CHOICE THROUGH PRIVATE HEALTH
A viable private health industry to improve the
choice of health services for Australians.
Did you know...?
In 2003-04, private health insurance funds paid out over $7 billion in benefits to their
members and in 2002-03, one in three hospital patients was a private patient.
OUTCOME 8: CHOICE THROUGH PRIVATE
PART 1: OUTCOME PERFORMANCE REPORT
Outcome 8 is managed within the Department of Health and Ageing by the Acute Care
The Private Health Insurance Administration Council (PHIAC) and the Private Health
Insurance Ombudsman (PHIO) also work towards the achievement of Outcome 8. Both
produce their own annual reports.
The Department completed the Lifetime Health Cover Review which was tabled in
Parliament on 24 December 2003. The Review found that Lifetime Health Cover was
successful in supporting fund membership numbers and improving the membership
profile of the privately insured population.
After policy development work in the department and with the health funds in September
2003, the regulatory framework
was changed to prevent health funds from paying ancillary benefits for goods and
services which are primarily for the purpose of sport, recreation or entertainment.
Following departmental work and an inter-departmental review in February 2004,
legislation was changed to improve the regulation of health funds, increase the powers of
the PHIO, and require the PHIO to produce an annual State of the Health Funds Report.
In June 2004, legislation was changed to allow health funds to pay benefits from hospital
insurance for accommodation and nursing costs associated with procedures performed
on admitted patients by accredited podiatrists.
New arrangements for the listing and setting
of benefit levels for prostheses were scheduled to begin in January 2004. Despite
extensive work in the department and with other parties, implementation has been
delayed while administrative arrangements have been discussed and agreed with
industry. A new ministerial advisory committee was established in early 2004-05 to
advise the Minister on the listing of prostheses under the new arrangements. Existing
prostheses arrangements have remained in place until the new arrangements are up and
OUTCOME SUMMARY –
THE YEAR IN REVIEW
The Department continued to support the role the private health sector played in
Australia’s health care system in 2003-04 through policy advice, administration and
regulation relating to private health insurance. Private health services complement
publicly funded services, and the partnership between the public and private sectors is a
feature of the Australian health system. Under this outcome, the Department supports
the Australian Government objective of improving affordability, access and quality in
private health to ensure that Australians have choice in health services.
Almost half the population chose private health insurance in addition to the security
offered by the universal health insurance system, Medicare, and just over a third of
Australia’s hospital beds are in private hospitals.
The Department’s main responsibility in this outcome is to regulate the operations of the
private health insurance funds. A comprehensive framework of regulations exists under
the National Health Act 1953 to protect the interests of people who take out health
insurance and ensure the ongoing viability of the health funds. The Department also
manages the Australian Government’s 30 per cent Private Health Insurance Rebate, in
partnership with the Health Insurance Commission (HIC) and the Australian Taxation
Office (ATO). A number of activities are also carried out to support quality and access in
Private Health Insurance
The 2003–04 year has again seen relative stability in rates of participation in private
health insurance. At 30 June 2003, over 8.6 million people or just over 43 per cent of the
Australian population were covered by private health insurance. At 30 June 2004 there
were 8.6 million people with private health insurance cover and the proportion of the
population covered was 42.9 per cent.1 The number of people under the age of 65 with
private health insurance, was 7.6 million in June 2004 compared with 7.7 million in June
In April 2004, private health insurance
funds increased premiums by an average of
7.6 per cent. This year’s round was notable for the low number of complaints reported by
the PHIO compared with previous years (244 complaints were received by the PHIO
in relation to the 2004 premium round while
685 were received in relation to the 2003 premium round).
The 30 per cent rebate on private health insurance continued to reduce the cost of
premiums to consumers. The total cost of assistance delivered under the 30 per cent
rebate for 2003–04 was $2.5 billion, consisting of $2.4 billion appropriated through the
Department and an estimated $147 million administered by the ATO. 3
More people are choosing to be treated as private patients when they go to hospital.
