Private Health Insurance
University of New South Wales
13 October 2003
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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
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PHIAC Role
Four main purposes
Efficient and effective industry
Protect consumers
Minimise premiums
Ensure prudential safety of funds
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PHIAC Powers and Functions
Monitor financial performance of funds
Administer reinsurance
Produce statistics
Establish uniform reporting standards
Impose levies for PHIAC and fund failureRegister funds and simplified billing agents
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Health Insurance Industry
43 Registered Organisations38 “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
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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
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Characteristics of Private Health Insurance
Heavily regulatedPHIAC Financial RegulatorPrivate Health Insurance Ombudsman-
consumer complaintsDepartment of Health & Aged Care -
Policy, products and pricing regulationAustralian Competition & Consumer
Commission - Trade Practices ASIC - Corporate Reporting
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Characteristics of Private Health Insurance (cont.)
Community RatingCan’t discriminate on basis of gender, age or health
statusNo risk rating?
Reinsurance Cost sharing arrangement NOT “Real” Reinsurance
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Characteristics of Private Health Insurance (cont.)
Heavy product regulationNeed approval from DHACMust be community ratedCannot be discountedMust cover psychiatric, rehabilitation and
palliative care
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Characteristics of Private Health Insurance (cont.)
Lifetime Health CoverForm of risk rating based on age of joiningJoin at or below 30 - basic premium paidJoin over 30 - 2% increase per yearCapped at age 65 - maximum rate 170% of
basic premium
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Characteristics of Private Health Insurance (cont.)
30% Rebate Government pays 30% of the costCost $2.1 billion in 2001-02
Higher Medicare Levy - Extra 1% - for persons without private health insurance Single persons with income > $50,000 paFamilies with income > $100,000 pa
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Characteristics of Private Health Insurance (cont.)
Pricing - Premiums increases can be disallowed if:Breach of the NHAUnfair condition on contributorsAdversely effect the fund financiallyNot in the public interest
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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
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PHIAC Regulatory Processes
Managing Intervention - guidelinesBoards of funds are accountableFunds must meet regulatory requirements“No surprises” approach to regulationPHIAC will intervene to protect members in an
efficient and timely mannerAppointed Actuary
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PHIAC Regulatory Processes (cont.)
Powers of supervisionSet conditions of registrationExamine books and recordsAppoint an inspectorAppoint an administrator Apply to wind up a fund
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PHIAC Regulatory Processes (cont.)
Indicative Factors which make PHIAC nervousExternal events - takeover, insolvency of a parentFailure to meet prudential requirementsFailure to meet reporting requirementsFailure to pay reinsurance paymentsBreach of registration conditionsDrop in O/S claims while benefits are increasing
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Reinsurance
NOT Real Reinsurance Equalisation scheme to share costs of high
cost members Persons over 65Members with more than 35 days
hospitalisation in a year 79% of benefits in reinsurance categories
counted towards the pool
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Reinsurance
HBRTF - It is a Trust Fund
Reinsurance is a zero sum pool
PHIAC collects data from all funds on a State
basis
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Prudential Standards - PHIAC’s Objectives
PHIAC wanted standards that:Were responsive to risk profiles of individual
fundsEncouraged risk management Encouraged cost effective supervisionDid not impose undue compliance costs
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Requirement of Fund Boards
Board and Management need to focus on risks to the fund by either:Mitigating the risks, orReserving against the risks
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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
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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
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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
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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
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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?
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Summary
• Industry is highly regulated
• Unlikely to change in short term
• Costs will increase
• Appointed Actuary from 2004 -05 FY– Increased involvement of actuaries
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PHIAC Contact Details
http://www.phiac.gov.auTelephone: 02 6215 7900Facsimile: 02 6215 7977Email: [email protected]