, to consult on the proposed groupings and group benefits has been established.

The department has continued to develop a new database to support the Prostheses List, which will support online application and assessment, and allow more effective matching of prostheses supplied to a patient with billing codes under the Prostheses List. The new database is expected to be completed in 2012.

The department updated the Prostheses List in August 2010 and February 2011. Over 500 new prostheses were listed and amendments were made to about 3,500 existing billing codes. Amendments to existing billing codes involved changes to one or more of the following: benefits, product information or product groups/subgroups. The amendments resulted from sponsor requests and reviews of listings. The updated lists provide private patients with access to new prostheses that have been assessed to be clinically and cost effective. They also ensure that benefits paid by insurers for prostheses are relative to their clinical effectiveness and that prostheses are available to privately insured patients in a timely way.

Qualitative KPI:Regulatory changes and amendments are timely and effective.
2010-11 Reference Point:Timely and effective regulatory changes and amendments are implemented within agreed timeframes.
Result: Indicator met.
The department developed a new Overseas Student Health Cover Deed. The department amended various private health insurance rules, including changes to hospital benefit arrangements that provide greater flexibility in contractual arrangements between insurers and hospitals.
Quantitative Deliverable:Percentage of regulatory amendments implemented within agreed timeframes.
2010-11 Target:100%2010-11 Actual:100%
Result: Deliverable met.
Amendments were made to the following private health insurance rules: Benefit Requirements, Complaints Levy, Complying Product, Data Provision, Prostheses. All of the amendments were made within agreed timeframes.
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Regulatory Reform

A new section of the Prostheses List, Part C, was estimated to include products, specifically insulin pumps and cardiac loop recorders, that would not ordinarily meet the administrative requirements necessary for an item to be listed, but which are regarded as being in the public interest to be listed. The amendments also include defining the types of items that are included as insulin pumps and the circumstances in which the listed benefit may be paid for an insulin pump. These changes will provide certainty to insurers and patients regarding the circumstances in which these prostheses benefits will be payable.
In 2010-11, amendments were made to the Private Health Insurance (Benefit Requirements) Rules which provided for greater flexibility for insurers and hospitals regarding the level of benefits payable for hospital treatment. As a result of the changes, the listed benefit levels for insurance payments are now set as a default benefit, payable in the absence of a contract between insurers and hospitals. This enables insurers and hospitals to contract a range of mutually agreed benefit levels without breaching legislative requirements.

Qualitative Deliverable:Produce relevant and timely advice on legislative amendments to improve the private health regulatory framework.
2010-11 Reference Point:Relevant evidence-based policy research produced in a timely manner.
Result: Deliverable met.
In 2010-11, amendments were made to various private health insurance rules. This included amendments to the Private Health Insurance (Benefit Requirements) Rules to ensure increases in the premiums payable by insurers for hospital treatment were increased in line with consumer price increase changes, and to ensure that hospitals that met the requirements to receive a higher rate of benefit through second tier arrangements were listed. Notification of these changes was made available to stakeholders through the publication of Private Health Insurance Circulars, which set out the changes. The Circulars are sent directly to relevant parties as well as being made available publicly on the department’s website.

In 2010-11, the department reviewed the Overseas Student Health Cover Deed (the Deed). The Deed is a formal agreement between the department and private health insurers to provide health insurance coverage for non-Australian students that meets the visa requirements imposed by the Department of Immigration and Citizenship. The department sought submissions from a range of stakeholders including insurers, universities, student representatives, hospitals, state and territory governments, the Department of Immigration and Citizenship and the Department of Employment, Education and Workplace Relations. Following receipt of the submissions and further discussions, a new Deed has been developed.