Almost one hospital patient in three was a private patient in 2002-03. The proportion
grew from 32.8 per cent in 2001-02 to
33.3 per cent in 2002-03.4
Gap cover scheme arrangements between
health funds and medical specialists are designed to eliminate or reduce out-of-pocket
costs for health fund members. By June 2004,
35 health funds had approved gap cover schemes in place while six funds provided
no or known gap cover under contract arrangements. At 30 June 2004, 70.6 per cent
of insured in-hospital episodes were covered
by a no or known gap arrangement, up from
66.9 per cent at 30 June 2003 and one per cent at 30 June 1998. 5
A common finding in consumer surveys is
that it is difficult to get easy-to-read,
comparable information about the large number of insurance products on the market. As
a result, many consumers report that they do not understand private health insurance.
In 2003-04 the Department continued to
work with the private health industry and other agencies to encourage the production of
well targeted information products to enhance and inform consumer choices. An
independent taskforce was established in 2003-04 to advise the Minister on informed
financial consent. In 2004-05, the taskforce will conduct a consumer survey, and the
Department will conduct focus group testing to find out more about consumer needs and
The number of complaints to the PHIO regarding private health insurance arrangements
is indicative of consumer satisfaction with private health care. A complaint is defined as
an expression of dissatisfaction with any matter arising out of or connected with a private
health insurance arrangement. Complaints can range in level from a need for explanation
of an issue to a dispute where the issue has not been resolved between the complainant
and the health fund, hospital, doctor or other provider. During
2003-04, 2,992 complaints were received by the PHIO, a decrease of approximately 16
per cent from the 3,568 complaints in 2002-03.7
Contracting between health funds and private hospitals is a commercial issue and has
been a feature of the private health insurance industry for some years. However, in
2003-04 a large number of members moved from one particular fund to another as a
direct result of a contract dispute. Health fund members have the right to full portability.
This means that members can transfer between health funds without having to re-serve
waiting periods unless they transfer from a restricted product to a more comprehensive
product which gives a higher level of cover. In consultation with hospitals and funds, the
Department and the PHIO have continued to work to ensure that the portability
arrangements operate in an optimal way for consumers, funds and hospitals.
The Department continues to implement reforms of the private health industry. Targeted
activities, that included private hospitals, continued. Reviews of the new arrangements
for prostheses, default benefits and reinsurance were undertaken and improvements
were also made to the regulatory framework governing health funds.
The Bush Nursing, Small Community and Regional Private Hospitals Initiative continued
to provide an opportunity for small rural private hospitals to review and restructure
operations to better meet the needs and expectations of their local communities. In
2003-04, the Department provided approximately $8.4 million to hospitals to increase the
range of services available to rural communities. Strategic plans were produced for rural
private hospitals to identify opportunities for refurbishment, business re-engineering or
restructuring, and further funding will be provided to implement such changes. In many
cases, hospitals were able to broaden the range and scope of services that they offered
and establish links with other health service providers in their area.
During 2003-04, 46 of the 62 eligible hospitals throughout regional and rural Australia
were active in the Program.9
The Private Health Industry Quality and Safety Committee (PHIQS) coordinates and
leads quality and safety enhancement initiatives in the private hospital sector. An
objective of PHIQS is to support the work of the Australian Council for Safety and Quality
in Health Care in the private sector. A number of working groups have been set up to
address priority areas of the Council and tailor solutions for private sector settings where
appropriate. These areas include accreditation, credentialing, consumer participation,
open disclosure, patient safety and quality use of medicines.
The Private Sector Quality Criteria which PHIQS developed have now been incorporated
into the standard requirements of internationally approved accreditation agencies which
certify the majority of private sector facilities. The Australian Council for Safety and
Quality in Health Care is proposing a national accreditation framework for health care
providers and health insurance funds are placing an increased emphasis on quality when
negotiating contracts with private hospitals and day surgeries. PHIQS has therefore
encouraged a number of smaller accreditation agencies to also apply for
industry-recognised approval during 2003-04.
In June 2004, the Minister for Health and Ageing advised stakeholders of the
establishment and structure of a new Prostheses and Devices Committee and sought
nominations from key industry groups. The committee will make recommendations to the
Minister about the listing and setting of benefit levels for prostheses based on specialist
advice. The reforms to prostheses arrangements mean that private health insurance
funds will be required to provide a no gap range of prostheses (i.e. provided at no charge
to patients). In 2003-04, Clinical Advisory Groups were set up to review the clinical
effectiveness of six major prostheses groups (hips, knees, cardiac stents, defibrillators,
pacemakers and intra-ocular lenses). The treatment of other types of prostheses will be
considered in 2004-05.
