1999-2000
Outcome 3: Choice Through Private Health Insurance
The 1999-2000 Portfolio Budget Statements, informs Senators and Members of Parliament of the proposed allocation of resources to portfolios outcomes and their objectives and targets including the agencies within the Health and Family Services portfolio.
A viable private health insurance industry to improve the choice of health services for Australians.
Outcome Summary - The Year Ahead
The Federal Government is committed to reform to ensure a strong and viable private health care system that complements Medicare. In order to maintain an effective balance between public hospital and private hospital services, the Government is currently putting in place structural reforms to create a more viable private health industry. Portfolio Strategies Division, the Private Health Insurance Administration Council (PHIAC) and the Private Health Insurance Ombudsman (PHIO) all work towards the achievement of Outcome 3.
Portfolio Strategies Division
Improving the choice of health services for Australians will be pursued in the financial year 1999-2000 through the introduction of a number of important reforms to the private health insurance product, designed to make the product more competitive and attractive to consumers, The reforms will target three areas:
- improved affordability of private health insurance premiums;
- development of innovative products; and
- increased health insurance sector efficiency through structural reform.
Further strategies that will be pursued throughout the year include the development of new no gap or known gap payment initiatives. The Health Legislation Amendment Bill (No. 2) 1999 sets in place the framework for the introduction of a number of important reforms to the private health insurance product. These reforms are designed to improve the choice of health services and make the product more attractive to consumers, complementing the Federal Government 30 per cent Rebate on private health insurance. The Bill will allow health funds to cover gaps for Pharmaceutical Benefits Schedule medicines dispensed in hospitals. Substantial work will be carried out in 1999-2000 to develop service eligibility criteria and outline the necessary quality control guidelines.
Another initiative to promote a viable health insurance industry and improve the choice of health services is the new lifetime health cover system. A comprehensive information/education campaign to inform the public on implications of the scheme will be undertaken.
Development of Innovative Products: Product innovation that responds to consumer needs is the responsibility of health funds, but the Government can assist through changing the regulatory environment in which funds must operate. The Health Legislation Amendment Bill (No.2) 1999 will assist product innovation and improve consumer choice by allowing the introduction of loyalty bonuses, the extension of waiting periods for specific pre-existing ailments, and discounted premiums based on administrative savings.
The Department, through regulation, has enabled health funds to participate in early discharge trials, with private hospitals, to offer outreach services to their members as substitution for in-hospital care. Further early discharge trials will be set up as will hospital-in-the-home and private sector coordinated care trials.
Improved health insurance industry efficiency: The Government is currently exploring possibilities for further structural reform to the private health industry in order to make the industry stronger and more commercially focussed. A broad review of existing reinsurance arrangements has commenced. The current system contains perverse incentives, which do not benefit members or the interests of the Government in encouraging quality, cost effective health care. A new reinsurance model is being developed not only to support the principle of community rating but also to provide incentives for funds to increase their own technical efficiency and encourage allocative efficiency more broadly by funding the most appropriate care across in-hospital and non hospital settings.
Initiatives designed to enhance consumer choice include a key feature statement for products offered by the health funds, developed in conjunction with the Australian Consumers Association (ACA) and the private health insurance industry. This is the first stage of a consumer strategy for the private health care sector that includes the establishment of a consumer 9Hotline' and benchmark studies.
Reforms are also planned regarding essential regulation with the transfer of some regulatory functions to the Private Health Insurance Administration Council (PHIAC). These reforms will be achieved via the implementation of Health Legislation Amendment Bill (No. 3) 1999 which details solvency and capital adequacy standards (in place of the current minimum reserve requirements), and a strengthened capacity to assist health funds in financial difficulty.
The Department has also commenced a review into the current functions of Private Heath Insurance Ombudsman (PHIO) with a view to comparing current powers with the powers of investigation, conciliation and reporting held by other Commonwealth Ombudsman positions.
The current strong focus on consultation with health funds and consumers will continue in order to facilitate the significant change involved in reform.
