Government's contribution to the Private Health Insurance Rebate - presentation to industry 19 December 2013

A presentation was made to the private health insurance industry on 19 December 2013 explaining proposed changes to the calculation of the Government's contribution to the Private Health Insurance Rebate.

Page last updated: 06 January 2014

Industry Presentation Slides - 19 December 2013 (PDF 1233 KB)

Slide 1 - Indexing the Australian Government Rebate
Industry Consultation

Slide 2 - Simplifying the Implementation

    • Annual indexation of the rebate will occur at the industry level.
    • This will ease the regulatory burden associated with the original Base Premium measure.
    • The Government has committed to cut red and green tape.
    • The Department will consult with industry on the regulatory saves associated with this change.

Slide 3 - Key Facts
    • 1 April 2014 implementation
    • Retains the proportional relationship between the rebate and the premium paid (excluding LHC loadings)
    • All rebate percentages will be adjusted on 1 April each year by the Rebate Adjustment Factor (also known as the Weighted Average Ratio)
    • Industry level rather than product level
    • Business as usual

Slide 4 - Legislative Amendments
    • The Private Health Insurance Legislation Amendment Bill 2013 was introduced into Parliament on 12 December 2013.
    • Debate of the Bill will resume in the Autumn Sitting 2014 (commences 11 February 2014)
    • This is the long term solution

Slide 5 - Transitional Regulations
Transitional arrangements will be made through the following legislative instruments
    • Private Health Insurance (Complying Product) Rules
    • Private Health Insurance (Incentives) Rules
    • These Rules will be enacted prior to Christmas
    • The amended Rules will be revoked once the Bill passes Parliament

Slide 6 - Adjusting the Rebate
    • Each rebate percentage for age and income will be adjusted as per the formula outlined in the Private Health Insurance (Incentives) Rules
    • Weighted Average Ratio (WAR) - transitional approach creates an adjusted premium amount to which an unadjusted rebate applies
    • Rebate Adjustment Factor (RAF) long term solution adjusts all rebate percentages only
    • The RAF and the WAR are the same but will be applied differently.

Slide 7 - WAR/RAF Formula
CPI factor for the relevant incentive year
1 + Average premium increase for the relevant incentive year
    • CPI factor for the relevant incentive year is the CPI index number for the Dec qtr immediately preceding that year divided by the CPI index number for the Dec quarter of the first mentioned Dec quarter, where the CPI index number is All Groups Consumers Price Index number
    • Average premium increase for the relevant incentive year is the weighted average premium increase, including rate protection, that is published by the Department of Health. It is expressed as a factor to 4 decimal places.

Slide 8 - Average Premium Increase
    • The average premium increase for the relevant incentive year will be the industry weighted average increase including rate protection.
    • It is the amount published on the Department of Health website at the conclusion of the premium approval process
    • The industry weighted average premium increase is calculated by weighting each insurer’s average increase by its market share.

Slide 9 - Eg. WAR - using 2013 information
Step 1: Determine the CPI factor for the relevant incentive year
    • December quarter immediately preceding 1 April 2013 is December 2012. The CPI index number for December 2012 is 102.0.
    • The December quarter preceding the first mentioned December quarter is December 2011. The CPI index number for December 2011 is 99.8.
    • 102.0 divided by 99.8 equals 1.0220
Step 2: Determine the denominator
    • Industry weighted average premium increase for 2013 (including rate protection) is 5.60%
    • Expressed as a factor to 4 decimals is 0.0560
    • 1 + 0.0560 = 1.0560
Step 3: Weighted average ratio = 1.0220/1.0560
    • WAR/RAF = 0.968

Slide 10 - Calculating the Rebate
    • The Rebate Adjustment Factor will be applied to all age and income related rebate percentages
    • The rebate percentage should be rounded to 3 decimal places.
    • Example: 0.968 x 30% = 29.040%
    • This will be the long term solution

Slide 11 - Calculating the Rebate
    • The rebate will continue to apply to the premium paid excluding LHC loadings.
    • This can take into account discounts if applicable – the rebate may apply to a discounted premium amount.

Slide 12 - Announcement of the WAR/RAF
    • The Department of Health will release a circular on the WAR/RAF and the associated rebate percentages applicable from 1 April, as soon as the CPI (approx 22 Jan) and the outcome of the premium round is announced.
    • As usual, a circular will follow later in the year advising of the new income tier thresholds for the rebate and MLS applicable from 1 July.

Slide 13 - Presentation by the Australian Taxation Office

Slide 14 - Issues Identified
    • Arrears
    • Dishonours
    • Corporate products
    • Rate change letters
    • Discounts

Slide 15 - Arrears
    • The Australian Government rebate operates on a cash basis.
    • The value of the rebate is determined on the date that a premium amount is paid or payable.
    • Any amounts that are paid on or after
      1 April 2014 will receive an adjusted rebate.

Slide 16 - Arrears - Example
    • If a member falls into arrears over a period that covers 1 April they will be disadvantaged.
For example:
    • A payment due on 17 March 2014 would attract a 30% rebate.
    • If the member pays in arrears on 3 April 2014 they would receive a lower rebate that has been adjusted by the WAR/RAF i.e. 29.040%.
    • There is a greater incentive for members to avoid falling into arrears.

Slide 17 - Dishonours
    • If a dishonoured payment falls over a period that includes 1 April, the later date of payment will attract an adjusted rebate amount.
    • This will operate similar to the example shown for payments made in arrears.

Slide 18 - Corporate products
    • Members with a rate protected corporate products will not have their rebate rate protected.
    • The rebate operates on a cash basis and will be calculated according to the value of the rebate at the date of payment.
    • Insurer communications will need to highlight the Government policy in relation to the rebate.

Slide 19 - Discounts
    • Under the simplified approach the rebate will be calculated on the premium payable, excluding LHC loadings.
    • This will include any discounts that may be available to a member.

Slide 20 - Rate change letters
    • Under the Private Health Insurance Act 2007 an insurer must inform a member of detrimental changes within a reasonable time before the change takes effect.

Slide 21 - Standard Information Statements
    • The legislative changes only require minor amendments to be made to the Standard Information Statements
    • Based on feedback from the PHIO Consumer Website Reference Group
        • Propose removal of rebate amount
        • Revised wording on notation

Slide 22 - Standard Information Statements

This image provides an example of a Standard Information Statement.  The Standard Information Statement provides basic information about a private health insurance policy for comparative purposes.

Slide 23 - Notification Timeframes
    • The December quarter CPI is released 22 January 2014.
    • Industry weighted average increase for the 2014 premium approval process announced 7 February 2014.
    • Further streamlining of the premium approval process may bring the announcement of the industry average premium increase closer to 22 January in the future.

Slide 24 - Communications Activities
    • Information will be made available for consumers on the Department of Health,, Australian Taxation Office, Department of Human Services websites
    • It is proposed that the Department of Health will provide wording for industry

Slide 25 - Next Steps

Slide 26 - Questions