A Policy Advisory Group has also been formed. It is chaired by the Department of Health
and Ageing with members from the Australian Health Insurance Association (AHIA),
Australian Private Hospitals Association, Catholic Health Australia, the Australian
Medical Association (AMA), the Medical Industry Association of Australia and the
Consumers’ Health Forum of Australia. This group will provide policy advice around the
new arrangements to the Minister and the Prostheses and Devices Committee. The new
arrangements for the listing and setting of benefit levels for prostheses were scheduled
to begin in January 2004. However, extended consultations with stakeholders have
delayed the introduction of the new arrangements.
Health funds are required by legislation to pay default rates of benefit when members are
treated in hospitals which do not have a contract with the fund. Default benefits were
reviewed in 2003-04 and it was decided to continue the so-called ‘second tier default
Reinsurance in private health insurance is a system of risk and equalisation between
health funds. The Department conducted consultations with industry on a new risk-based
capitation model for reinsurance during 2003-04, and work started on data collection
methods which will inform the development of the new arrangements in consultation with
Improvements to Regulation
The Health Legislation Amendment (Private Health Insurance Reform) Act 2004 (the Act)
which implemented key components of the 2002-03 Regulatory Review received Royal
Assent on 27 February 2004. All elements of the Act had commenced by 1 July 2004.
The Act amended the National Health Act 1953 and the Private Health Insurance
Incentives Act 1998 by changing the obligations of health funds and increasing the
powers of PHIO. This amendment resulted in the deregulation of health fund rule
changes in conjunction with the monitoring of health fund activities through performance
indicators and required the PHIO to produce an annual State of the Health Funds Report.
As part of the Act, from 1 July 2004, health funds must notify the Department of Health
and Ageing of rule changes but no longer need to submit them for approval.
Regulations establishing performance indicators for the monitoring of health fund
activities were put in place to ensure that their products continue to support community
rating. To support this process and as part of the Australian Government’s On-Line
Strategy, the Department developed a new system for the electronic processing of
notifications by funds of changes to their business rules during 2002-03. The Rules
Application Processing System (RAPS) came on line in August 2003.
The Design of Appropriate Private Health Products
The Health Legislation Amendment Bill (Podiatric Surgery and Other Matters) Act 2004
was passed by Parliament on 24 June 2004. This amended existing legislation to enable
private health insurance funds to pay benefits from their hospital tables for
accommodation and nursing costs associated with procedures performed on admitted
patients by accredited podiatrists. The new legislation enhances choice and alleviates
some of the cost burden for privately insured patients who are operated on by podiatric
surgeons as admitted patients in hospital.
During early 2003, the private health
insurance funds considered the removal of benefits for goods and services normally
purchased for the purpose of sport, recreation or entertainment. The Australian Health
Insurance Association (AHIA) noted that it would be a difficult and protracted process for
the industry to take this action on its own and asked the Australian Government to
regulate. The Australian Government has since imposed additional conditions of
registration requiring health funds to stop paying benefits for
goods and services primarily for the purposes
of sport, recreation or entertainment by
31 December 2003. An important proviso is
that funds may still continue to pay such benefits where they are part of a health
management program approved by the health fund, and designed to prevent or
ameliorate a specific health condition or conditions. As a result, benefits paid for ‘lifestyle’
products in the June 2004 quarter were $2.5 million, a reduction of 87 per cent since the
December 2003 quarter.
Lifetime Health Cover
The legislation establishing Lifetime Health Cover required a review of the policy to be
undertaken before 31 December 2003. The Review, undertaken by the South Australian
Centre for Economic Studies on behalf of the Department, found that Lifetime Health
Cover was successful in providing a boost to membership numbers and improving the
membership profile of the privately insured population. It also found that the incentives
contained in Lifetime Health Cover continued to encourage people to take out cover early
in life and to maintain it. The review was tabled in both Houses of Parliament on 24
The Department continued to implement decisions flowing from the review of private
health insurance. The legislation for the Lifetime Health Cover standard birthday was
passed in February 2004 with the birthday to take effect from 1 July 2004. The standard
birthday enables funds to advertise for new members in a more concentrated and
efficient manner. The deadline for taking out private hospital cover without
a Lifetime Health Cover loading is now the
1 July after a person turns 31. Other legislative amendments to Lifetime Health Cover
which were introduced in 2003-04 improve the system for veterans, new migrants and
some expatriates who will now have a period in which they can purchase private health
insurance without a loading if they are over 30 years of age.