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Private Health Insurance Administration Council
The Private Health Insurance Administration Council (PHIAC), a statutory body reporting to the Minister of Health and Aged Care, works in conjunction with the Department to promote a viable private health industry via their role of monitoring and regulating the private health insurance industry. During the financial year 1999-2000 the PHIAC will:
- implement the new legislation and in particular develop new prudential standards for the industry; and,
- implement other initiatives such as reinsurance arrangements.
Private Health Insurance Ombudsman
The Private Health Insurance Ombudsman (PHIO) contributes to the outcome of a viable private health industry by improving consumer and provider confidence in private health insurance through provision of a high quality information and dispute resolution service. PHIO is committed to ensuring that its service is accessible, effective, objective, timely and customer driven. An expansion of PHIO's existing successful information and dispute resolution service is planned for 1999-2000.
Information service: Some callers to PHIO require relatively straightforward information. Surveys conducted by PHIO show that people use a wide variety of tools to seek information generally about private health insurance and specifically about PHIO. Well informed consumers are less likely to require dispute resolution mechanisms and the provision by PHIO of independent, high quality information will empower consumers to deal with their health fund directly to resolve any problems. This will lead to consumers having more confidence in the health insurance product.
PHIO will extend its information provision to existing and potential health insurance consumers by providing a recorded information and fax-back service that addresses the major and topical issues raised by callers to PHIO.
Awareness: A recent independent survey found that awareness of PHIO in rural and regional Australia was low. In addition, PHIO's own recent customer survey confirms that awareness of PHIO is generally lower than what consumers expect, although this may be a function of the time the organisation has been in existence and the change of name in 1998.
Regulatory and consumer protection framework: The PHIO inquiry and complaint experience provides a unique insight into the problems faced by health insurance consumers. This information should be made available to policy makers and legislators on a regular basis, so that deficiencies in the regulatory and consumer protection framework can be addressed.
PHIO will continue to work with stakeholders and interested parties to develop appropriate regulatory and consumer protection regimes that enhance confidence in private health generally and in the private health insurance product specifically. This will require PHIO staff to address conferences and seminars, publish papers, liaise with stakeholders and generally participate in health insurance reform policy development.
Budget Measures Affecting Outcome 3
Simplified billing in the private health industry
Top of pageExpense ($m)
 | 1999-00 | 2000-01 | 2001-02 | 2002-03 |
| Department of Health and Aged Care | 2.5 | 0.2 | 0.2 | 0.2 |
Explanation
The Government will provide funding to encourage greater private health care usage by promoting simplified billing.
The funding will develop electronic commerce within the private health sector. This funding will be used to create electronic links between billing agents, health funds, hospitals and medical practitioners by enhancing the Health Insurance Commission's electronic links system, and working with the private health industry, including information technology specialists.
Seeding money will be provided to identified areas within the industry for the development of other relevant electronic commerce to complement existing systems. This is consistent with achieving the broader policy objective of improving the value of private health insurance for consumers.
Further Information
Simplified billing addresses multiple bills and unknown out of pocket costs. Trials of simplified billing concluded in September 1998. The evaluation of these trials found that further promotion within the industry was required. The trials also demonstrated that a key factor in successfully implementing simplified billing was the widespread utilisation of electronic commerce in the private health sector.
Lifetime Health Cover
Expense ($m)
| 1999-00 | 2000-01 | 2001-02 | 2002-03 |
| Department of Health and Aged Care | 12.3 | 2.0 | 1.7 | 1.4 |
Explanation
The Government will implement Lifetime Health Cover as a part of its broader private health insurance reform strategy to ensure long term stability and balance in both the public and private health sectors.
Lifetime Health Cover will enable health funds to charge different premiums to people, depending on the age at which they first joined a health fund. People taking out hospital cover early in their lives will pay lower premiums than those taking it out later in life. The new system therefore rewards early and continuous membership. The premium paid by people entering private health insurance will be based on the age at which they first join and, once set, remains at that rate relative to premiums for people entering at different ages.