The new Deed, which took effect from 1 July 2011, provides overseas students with affordable and comprehensive health insurance products that align with health insurance offered to overseas visitors and Australian residents, at no cost to tax-payers.
Qualitative Deliverable:Regulatory changes and amendments are timely and effective.
2010-11 Reference Point:Timely and effective regulatory changes and amendments are implemented within agreed timeframes.
Result: Deliverable met.
Amendments were made to a number of private health insurance rules including, but not limited to:
      • the Private Health Insurance (Benefit Requirements) Rules to implement new hospital benefit rates and to second tier arrangements;
      • the Private Health Insurance (Data Provision) Rules and Private Health Insurance (Complying Product) Rules regarding changes in the hospital case-mix data provisions reporting requirements;
      • the Private Health Insurance (Prostheses) Rules to update the Prostheses List; and
      • the Private Health Insurance (Complaints Levy) Rules to ensure the Private Health Insurance Ombudsman remained appropriately funded.
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Improve Information for Consumers

In 2010-11, the department worked collaboratively with the Consumers Health Forum, private health insurers and the Private Health Insurance Ombudsman (PHIO) to review the Standard Information Statements (SIS) provided by health insurers to consumers. The review of the SISs will increase the quality and detail of information provided to consumers and increase understanding of health insurance products, enabling consumers to be better informed when purchasing private health insurance. The improved quality of the SISs will also enable consumers to compare different health insurers’ policies more easily.
The Private Health Insurance (Complying Products) Rules prescribe the standard format and content of SISs and state that a SIS must include details on premiums, waiting periods, exclusions and limitations, excesses and co-payments, and hospital and medical gaps. Health insurers must provide current copies of their SISs to the PHIO, which are published on their website.101

The department has been monitoring the use and effectiveness of the SISs and the review examines the existing SIS requirements to determine if any improvements can be made to the current format to increase the quality and detail of information provided to consumers. It is anticipated this review will be completed by September 2011.

The department will continue to collect and publish information from private health insurers on average charges for the 21 most commonly used private dental services. The data is published on the private health website102 to encourage greater competition in the private health industry. The information also assists consumers to make more informed choices when purchasing dental services.

Quantitative Deliverable:Percentage of private health insurers participating in average dental charges reporting arrangements.
2010-11 Target:100%2010-11 Actual100%
Result: Deliverable met.
38 Health Funds have reported to the 2010-11 General Treatment Dental Collection.
Qualitative KPI:Consumers are informed about the average dental charges.
2010-11 Reference Point:Average dental charges are made publicly available by June 2011
Result: Indicator met.
The department will continue to collect and publish information from private health insurers on average charges for the 21 most commonly used private dental services. The data is published on the private health website to encourage competition in the private health industry. The information also helps consumers to make more informed choices when purchasing dental services.
Qualitative Deliverable:Publish information on private hospital performance against national hospital performance indicators.
2010-11 Reference Point:Information published in a timely manner.
Result: Deliverable met.
For 211 private hospitals, the MyHospitals website publishes a list of services provided, size of the hospital by bed numbers, accreditation status and other information. Information for consumers on the performance of private hospitals is a priority for future releases of the MyHospitals website and the department has been working with the private hospital sector towards that goal.
Quantitative Deliverable:Percentage of private hospitals participating in national hospital reporting arrangements.
2010-11 Target:90%2010-11 Actual:86%
Result: Deliverable substantially met.
The department has consulted with private hospital and day hospital associations, to increase the transparency and accountability in the delivery of hospital services and to simplify the data submission process. This work has assisted in improving completeness, timeliness and quality of data submissions. The percentage of private hospitals participating in national reporting arrangements increased from 83% during 2009-10 to 86% during 2010-11.
Qualitative Deliverable:New migrants and 31 year olds are informed appropriately about Lifetime Health Cover and how it affects them.
2010-11 Reference Point:Information is provided to new migrants within 12 months of when they register with Medicare and to individuals who are approaching their 31st birthday.
Result: Deliverable met.
Migrants registering for Medicare in the last 12 months and 31 year olds without private health insurance were identified utilising the Medicare database. In May 2011, a mail out was conducted to these target groups, who are approaching their Lifetime Health Cover deadline providing them with information on the Government’s Lifetime Health Cover policy.
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Whole of Program Performance Information