Informed Financial Consent Taskforce
Informed financial consent for consumers is closely linked to the development of no gap
and known gap health insurance and occurs when patients are clear about which doctors
will be involved in their care and are given estimates of the overall medical and hospital
costs and gaps. In 2003-04 an Informed Financial Consent Taskforce was established.
The Taskforce, which is made up of consumer, doctor, private hospital and health fund
representatives, has been charged with identifying the barriers to informed financial
consent, and implementing strategies to address them.
E-Commerce in Private Health
The Department of Health and Ageing and the Health Insurance Commission (HIC)
worked on the introduction of an electronic system to encourage informed financial
consent and simplified billing. The Health and Ageing Legislation Amendment Act 2004
received Royal Assent on 21 April 2004. Amongst other things, this Act amends the
National Health Act 1953 (the National Health Act) to enable medical practitioners to
send a claim directly to the HIC rather than via the health fund. This amendment assists
with the introduction of the HIC’s simplified Electronic Claim Lodgement and Information
Processing System (ECLIPSE).
The ECLIPSE project, which received funding
in the 2004-05 Budget, will simplify claiming, payment and eligibility checking processes,
and enhance informed financial consent to the benefit of consumers, health service
providers and health funds.
Performance Indicators (Effectiveness Indicators)
The Department of Health and Ageing is responsible, and accountable, for contributing to
the achievement of nine outcomes. Effectiveness indicators are used to measure the
progress the Department is making in achieving these outcomes.
Listed below are the effectiveness indicators for Outcome 8. These indicators form the
basis for the Outcome Summary – The Year in Review. Footnotes have been included
within the Outcome Summary to allow the reader to reference the information being
discussed back to the relevant effectiveness indicator.
Indicator 1. Targets:
Affordability of private a. Trends in private health insurance participation rates.
health care. b. Proportion of in-hospital services covered by no/known
c. Trends in age profile of people with private health insurance.
d. Trends in private health insurance safety net products.
Information source/reporting frequency:
a. PHIAC Quarterly Report A.
b. PHIAC Quarterly Report on gap arrangements.
c. PHIAC Quarterly Report A.
d. Baseline data will be developed during the year.
Indicator 2. Targets:
Choice for consumers a. Consumer awareness of private health care services.
between private and b. Proportion of in-hospital episodes delivered to private patients
public health care. in public and private hospitals.
c. Number of private hospitals in rural Australia.
Information source/reporting frequency:
a. Evaluations of promotional campaigns and telephone
b. Australian Hospital Statistics.
c. Private hospital administrative data.
Indicator 3. Target:
Complaints regarding a. Reduction in disputes as a proportion of the overall complaints to
access to appropriate the Private Health Insurance Ombudsman.
private health care Information source/reporting frequency:
a. Private Health Insurance Ombudsman Annual Report.
PART 2: PERFORMANCE INFORMATION
Performance Information for Administered Items
1. Australian Government 30% Rebate.
Quality: At June 2004, the proportion of the population with private
health insurance was 42.9%. During the year ended 30 June
Indicators 1a and 2b measure
2003, 33.3% of in-hospital episodes were delivered to
private health insurance
privately insured patients.
membership and hospital
episodes delivered to private
patients in public and private
2. Rural and regional private hospital support.
Quality: The level of access to private hospitals in rural areas was
Indicator 2c measures the
appropriateness of the Bush
Nursing, Small Community and
Regional Private Hospitals
Performance Information for Departmental Outputs
1. Policy advice regarding health industry and related hospital issues, including:
• development of policy initiatives to make private health insurance more attractive to
consumers and thereby support the ongoing viability of the private health industry
Quality: The Minister and Minister’s Office were satisfied with the
relevance, quality and timeliness of policy advice, Question
A high level of satisfaction of the
Time Briefs, Parliamentary Questions on Notice and
Secretary and Ministers’ Offices
with the relevance, quality and
timeliness of policy advice.