To ensure an equitable and fair transition, a 12 month grace period - from 1 July 1999 to 30 June 2000 - will allow people who are not insured to take out hospital cover at the base rate premium. Anyone currently with hospital cover will be credited with the lowest possible joining age and continue to pay the base rate premium.
Special provisions apply to people who are aged 65 and over on 1 July 1999. They can take out hospital cover at any time in the future and still be credited with the minimum joining age.
This measure, together with concurrent reforms, has the potential to encourage a rise in health insurance membership numbers together with an improvement in membership profile. Funding for this measure is allocated towards a national education campaign and programme management costs for private health policy.
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Further information
Lifetime Health Cover operates with a threshold age of 30 years. Anyone joining before or at the age of 30 pays the base rate premium for the rest of their membership life. People over the age of 30 pay a 2 per cent loading on top of the base rate premium for every year they delay joining. For example, a person who delays joining until the age of 40 will pay 20 per cent more than someone who joined at the age of 30. The maximum loading allowed will be 70 per cent (at age 65) above the base rate paid by a 30 year old.
Increase Private Health Insurance Levy
Revenue ($m)
| 1999-00 | 2000-01 | 2001-02 | 2002-03 |
| Department of Health and Aged Care | 0.3 | 0.3 | 0.3 | 0.3 |
Explanation
The Government will raise the Private Health Insurance Levy to meet the increased operational costs of the Private Health Insurance Ombudsman. This levy applies to registered health benefits organisations. It is based on the level of a health fund's membership.
Increase funding for the Private Health Insurance Ombudsman
Expense ($m)
| 1999-00 | 2000-01 | 2001-02 | 2002-03 |
| Private Health Insurance Ombudsman | 0.3 | 0.3 | 0.3 | 0.3 |
Explanation
The Government will increase funding for the Private Health Insurance Ombudsman to allow it to meet with a growing workload flowing from the increase in health fund membership, and rising consumer awareness about initiatives being undertaken by the Government.
The additional funding will be paid for by the collection of increased levies from health funds as identified in the related revenue measure under the Health and Aged Care portfolio titled Increasing Private Health Insurance Levy.
Further Information
The Private Health Insurance Ombudsman is an independent body that deals with complaints about private health insurance. The Ombudsman deals mainly with complaints about private health insurance arrangements between funds, hospitals, the medical profession and fund contributors.
The Commonwealth recoups the expenses of the Ombudsman through a levy on registered health benefits organisations.
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Performance Information and Resource Allocation
The following indicators are designed to measure how effectively the goals of this outcome have been achieved.
Portfolio Strategies Division
| Indicator 1: | Viability of the private health insurance industry. |
| Target: | Increased viability of the private health industry through the implementation of Health Insurance Amendment Bill (No.2) 1999 which introduces a range of reforms designed to enhance the flexibility of health insurance products. |
| Info source/rept freq: | Departmental records. |
| Indicator 2: | New reinsurance arrangements. |
| Target: | New reinsurance arrangements in place and working effectively by July 2000. |
| Info source/rept freq: | Feedback from peak industry representatives and funds. |
| Indicator 3: | Private health insurance participation rates. |
| Target: | Stabilisation of participation rates. |
| Info source/rept freq: | PHIAC quarterly reports. |
| Indicator 4: | Public awareness of the Federal Government 30% Rebate on private health insurance. |
| Target: | Increased awareness achieved. |
| Info source/rept freq: | Evaluation commissioned in conjunction with the Public Affairs Branch. |
| Indicator 5: | Public awareness of new community rating arrangements. |
| Target: | Increased public awareness of new Lifetime Health Cover arrangements. |
| Info source/rept freq: | Evaluation commissioned in conjunction with the Public Affairs Branch. |
| Indicator 6: | Proportion of the private health industry utilising simplified billing arrangements. |
