Jacinta Collins (Victoria, Australian Labor Party, Parliamentary Secretary for School Education and Workplace Relations) Share this | Link to this | Hansard source

I move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speech es read as follows—

PRIVATE HEALTH INSURANCE AMENDMENT (LIFETIME HEALTH COVER LOADING AND OTHER MEASURES) BILL 2012

The Private Health Insurance Amendment (Lifetime Health Cover Loading and Other Measures) Bill 2012 will amend the Private Health Insurance Act 2007 and make minor consequential amendments to the Income Tax Assessment Act 1936, Income Tax Assessment Act 1997 and the Taxation Administration Act 1953.

The Bill provides for two categories of amendments to the Private Health Insurance Act 2007.

Firstly, the Bill proposes amendments to the Private Health Insurance Act 2007 to remove the rebate on private health insurance from the Lifetime Health Cover loading part of affected premiums.

The Bill will ensure that rebate recipients are treated consistently, regardless of whether they have a Lifetime Health Cover loading or not. The Bill will also improve the effectiveness of the Lifetime Health Cover incentive for a person to take out private health insurance earlier in their life and maintain it. This will provide greater support to a fundamental component of the Australian health system, the principle of community rating in private health insurance.

The rebate is currently payable on the entire cost of a person's policy, including any Lifetime Health Cover loading payable. It is for this reason that removing the rebate from the Lifetime Health Cover loading will also contribute to ensuring the sustainability of the rebate. These changes will commence on 1 July 2013.

The second aspect to the Bill is that from 1 July 2013, claiming the rebate through a Department of Human Services Service Centre under the Incentive Payments Scheme will cease.

Background

On 22 October 2012, as part of the 2012-13 Mid-Year Economic Fiscal Outlook, the Treasurer announced the private health insurance measure 'Private Health Insurance rebate – removal of rebate on lifetime health cover loading'.

The private health insurance rebate is a significant component of Australian Government health expenditure. There has been a higher take up of private health insurance despite the Australian Government's introduction of the rebate tiers last year. The changes proposed in this Bill, combined with the income testing of the rebate which was introduced on 1 July 2012 and the proposal also announced by the Treasurer as part of the 2012-13 Mid-Year Economic Fiscal Outlook being to index the rebate from 1 April 2014 on the lesser of the Consumer Price Index or the premium increase, will deliver continued consumer protection and enable the Government to continue to provide a sustainable incentive for consumers.

Lifetime Health Cover

Under current Lifetime Health Cover arrangements, people who take out hospital cover before 1 July after their 31st birthday and maintain their membership pay lower premiums relative to people who delay joining. Lifetime Health Cover is designed to encourage people to join hospital cover earlier in life and to maintain their membership. Thereby boosting and improving the risk profile of health insurance membership.

People who delay taking out hospital cover pay a financial loading of 2 per cent for every year they are over the age of 30, up to a maximum of 70 per cent, on the hospital portion of their premium.

Under existing arrangements, the Government pays a rebate as a percentage of the premium paid, which includes any applicable Lifetime Health Cover loading. If the Australian Government continued to subsidise a proportion of the Lifetime Health Cover loading the incentive to take out hospital cover is diminished.

Lifetime Health Cover is a key component in supporting community rating in private health insurance, keeping private health insurance affordable for all Australians, regardless of age, illness or potential health risk. Community rating means that insurers are not permitted to differentiate the premiums charged according to an individual's health risk characteristics. Community rating arrangements keep private health insurance affordable by keeping premiums lower for the aged and sufferers of illness who pay premiums lower than they would be if adjustments were made based on their health status. The principles underlying community rating are strongly supported by the Government on equity grounds and are considered a fundamental component of the Australian health system.

It is irrational to have a Lifetime Health Cover loading that encourages people to take out private health insurance at an earlier age and maintain it, and then have the Government pay a portion of this loading. This is also unfair to those taxpayers who do take out private health insurance earlier in life.

This Bill restricts the rebate to a percentage of the premium only, excluding any increase to the premium because of Lifetime Health Cover. The result of this is that the full amount of the Lifetime Health Cover loading is passed on to the policyholder, thereby improving the effectiveness of the Lifetime Health Cover incentive. This improves support for community rating.

These changes are equitable in that it ensures that all people who purchase hospital cover receive the same rebate relative to the premium paid, their age and income level.