Timely production of The Department continues to provide high quality and timely
evidence-based policy research. evidence-based research and analysis to inform the
Australian Government, and to use in consultation with
Opportunity for stakeholders to Health funds, private hospitals, day facilities and consumer
participate in policy and program representatives have indicated their satisfaction with the
development. quality and timeliness of Departmental inputs to a range of
policy and program environments.
The Department regularly seeks input and feedback from key
stakeholders through formal consultation, committee and
working group processes as well as informally through day to
2. Program management, including:
• managing the Australian Government 30% Rebate estimates;
• making payments to the Australian Taxation Office (ATO) under the Service Level
• financial management and reporting on Outcome 8;
• successful implementation of regulation review and budget initiatives;
• develop and trial models of reform to improve care and funding arrangements for
patients accommodated in private hospitals and day hospital facilities;
• develop and implement strategies to improve quality and cost–effectiveness of care
in the private sector;
• implement more effective arrangements for rehabilitation care in the private sector;
• facilitate the restructure of the rural private hospital sector to maintain appropriate
access to private health services for privately insured consumers in rural areas;
Quality: Health funds, private hospitals, day facilities and consumer
representatives express their satisfaction through their
A high level of stakeholder
involvement with the Department in the development and
satisfaction with the timely implementation of a range of private health insurance
development and strategies, including changes to ancillary benefits, second tier
implementation of national default benefit, prostheses and reinsurances.
Budget predictions are met and Budget predictions and actual cash flows varied by less than
actual expenses vary less than 0.5%.
5% from budgeted expenses.
100% of payments are made All payments were made accurately and on time.
accurately and in accordance
with negotiated service
A high level of stakeholder Stakeholders have indicated a high level of support and
satisfaction with relevance, satisfaction with the timeliness, quality and relevance of
quality and timeliness of information and education services. In particular,
information and education stakeholders have indicated significant satisfaction with the
services. Rules Application Processing System (RAPS) which provides
a range of information support services.
Stakeholders support the The Department established and maintained ongoing liaison
implementation of regulation and involvement and worked with industry to progress agreed
review and budget initiatives. strategies to address this issue. Strategies include working
together through formal committees and working group
processes with health industry stakeholders on a range of
private health insurance strategies, including changes to
ancillary benefits, second tier default benefit, prostheses and
Identified improvement The PHIQS has identified several areas which will benefit
strategies for private health from further action to enhance quality, including accreditation,
industry progressively quality use of medicines and consumer participation. PHIQS
implemented within the industry. has been working with the Australian Government and private
health industry stakeholders to progress a number of quality
A high level of stakeholder Stakeholders participate in formal and informal processes to
participation in system-wide improve several areas of private health, including changes to
improvement activities. ancillary benefits, second tier default benefit, prostheses and
Increased standardisation of The Australian Rehabilitation Outcomes (AROC) dataset
data collections between public continues to expand with the majority of rehabilitation
and private sectors. facilities in Australia, in both the public and private sectors,
submitting data to AROC. Work has commenced on placing
the data definitions used by AROC into the National Health
Data Dictionary which should increase its utility to existing
and new end users of the data.
A high proportion of rural private 74.2% of potentially eligible private hospitals received funding
hospitals participating in the through the Bush Nursing, Small Community and Regional
assessment process and, where Private Hospitals Program in 2003-04.
required, accessing the rural
private hospital restructuring
10-20 contracts administered. Five contracts were administered during 2003–04.
• recognition of hospital and day hospital facilities and special care nurseries for
payment of health insurance benefits; and
Quality: During 2002-03 recognition of facilities took an average of 10
working days from receipt of State and Territory licences.
Timely recognition of hospital,
day hospital and special care
nurseries for payment benefits.
Quality: Health funds submitted notification for premium increases in
January 2004. Increases were scrutinised in conjunction with
Decisions made within legislated
the Private Health Insurance Administration Council and
advice was within the required timeframe.