| Target: | Increase in the proportion of in-hospital medical claims processed by simplified billing methods beyond the current level of 6%. |
| Info source/rept freq: | Health Insurance Commission. |
| Indicator 7: | Consumer choice of private health industry products. |
| Target: | Increased consumer choice through the establishment of consumer oriented initiatives, including the Australian Consumer Association (ACA) key feature statement. |
| Info source/rept freq: | Departmental records, feedback from the ACA, peak industry representatives and health funds. |
| Indicator 8: | The flexibility of health funds to offer alternative models to in-hospital care to their members. |
| Target: | Increased flexibility of health funds to offer alternative models to in-hospital care through the continuation and extension of the current private health sector and coordinated care trials, in order to be in a position to seek amendments to the definition of 9Hospital' and 9Hospital Treatment' in the Health Insurance Act 1973. |
| Info source/rept freq: | Departmental records. |
| Indicator 9: | Successful transfer of health fund responsibilities to the PHIAC. |
| Target: | Passage of Heath Legislation Bill (No.3) 1999 through parliament in order to be in a position to implement changes to the role of the PHIAC. |
| Info source/rept freq: | Commonwealth of Australia Gazette. |
| Indicator 10: | Proportion of coverage for gap payments. |
| Target: | Increased proportion of coverage from July 2000. |
| Info source/rept freq: | PHIAC and PHIO records. |
Private Health Insurance Administration Council
| Indicator 11: | Financial viability of the private health insurance funds through the monitoring of the financial status of health funds. |
| Target: | Continued and improved financial viability of the private health insurance funds through implementation of Health Insurance Amendment Bill (No.3) 1999 regarding Capital Adequacy and Solvency Standards. |
| Info source/rept freq: | PHIAC quarterly financial statistics. |
Private Health Insurance Ombudsman
| Indicator 12: | The level of satisfaction with information and dispute resolution service provided by the Private Health Insurance Ombudsman. |
| Target: | Maintenance of existing high levels of satisfaction with the service provided by PHIO. |
| Info source/rept freq: | Surveys of PHIO's customers. |
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Resource Allocation
The allocation of resources for Outcome 3 is described in the following two Tables:
- Table C3.1 describes the relationship between the appropriation structure for Outcome 3 and the 1998-99 appropriation structure; and
- Table C3.2 sets out the allocation of resources across administered items and output groups for the Department and the Portfolio agencies that contribute to Outcome 3.
Table C3.1: Relationship between old appropriation structure and new Outcome structure for Outcome 3
| Outcome | Program |
| 3. A viable private health insurance industry to improve the choice of health services for Australians. | 2.3 Acute Care (part) |
| Appropriations
Department Special Appropriations Private Health Insurance Rebate Appropriation Bill 1 Departmental outputs Administered expenses Private Health Insurance Ombudsman Appropriation Bill 1 Departmental outputs | Appropriations
Special Appropriations Private Health Insurance Incentives Act 1997- Private Health Insurance Incentives Scheme Private Health Insurance Rebate
Appropriation Bill 1 Private Health Insurance Complaints Commissioner - for expenditure under the National Health Act 1953 (344.1) Running Costs, including Section 31 receipts (340.1)(p) Other Appropriation Bill 1 Compensation and Legal Expenses (340.2.01) |
Table C3.2: Resource summary for Outcome 3
Contribution of Administered Items and Departmental/Agency Outputs to Outcome 3
Portfolio Strategies Division
In order to achieve this outcome the Government has decided to spend $1,292m in administered expenses. These funds will be spent on private health insurance incentives to individuals and families through the 30 per cent rebate. To support the Government decision to allocate funds to this area the Department will provide a range of outputs in seven output groups.
The Department plays an important national leadership role in regulating the conduct of the health insurance business. It carries out a number of regulatory activities relevant to the private health industry determined by the National Health Act 1953 and the Health Insurance Act 1973. During 1999-2000 the Department will continue in its overarching legislative role in relation to the conduct of the private health insurance industry.