Qualitative Deliverable:Produce relevant and timely evidence-based policy research.
2010-11 Reference Point:Relevant evidence-based policy research produced in a timely manner.
Result: Deliverable met.
Research and analysis were used to make improvements to private health insurance policy and legislation. This included an analysis and review of the Overseas Student Health Cover Deed and the decision to develop and implement a new Deed, which took effect from 1 July 2011.
Qualitative Deliverable:Stakeholders participate in program development through a range of avenues.
2010-11 Reference Point:Stakeholders participated in program development through avenues such as regular consultative committees, stakeholder engagement forums, surveys, submissions on departmental discussion papers and meetings.
Result: Deliverable met.
The department consulted widely with different stakeholders, using a variety of forums. The aim was to improve collaboration with the private health sector and evidence-based policy development. For example, written submissions were invited from the broad private health insurance sector to inform the review of the standard information statements. Targeted seminars were held for insurers to discuss the premium increase round and to identify opportunities for improvement and efficiency.

Stakeholders, including health consumers and service providers, the health insurance and health technology industries, and experts in current clinical practice, health policy and health economics, provided advice and feedback to the department on a range of issues, including the implementation of the Health Technology Assessment Review recommendations, through a variety of fora including the Prostheses List Advisory Committee and its subcommittees and the HTA Consultative Committee.
Quantitative Deliverable:Percentage of variance between actual and budgeted expenses.
2010-11 Target:0.5%2010-11 Actual:0.8%
Result: Deliverable substantially met.
The Private Health Insurance rebate is a demand driven program and is driven by the growth of coverage in Private Health Insurance, which was higher than anticipated.

Outcome 9 – Financial Resources Summary

(A) Budget
Estimate1
2010-11
$’000
(B) Actual
2010-11
$’000
Variation
(Column B
minus
Column A)
$’000
Program 9.1: Private Health Insurance
    Administered Expenses
      Ordinary Annual Services (Annual Appropriation Bill 1)
4,224
1,701
(2,523)
      Special appropriations
      Private Health Insurance Act 2007
4,687,848
4,727,601
39,753
      Private Health Insurance Act 2007 – Risk Equalisation Trust Fund2
310,000
316,053
6,053
      Private Health Insurance Act 2007 – Council Administration levy2
5,235
5,235
-
    Departmental Expenses
      Ordinary Annual Services (Annual Appropriation Bill 1)
9,001
8,844
(157)
      Revenues from other sources (s31)
4,357
4,560
203
      Unfunded depreciation expense
261
349
88
      Operating loss / (surplus)
-
1
1
Total for Program 9.1
5,020,926
5,064,344
43,418
Outcome 9 Totals by appropriation type
    Administered Expenses
      Ordinary Annual Services (Annual Appropriation Bill 1)
4,224
1,701
(2,523)
      Special appropriations
      Private Health Insurance Act 2007
4,687,848
4,727,601
39,753
      Private Health Insurance Act 2007 – Risk Equalisation
      Trust Fund2
310,000
316,053
6,053
      Private Health Insurance Act 2007 – Council Administration levy2
5,235
5,235
-
    Departmental Expenses
      Ordinary Annual Services (Annual Appropriation Bill 1)
9,001
8,844
(157)
      Revenues from other sources (s31)
4,357
4,560
203
      Unfunded depreciation expense
261
349
88
      Operating loss / (surplus)
-
1
1
Total expenses for Outcome 9
5,020,926
5,064,344
43,418
Average Staffing Level (Number)
82
81
(1)

1 Budgeted appropriations taken from the 2011-12 Health and Ageing Portfolio Budget Statements and re-aligned to the 2010-11 outcome structure.
2 Payments under the Private Health Insurance Act 2007 - Risk Equalisation Trust Fund and the Council Administration Levy have been disclosed in the 2010-11 Portfolio Budget Statements in Table 1.2.1 Department Resource Statement. This is consistent with the prior year.


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97 Available at: www.health.gov.au
98 Available at: www.phiac.gov.au
99 Source: Private Health Insurance Administration Council, PHIACA Report, various quarters
100 Available at: www.health.gov.au
101 Available at: www.phio.org.au
102 Available at: www.privatehealth.gov.au


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