Key Strategic Directions for 2005-06
Reforms to Private Health Insurance
In 2005-06, the Australian Government agreed to a comprehensive package of reforms for private health insurance that were developed by the Department. The Department consulted with industry in the design of the reforms to improve competition, provide value to consumers and ensure the sustainability of the private health sector. This also included consultation as part of reviews of existing policies.
The Australian Government announced these changes on 26 April 2006, along with the sale of Medibank Private. A significant change to private health insurance is the introduction of broader health cover. The Department began working closely with industry so funds may offer broader health cover products which will also allow cover for services that prevent hospitalisation from 1 April 2007.
The reforms also mean that health funds will be required to provide standard information about each of their products. This will include information on premiums, waiting periods, excesses and exclusions, and hospital and medical gaps. This information will be supported by the establishment of an industry web site by the Private Health Insurance Ombudsman (PHIO). The web site will provide a tool to allow people to compare products and health funds.
During 2005-06, the Department also consulted with stakeholders to increase the focus on safety and quality requirements for all privately insured services. This means that from July 2008, all private health insured services will have to be provided in an accredited facility and/or by a suitably qualified provider. This work will continue in close consultation with the Australian Commission on Safety and Quality in Health Care.
In May 2006, the Department also began a restructure of private health insurance legislation to accommodate these changes, and to ensure that the regulation of the industry is the minimum necessary to meet Australian Government objectives and protect consumers. The aim of the new legislation will be to articulate Australian Government policy clearly and to set out a more appropriate framework for product innovation that also assists the industry to comply with regulatory rules as efficiently and inexpensively as possible.
In shaping the implementation of these reforms, the Department commenced consultation with stakeholders, including health funds, private hospitals and industry bodies, in June 2006.
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Monitoring the Impact of the Higher Rebates for Older Australians
In January 2006, the Department undertook an internal review of, and sought industry’s views on, the Higher Rebates for Older Australians. The review found that the higher rebates had a positive impact on the retention rates of people with private health insurance aged 65 years and over. It had also been estimated that up to an additional 10,000 people would take out cover as a result of the measure over four years. The most recent data (June 2006) affirmed the review findings. It shows that more than 1 million people who held private health insurance cover at the time of the introduction of the higher rebates in April 2005, have remained insured. Of the additional 61,000 people over the age of 65 years that have taken out private health insurance since the introduction of the higher rebates, it is estimated that 16,000 have taken out private health insurance because of the higher rebates, as at June 2006.
Development of New Risk Equalisation (Reinsurance) Arrangements
In July 2005, the Australian Government decided to defer the introduction of the planned risk-based capitation reinsurance arrangements, pending a review of all risk equalisation options. In November 2005, the Department commissioned a review of risk equalisation that included industry consultation.
This review was completed in December 2005 and it recommended new arrangements agreed to by industry. The proposed model is a modified version of the current model put forward by the Australian Health Insurance Association, and includes a high costs claims pool. The Australian Government agreed to the adoption of the recommended model as well as agreeing to treat single parent families as one Single Equivalent Unit for risk equalisation purposes. Industry consultation and scoping of the details of the new model with industry was undertaken by consultants in May 2006.
The new arrangements for risk equalisation (reinsurance) formed part of the private health insurance reforms announced on 26 April 2006. The new arrangements become effective from April 2007.
Provision of Secure Electronic Links to Simplify Payment Arrangements for Patients
During 2005-06, the Department continued to work with Medicare Australia to progress the introduction of the Electronic Claim Lodgement and Information Processing Service Environment (ECLIPSE). ECLIPSE will enable medical practitioners to lodge claims for in-hospital episodes of care directly with Medicare Australia and the private health insurance fund.
ECLIPSE facilitates doctors obtaining informed financial consent from their patients; simplifies checking eligible benefits and the claiming process; and results in faster processing and payment of claims. This will benefit consumers, health service providers and private health insurance funds. A total of 17 health funds began participating in ECLIPSE after December 2005.
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Implementation of New Prostheses Arrangements
New arrangements for listing prostheses commenced on 31 October 2005 with the release of a revised Prostheses List. This is a list of prostheses and benefit amounts that health funds are required to pay as part of private hospital cover where prostheses are involved in a treatment. The Department facilitated the implementation and management of these new arrangements with the release of a list every six months. Under the new arrangements, products to be listed are subject to an assessment of the clinical effectiveness for the patient and the relative clinical effectiveness when compared to other similar devices. The new arrangements are designed to contain the rate at which the cost of prostheses benefits to health funds is growing and, in turn, ensure that private health insurance remains affordable. Prostheses benefits represent 10 per cent of total fund business and as a result of the new arrangements, the annual rate of growth in prostheses benefits has been reduced from 19.8 per cent in 2004-05 to 7.9 per cent in 2005-06.
During 2005-06, the Department worked with industry on the clinical assessment and benefit setting processes. The Department provided secretariat services to the range of committees that are involved in the clinical assessment processes and provided support for the benefit negotiators. The Clinical Advisory Groups, which undertake the clinical assessments and provide advice to the ministerially appointed Prostheses and Devices Committee (PDC), reviewed vascular, urogenital, spinal and cardiothoracic products to determine their clinical effectiveness.