Ceasing the Incentive Payments Scheme

The second component to the Bill is to cease, from 1 July 2013, claiming the rebate through a Department of Human Services Service Centre, otherwise known as the Incentive Payments Scheme. The Incentive Payments Scheme option is seldom used. Over 99.9 per cent of rebate claims are made via the Premium Reduction Scheme and tax offset claiming options. The Premium Reduction Scheme is the most popular method, providing the immediate benefit of an upfront premium discount to policyholders.

The Incentive Payments Scheme is the least used claiming option and requires claimants to pay the rebate amount to their health insurer before it can be claimed back from the Department of Human Services. Incentive Payments Scheme claiming is likely to further decline as the Department of Human Services Service Centres became 'cashless' with effect 1 July 2012, and people can no longer get their rebate as 'cash in hand' via the Incentive Payments Scheme. The evidence we have to date is that the use of the Incentive Payments Scheme has declined since 1 July 2012.

As these figures indicate, this amendment will not have a major impact on policyholders; rather it will encourage a more efficient way to claim the rebate. Ceasing the Incentive Payments Scheme claiming option is a simple and low cost option to reduce the administrative burden on insurers, the Department of Human Services and the Australian Taxation Office.

Minor consequential amendments are also made to the Income Tax Assessment Act 1997 and the Taxation Administration Act 1953 to remove references to the Incentive Payments Scheme.

PRIVATE HEALTH INSURANCE LEGISLATION AMENDMENT (BASE PREMIUM) BILL 2013

The Australian Government Rebate on private health insurance is a significant component of Government health expenditure. The objective of the Rebate is to encourage people to take out private health insurance by contributing an income tested Rebate to private health insurance premiums. Over recent years there has been substantial growth in private health insurance membership and therefore Rebate expenditure. This is despite the hysterical claims by those opposite that previous changes to the Private Health Insurance Rebate would cause over a million people to drop out of Private Health Insurance. One hundred and twenty thousand people have joined in the six months following means testing.

Private Health Insurance participation rates remain strong. The rate of new membership continues to outstrip population growth with 46.9 per cent of the population now holding hospital cover. As at December 2012, 54.6 per cent of the Australian population held some form of private health insurance.

The Private Health Insurance Legislation Amendment (Base Premium) Bill 2013 will amend the Private Health Insurance Act 2007 to index the Government's contribution to individual private health insurance policies – making the Rebate expenditure sustainable into the future and helping to reduce long term costs in health expenditure.

Background

This measure was announced by the Treasurer on 22 October 2012, as part of the 2012-13 Mid-Year Economic and Fiscal Outlook and was one of two reforms announced to the private health insurance Rebate. In his MYEFO announcement, the Treasurer stated that the 'Rebate currently costs around $5 billion a year and its growth rate of 6.3 per cent over the forwards is unsustainable'. As the Rebate is funded by the Commonwealth, it is appropriate for the Commonwealth to monitor and reassess its support in this area, ensuring that tax payer dollars are well spent.

Rebate

This Bill will create, for the purposes of the Rebate, a base premium for each individual health insurance policy which will be indexed annually by the lesser of the Consumer Price Index or the actual increase in premiums imposed by insurers. This will then be used to determine an individual's private health insurance rebate.

These changes will mean that while the Rebate percentage remains the same, the Rebate rate will be calculated on the 'base premium'. A policy holder's percentage Rebate entitlement will continue to be dependent on their age and income.

The calculation of a weighted average ratio will be used to determine the base premium for product subgroups, and new insurers, that are made available after 1 April 2013. The weighted average ratio will be determined in consultation with industry and then detailed within the Private Health Insurance (Incentives) Rules prior to the Bill's commencement on 1 April 2014.

For premium changes, private health insurers will continue to be required to apply to the Minister for Health for approval under the Private Health Insurance Act 2007. This will permit the Government to consider an insurer's solvency requirements, forecast benefit payments and prudential requirements, while also ensuring the affordability and value of private health insurance as a product.

Summary

In summary, this Bill seeks to make the Government's Rebate expenditure sustainable by indexing the Government's contribution to individual private health insurance policies. The Government always needs to assess how we prioritise our spending. As a Government we will continue to make decisions that ensure our spending is directed to areas where it can do the most good. We feel this change is important as the rate of new private health insurance memberships continues to outstrip population growth and as such the Rebate will continue to grow at an unsustainable rate.

Debate adjourned.

Ordered that the resumption of the debate be made an order of the day for a later hour.