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Private Health Insurance

Private Health Insurance. University of New South Wales 13 October 2003. PHIAC Role. Established in 1989 by National Health Act Statutory Authority Reports to Minister for Health Minister can direct but direction must be tabled in Parliament. PHIAC Role. Four main purposes

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Private Health Insurance

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  1. Private Health Insurance University of New South Wales 13 October 2003

  2. PHIAC Role • Established in 1989 by National Health Act • Statutory Authority • Reports to Minister for Health • Minister can direct but direction must be tabled in Parliament

  3. PHIAC Role • Four main purposes • Efficient and effective industry • Protect consumers • Minimise premiums • Ensure prudential safety of funds

  4. PHIAC Powers and Functions • Monitor financial performance of funds • Administer reinsurance • Produce statistics • Establish uniform reporting standards • Impose levies for PHIAC and fund failure • Register funds and simplified billing agents

  5. Health Insurance Industry • 43 Registered Organisations • 38 “not for profit” • 5 “for profit” • There are restrictions on what funds can do with their reserves. • Difference between “for profits” and “not for profits” - “for profits” are allowed to pay a dividend

  6. Health Insurance Industry • Top ten funds cover more than 95% of the market • Remaining 34 funds tend to focus on niche markets such as regions or are restricted membership organisations

  7. Characteristics of Private Health Insurance • Heavily regulated • PHIAC Financial Regulator • Private Health Insurance Ombudsman- consumer complaints • Department of Health & Aged Care - Policy, products and pricing regulation • Australian Competition & Consumer Commission - Trade Practices • ASIC - Corporate Reporting

  8. Characteristics of Private Health Insurance (cont.) • Community Rating • Can’t discriminate on basis of gender, age or health status • No risk rating? • Reinsurance • Cost sharing arrangement • NOT “Real” Reinsurance

  9. Characteristics of Private Health Insurance (cont.) • Heavy product regulation • Need approval from DHAC • Must be community rated • Cannot be discounted • Must cover psychiatric, rehabilitation and palliative care

  10. Characteristics of Private Health Insurance (cont.) • Lifetime Health Cover • Form of risk rating based on age of joining • Join at or below 30 - basic premium paid • Join over 30 - 2% increase per year • Capped at age 65 - maximum rate 170% of basic premium

  11. Characteristics of Private Health Insurance (cont.) • 30% Rebate • Government pays 30% of the cost • Cost $2.1 billion in 2001-02 • Higher Medicare Levy - Extra 1% - for persons without private health insurance • Single persons with income > $50,000 pa • Families with income > $100,000 pa

  12. Characteristics of Private Health Insurance (cont.) • Pricing - Premiums increases can be disallowed if: • Breach of the NHA • Unfair condition on contributors • Adversely effect the fund financially • Not in the public interest

  13. Characteristics of Private Health Insurance (cont.) • Under considerable cost pressure e.g. • Ageing population • Increased patient expectations • Increased technology costs • Pharmaceuticals and prosthetics • Staffing- health professionals in short supply • Doctors Indemnity

  14. PHIAC Regulatory Processes • Managing Intervention - guidelines • Boards of funds are accountable • Funds must meet regulatory requirements • “No surprises” approach to regulation • PHIAC will intervene to protect members in an efficient and timely manner • Appointed Actuary

  15. PHIAC Regulatory Processes (cont.) • Powers of supervision • Set conditions of registration • Examine books and records • Appoint an inspector • Appoint an administrator • Apply to wind up a fund

  16. PHIAC Regulatory Processes (cont.) • Indicative Factors which make PHIAC nervous • External events - takeover, insolvency of a parent • Failure to meet prudential requirements • Failure to meet reporting requirements • Failure to pay reinsurance payments • Breach of registration conditions • Drop in O/S claims while benefits are increasing

  17. Reinsurance • NOT Real Reinsurance • Equalisation scheme to share costs of high cost members • Persons over 65 • Members with more than 35 days hospitalisation in a year • 79% of benefits in reinsurance categories counted towards the pool

  18. Reinsurance • HBRTF - It is a Trust Fund • Reinsurance is a zero sum pool • PHIAC collects data from all funds on a State basis

  19. Prudential Standards - PHIAC’s Objectives • PHIAC wanted standards that: • Were responsive to risk profiles of individual funds • Encouraged risk management • Encouraged cost effective supervision • Did not impose undue compliance costs

  20. Requirement of Fund Boards • Board and Management need to focus on risks to the fund by either: • Mitigating the risks, or • Reserving against the risks

  21. Standards are intended to: • Reduce probability, to a defined & acceptable level, that a health fund will not be able to meet its claims. • Provide a financially & legally certain trigger point for regulatory intervention that recognises time delays in the provision & analysis of fund data. • Promote public confidence in the financial stability of the private health insurance industry

  22. Appointed Actuary • PHIAC is requiring all health funds to have an appointed actuary for the year commencing 1 July 2004. • AA will be involved with : • Pricing • Product design • FCR • Prudential Reporting

  23. Appointed Actuary • reasons for decision to establish the AA • Two significant fund failures where the fund could not recognise what was happening • Pricing failures • Increased complexity of industry • Government protecting its investment

  24. Appointed Actuary • Advertisement • There aren’t enough actuaries in private health insurance • Good quality, insufficient quantity • Health Practice Committee of Institute of Actuaries provides good professional support

  25. PHIAC Information • Membership and Coverage • Gap Statistics • PHIAC A Quarterly Report • PHIAC B Quarterly Report - Funds Only • Time Series Benefits Statistics • Annual Report • Insure? Not Sure?

  26. Summary • Industry is highly regulated • Unlikely to change in short term • Costs will increase • Appointed Actuary from 2004 -05 FY • Increased involvement of actuaries

  27. PHIAC Contact Details • http://www.phiac.gov.au • Telephone: 02 6215 7900 • Facsimile: 02 6215 7977 • Email: phiac@phiac.gov.au

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