Almost 33 per cent of products on the February 2006 Prostheses List had benefits negotiated between prostheses sponsors and benefit negotiators appointed by the PDC. The benefit negotiators continued to negotiate benefits for the remaining 67 per cent.
There were 9,306 prostheses listed on the February 2006 Prostheses List. Of these, 9,193 did not have out-of-pocket medical expenses. This means that nearly 99 per cent of the prostheses listed were provided at no cost to the patient.
Under the National Health Amendment (Prostheses) Act 2005
, an independent review of the new arrangements is required to commence by 1 July 2007 and report to Parliament in October 2007. Preparations for this review began with the establishment of data collection mechanisms to capture the information required. The data collection is continuing and includes an assessment of the adequacy of the informed financial consent arrangements and an examination of the extent of out-of-pocket costs experienced by patients who have received a clinically appropriate prosthesis.
Benefits for Procedures Performed by Podiatric Surgeons
In 2005-06, the Department continued to assess the impact of the Health Legislation Amendment (Podiatric Surgery and Other Matters) Act 2004
. This commenced on 13 January 2005 and allowed health funds to pay hospital benefits for accommodation and nursing care to patients of Australian Government accredited podiatrists. The assessment was subsequently extended to include the impact of the National Health Amendment (Prostheses) Act 2005
which enabled health funds to pay hospital benefits to patients for prostheses surgically implanted by Australian Government accredited podiatrists.
The Department received a number of enquiries from health funds regarding their obligations under the new legislation. Formal advice issued by the Department to the private health insurance industry in August 2005 confirmed that health funds are required to make available at least one hospital table that provides benefits for all episodes of hospital treatment, including surgery by an accredited podiatrist.
The PHIO also has responsibility for monitoring the operations of provisions relating to Australian Government accredited podiatrists and reporting and acting on complaints. As at 30 June 2006 there were 14 Australian Government accredited podiatrists.
Review of Loyalty Bonus Scheme Arrangements
Following questions raised by health funds, in early 2005 the Department conducted a review of the policy and legislative framework that underpins the Loyalty Bonus Schemes. Loyalty Bonus Schemes are arrangements whereby health funds can offer rewards – financial or otherwise – to members, based on the duration of their membership. The review found that while Loyalty Bonus Schemes are valuable in rewarding long term members, many health funds were also concerned about how to attract, retain and reward shorter term members as well. These views were taken into account by the Department in the development of the reforms to private health insurance.
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Addressing Consumers’ Concerns
Portability of private health insurance means that health fund members are able to transfer between health funds to broadly comparable products, without having to re-serve waiting periods (unless they transfer to a higher level of cover).
However, health funds were able to apply benefit limitation periods (BLPs) to new members transferring from another fund. During a BLP, for a specified length of time which is usually one or two years, the newly-transferred members were only entitled to limited benefits for specified services. In many cases, where funds had BLPs, these restrictions applied to psychiatric services.
To address the situation where funds might use BLPs to dissuade people likely to claim from joining, the Minister for Health and Ageing made new Conditions of Registration for health funds under the National Health Act 1953
, effective from 1 December 2005. These conditions prevent health funds applying BLPs to members transferring from other funds, or between products within a fund. The Department sought input from the health insurance sector on this issue through industry circulars in August, September and October 2005. Whilst health funds expressed some concerns about the potential for the new conditions to impact on their business, the new conditions were welcomed and strongly supported by consumers and private hospitals.
During 2005-06, the Department worked with the PHIO and industry to address consumer concerns that were identified in the second annual State of the Health Funds
report. The report, published by the PHIO and released on 22 March 2006, identified informed financial consent and out-of-pocket expenses as key consumer concerns. The incorporation of a new requirement for health funds to publish standard product information as one of the reforms announced on 26 April 2006 is aimed at improving the rate of informed financial consent and enabling consumers to be better able to compare products.
An Informed Financial Consent Taskforce, established in 2003-04, was disbanded in August 2005. The Minister for Health and Ageing requested that the Promoting Private Health Group (PPHG) progress a number of issues relating to private health services, including improving the incidence of informed financial consent. The PPHG consists of representatives of the Australian Medical Association, the Australian Health Insurance Association, the Australian Private Hospitals Association and Catholic Health Australia. It is chaired by a former National President of the Australian Medical Association.
The PPHG met in June 2006 to further progress issues relating to informed financial consent. Administrative support was provided by the Department.
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The Expansion of Powers of the Private Health Insurance Ombudsman
During 2005-06, the Department consulted with industry and worked closely with the PHIO to finalise the Health Legislation Amendment (Private Health Insurance) Act 2006
(the Act) which commenced on 1 July 2006. The Act expanded the powers of the PHIO to include the receipt of complaints by, and in relation to, health care providers and brokers.
The Act expands the types of documents the Ombudsman can require from funds and service providers. Through the amendments, voluntary mediation is supplemented with a power to compel parties to a dispute to undertake mediation where the Ombudsman deems it appropriate. The Act also expands the recommendatory power of the PHIO to the practices and procedures of health care providers and brokers. Penalties are included for parties, other than consumers, who fail to comply with matters relating to providing records, participating in mediation and reporting to the Ombudsman.
Peak bodies of the private health industry, including the Australian Health Insurance Association, the Australian Medical Association and the Australian Private Hospitals Association were consulted in the development of the Act. All supported the increased powers for the Ombudsman.