Public and industry inquiries on All public and industry inquiries in relation to the
the administration of Acts dealt administration of the Acts were dealt with in a timely manner,
with promptly. Possible breaches with attention to detail and the needs of the person making
of the Acts investigated and the inquiry. Several potential breaches of the National Health
appropriate action taken. Act 1953 were reported or identified. All potential breaches
were investigated and have been resolved to the satisfaction
of the Department.
Quantity: 10 applications for private day hospital facilities, 2
applications for private hospitals, and 1 public hospital were
25-30 applications for
processed for health insurance benefit purposes. In addition,
recognition of facilities for health
21 Special Care Nurseries in public and private hospitals
insurance business processed
were processed for payment of health insurance benefit
• regulation of the default table and prostheses list for benefits payable by funds to
recognised hospitals and day hospital facilities.
Timely amendments to the Updates for the basic default table were performed in a timely
default table and prostheses list. manner as required. Prostheses list updates occurred in
August 2003 and February 2004.
3. Agency specific service delivery, including:
• make payments to the HIC and ATO for the administration of the Australian
Government 30% Rebate on private health insurance; and
• ensure that participants have effective and efficient access to the 30% Rebate
scheme through appropriate monitoring of HIC’s and ATO’s legislated service
delivery functions in accordance with agreed protocols.
Quality: The HIC advised that based on feedback received by the HIC
from health funds, clients were pleased with the services
High level of client satisfaction
provided by HIC. The ATO advised that the Taxpayers’
with services provided by the
Charter standards for taxpayer enquiries were achieved.
HIC and the ATO as reported by
This, combined with an analysis of reporting mechanisms for
each agency against their
disputed tax assessments, indicates that claimants of the
30% Rebate through the tax system are satisfied.
Accurate and prompt processing The HIC advised that it has processed all payments for the
of claims as reported by the HIC Australian Government 30% Rebate in the legislated time
and the ATO against each frames. The ATO advised that it aims to process 95% of
agency’s respective standards. electronic claims within 14 days and 90% of paper claims
within 42 days as stated in the Taxpayers’ Charter. The ATO
processed 97% of electronic claims within 14 days and 94%
of paper claims within 42 days.
Quantity: As at 30 June 2004, 4.8 million policy holders were registered
to claim the 30% Rebate as a premium reduction or a direct
4-4.5 million policy holders claim
the Rebate either as a direct
payment or as a premium
Up to 600,000 policyholders During 2003–04, the ATO processed 331,028 claims relating
claim the Rebate through the to the year ended 30 June 2003.
Financial Resources Summary
Outcome 8 - Choice Through Private Health
(A) Budget (Column B
Estimate (B) Actual minus Budget
2003-04 2003-04 Column A) 2004-05
$’0001 $’000 $’000 $’0002
Administered Item 1: Federal Government 30% Rebate
Private Health Insurance Rebate 2,361,688 2,389,864 28,176 2,495,949
Special Appropriations 2,361,688 2,389,864 28,176 2,495,949
Appropriation Bill 1/3/5 237 0 (237) 127
Total Administered Item 1 2,361,925 2,389,864 27,939 2,496,076
Administered Item 2: Rural and Regional Private Hospital
Appropriation Bill 1/3/5 8,407 8,396 (11) 0
Total Administered Item 2 8,407 8,396 (11) 0
Total Administered Expenses 2,370,332 2,398,260 27,928 2,496,076
Output Group 1 - Policy Advice 7,708 8,332 624 4,898
Output Group 2 - Program Management 4,792 1,165 (3,627) 3,045
Output Group 3 - Agency Specific Service Delivery 8,334 2,071 (6,263) 5,297
Total price of departmental outputs
(total revenue from Government & other sources) 20,834 11,568 (9,266) 13,240
20,205 10,533 (9,672) 12,485
Total revenue from Government (appropriations) contributing
to price of departmental outputs
Total revenue from other sources 629 1,035 406 755
Total price of departmental outputs
(total revenue from Government & other sources) 20,834 11,568 (9,266) 13,240
Total estimated resourcing for Outcome 8
(total price of outputs & admin expenses) 2,391,166 2,409,828 18,662 2,509,316
Average Staffing Level (Number)
Department 85.0 68.7 (16.3) 121.0