In order to promote a viable private health industry, the Department, in partnership with the private health industry, will continue to explore and implement a number of legislative reforms regarding private health insurance. To ensure effective implementation of reforms, the Department offers policy advice to the Minister and Government on current and proposed reforms as well as on the operations of the current private health industry. Recommendations are developed following reviews and evaluations of current arrangements. Additionally, the Department provides a range of outputs to the Minister and Parliament such as drafting responses to ministerials and the preparation of question time briefs.
The Department also provides information to the Government and other stakeholders relevant to private health insurance and administers various contracts to implement health insurance reform. Additionally, the Department has responsibility for administering the Federal Government 30 per cent Rebate. The administered money for the Federal Government 30 per cent Rebate comes to the Department and is paid to the HIC for premium reductions provided by the health funds or cash payments at Medicare offices. Alternatively, the Rebate is paid to individuals as a tax rebate through the Australian Taxation Office whose administrative costs are met through the Department.
The following performance information provides a comprehensive overview of the administered items and departmental outputs together with performance measures for these items and outputs.
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Private Health Insurance Administration Council
PHIAC plays an important role in the monitoring and regulation of the private health insurance industry. Under regulatory activities, PHIAC monitors quarterly reports from the industry, registers Simplified Billing Agents and calculates reinsurance payments. PHIAC also provides information to Government and other stakeholders on membership statistics and reinsurance benefits. Under services to the Minister and Parliament, PHIAC reports on its activities and achievements through the PHIAC Annual Report.
Private Health Insurance Ombudsman
The Private Health Insurance Ombudsman (PHIO) contributes to the outcome of a viable private health industry by improving consumer and provider confidence in private health insurance. PHIO will continue in its role of providing an independent information and dispute resolution service regarding private health insurance.
Table C3.3: Performance Information for Administered Items
Portfolio Strategies Division
1. Private health insurance incentives to individuals and families, including:
| Quantity: Approximately 2,686,000 private health insurance policy holders expected to receive the 30% rebate. |
Table C3.4: Performance Information for Departmental/Agency Outputs
Portfolio Strategies Division
1. Policy advice to the Ministers and Government regarding health insurance and related hospital issues, including:
| Quality: A high level of satisfaction of the Minister and Parliamentary Secretary with the relevance, quality and timeliness of policy advice provided.
Quantity: Policy, research and advice service commensurate with the funds allocated. Price: $4.000m. |
| 2. Services to the Ministers and Parliament. | Quality: A high level of satisfaction of the Ministers and Parliament with the relevance, quality and timeliness of services provided.
Agreed time frames met for responses to ministerial correspondence, Question Time Briefs, Parliamentary Questions on Notice and ministerial requests for briefing. Quantity: Number of responses to ministerial correspondence, Question Time Briefs, Parliamentary Questions on Notice and ministerial requests for briefing will be recorded during 1999-00 and used as a future benchmark. Price: $2.324m. |
3. National leadership, including:
| Quality:Appropriate implementation of regulatory requirements in consultation with the industry.
Quantity:National leadership service commensurate with the funds allocated. Price: $1.434m. |
4. Information to government and other stakeholders relevant to private health insurance, including:
| Quality: Timely provision of relevant and accurate information.
Quality: Effectiveness indicator No. 4 (page 107) measures the quality of the Federal Government 30% Rebate on private health insurance. Quantity: Information campaigns on lifetime health cover and the 30% rebate. Quality: Effectiveness indicator No. 7 (page 108) measures the quality of the Key Feature Statement. Quality: Web site updated regularly on production of new circular information. Quality: Establishment of an effective information service by June 2000. Price: $14.854m. |
5. Contract administration and funds management, including:
| Quality: Establishment of an effective information service in conjunction with consumer groups and the industry by June 2000.
Quality: Budget predictions are met and actual cash flows vary by less than 10% from predicted cash flows. 100% of payments are made accurately and on time. Quantity: 2- 6 contracts administered. Price: $0.773m. |
6. Regulatory activity, including:
| Quality: Recognition of hospital, day hospital and approved procedures facilities for payments in a timely fashion.
Quality: Health fund rule changes for products and premiums are assessed in line with the National Health Act 1953 on an ongoing basis. Quality: Timely amendments to the default table and prosthesis list. Quality: Timely registration of new funds. Quantity: Regulatory activity service commensurate with the funds allocated. Quality: A high level of compliance with the elements of the Government's regulation reform agenda, and their particular reporting requirements. Price: $1.363m. |
7. Direct delivery of services, including;
| Quality: High level of client satisfaction with services provided by the HIC.
Accurate and prompt processing of claims by the HIC. Monitoring of inappropriate claiming by the HIC. Quantity: 11,000 - 18,000 claims for direct payments processed by the HIC. 9 million - 12 million claims for premium deductions processed by the HIC. Price: $6m. |
Private Health Insurance Administration Council
| 2. Services to Ministers and Parliament. | Quantity:PHIAC prepares, prints and distributes the following information on an annual basis:
|
4. Information to government and other stakeholders relevant to private health insurance, including:
| Quality:Data is collected and analysed within four weeks of industry reporting deadline.
Quantity: PHIAC prepares, prints and distributes the following information on a quarterly basis:
Quality: Financial amendments to legislation reflected in web site within two weeks of Royal Assent. Quantity: Baseline data will be collected on the number of visits to PHIAC. |
6. Regulatory activity, including:
| Quality: High level of customer satisfaction with services provided.
Quality: Monitoring of the private health insurance industry through quarterly reporting from the industry and on a more frequent basis where necessary. Quantity: Collect financial returns from each of 44 registered health funds on a quarterly basis. Financial statistics provided to 44 funds on a quarterly basis. Quality: Billing agents registered within one week of completed application being received and within the guidelines. Quantity: 35 billing agents registered. Quality: Accurate calculation of reinsurance. |
Private Health Insurance Ombudsman
1. Advice and recommendations about the private health insurance industry, including:
| Quality: High level of satisfaction with the relevance, quality and timeliness of advice and submissions.
Quantity: Advisory services commensurate with the funds allocated to produce a range of products, including 11-15 submissions and public presentations. Price: $0.126m. |
7. Direct delivery of services, including:
| Quality: 95% of inquiries dealt with on the day received.
80% of complaints resolved within one month. Quantity: Based on previous estimates, 4000 inquiries &complaints received. Price: $0.824m. ($20 per inquiry; $20 per problem; $150 per grievance; and $800 per dispute) |
Performance Assessment: Evaluations and Reviews
Portfolio Strategies Division
- 1. Review of Impact of Industry Regulation
The Department will undertake a review of the impact of industry regulation. It is expected that the review will be completed by June 2000.
2. Evaluation of Current Private Sector Trials
An evaluation of current private sector trials will be undertaken. The evaluation will assess whether care that is currently provided in a hospital can be provided effectively in alternative settings such as early discharge and hospital in the home and other alternative pre and post acute care. Further, the evaluation will assess the extent to which alternative settings can be genuinely substituted for in-hospital treatment and not seen as 9add-ons' to hospital care. It is expected that this review will be completed by late 1999.
3. Review of the Functions of the Private Health Insurance Ombudsman
The Department has commenced a review into the current functions of the Private Health Insurance Ombudsman with a view to comparing current powers with the powers of investigation, conciliation and reporting held by Commonwealth Ombudsman positions. This review will be completed by mid 1999.
4. Review of Hospital Tables and Second Tier Default Benefits
A review of the relevance, or otherwise, of hospital tables and second tier default benefits, taking into account State hospital systems as well as the private sector. The review will investigate the question of whether the Commonwealth should continue with a compulsory level of minimum benefit defined in the tables. It will take into account the protection of more vulnerable patients such as psychiatric, rehabilitation and palliative care patients. It is expected that this review will be completed by mid 1999.
