Operations of the Private Health Insurers. Annual Report

Transcription

1 Operations of the Private Health Insurers Annual Report

2 Operations of the Private Health Insurers Annual Report Report required by section of the Private Health Insurance Act 2007

3 Commonwealth of Australia 2010 ISSN ISBN (Volume 2) ISBN (Set) This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to the Commonwealth Copyright Administration, Attorney General s Department, National Circuit, Barton ACT 2600 or posted at < Suggested citation: Private Health Insurance Administration Council (PHIAC) 2010, Operations of the Private Health Insurers Annual Report , PHIAC, Canberra Cover design and layout by Meta Design Studio Printed by Paragon Printers Australasia ii Operations of the Private Health Insurers ANNUAL REPORT

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5 Table of Contents About the Private Health Insurance Administration Council vi Review of the industry 1 Snapshot of the industry 4 About this report 6 The private health insurance industry in Australia 6 Participation in private health insurance Evolution of industry A consumer perspective Who pays for treatment? Legislation and supervision of the industry Performance review outcomes 20 Financial outcomes for The financial position of the Industry Membership and coverage Service usage and benefits paid General treatment Outlook for the industry Statistics, indexes and glossary 31 Statistical tables Legislation index Glossary Index of figures and tables Index Contact details iv Operations of the Private Health Insurers ANNUAL REPORT

6 Abbreviations ABS BHC CDMP COAG HIB HRB Insurer LHC Minister, the MLS Australian Bureau of Statistics Broader Health Cover Chronic Disease Management Program Council of Australian Governments Health insurance business Health-related business private health insurer Lifetime Health Cover Minister for Health and Ageing Medicare Levy Surcharge PHI Act Private Health Insurance Act 2007 PHIAC PHIO RETF Symbols Private Health Insurance Administration Council Private Health Insurance Ombudsman Risk Equalisation Trust Fund - nil or rounded to zero % percent not available 000 thousands $ 000 thousands of dollars Note: most monetary amounts shown in tables and figures have been rounded to the nearest thousand dollars. Where numbers have been rounded, discrepancies may occur between sums of component items and totals. However, actual figures have been used in respect of the membership statistics reported. v

7 About the Private Health Insurance Administration Council The Private Health Insurance Administration Council (PHIAC) was established in 1989 under section 82B of the National Health Act 1953 as the prudential regulator for Australia s private health insurance industry. PHIAC continues in existence by force of section of the Private Health Insurance Act 2007 (the PHI Act), subject to the provisions of the PHI Act. PHIAC is an independent statutory authority that reports to the Minister for Health and Ageing (the Minister). PHIAC works closely with other regulatory bodies including the Private Health Insurance Ombudsman (PHIO) to ensure that consumers have access to a well-run and competitive private health insurance industry. In carrying out its regulatory and supervisory functions, PHIAC is required by the PHI Act (section 264 5) to achieve an appropriate balance between three objectives: fostering an efficient and competitive private health insurance industry protecting the interests of consumers ensuring the prudential safety of individual private health insurers. Full details concerning the operations of PHIAC are contained in a separate report, the Private Health Insurance Administration Council Annual Report This report is required under section 9 of the Commonwealth Authorities and Companies Act 1997 and can be obtained from PHIAC s office and is also available at PHIAC s website < vi Operations of the Private Health Insurers ANNUAL REPORT

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9 viii Operations of the Private Health Insurers ANNUAL REPORT

10 Review of the industry Review of the industry 1

11 Australian Health Management Group Pty Ltd AHM Open For-profit Market Share: 2.95% BUPA Australia Health Pty Ltd BUPAAH Open For-profit Market Share: 9.70% Cessnock District Health Benefits Fund Ltd CDH Open Not-for-profit Market Share: 0.05% The Doctors Health Fund Ltd DHF Restricted Not-for-profit Market Share: 0.12% HBF Health Ltd HBF Open Not-for-profit Market Share: 7.64% Healthguard Health Benefits Fund Ltd H guard Open Not-for-profit Market Share: 0.48% Private Health Insurance Industry at 30 June 2010 Open access or Restricted access, For-profit or Not-for-profit Market Share: Based on total policies nationally 1 < ACA Health Benefits Fund Ltd ACA Restricted Not-for-profit Market Share: 0.08% BUPA Australia Pty Ltd (formerly MBF Australia Pty Ltd) BUPAAPL Open For-profit Market Share: 15.68% CUA Health Ltd CUA Open Not-for-profit Market Share: 0.41% GMHBA Ltd GMHBA Open Not-for-profit Market Share: 1.65% Health Care Insurance Ltd HCI Restricted Not-for-profit Market Share: 0.07% For-profit Open Restricted 0 13 Not-for-profit Australian Unity Health Ltd AUHL Open For-profit Market Share: 3.02% CBHS Health Fund Ltd CBHS Restricted Not-for-profit Market Share: 1.27% Defence Health Ltd Defence Restricted Not-for-profit Market Share: 1.52% Grand United Corporate Health Ltd GUC Open For-profit Market Share: 0.33% Health Insurance Fund of Australia Ltd HIF Open Not-for-profit Market Share: 0.50% Health Partners Ltd H Partners Open Not-for-profit Market Share: 0.65% 1 For group holdings, parent market share excludes subsidiaries. 2 Operations of the Private Health Insurers ANNUAL REPORT

12 The Hospitals Contribution Fund of Australia Ltd HCF Open Not-for-profit Market Share: 9.04% Manchester Unity Australia Ltd MU Open For-profit Market Share: 1.25% Mildura District Hospital Fund Ltd Mildura Open Not-for-profit Market Share: 0.26% Navy Health Ltd Navy Restricted Not-for-profit Market Share: 0.25% Queensland Country Health Fund Ltd QCH Open Not-for-profit Market Share: 0.24% Latrobe Health Services Ltd Latrobe Open Not-for-profit Market Share: 0.69% MBF Alliances Pty Ltd MBF Alli Open For-profit Market Share: 1.72% National Health Benefits Australia Pty Ltd NHBA Open For-profit Market Share: 0.08% Phoenix Health Fund Ltd Phoenix Restricted Not-for-profit Market Share: 0.11% Queensland Teachers Union Health Fund Ltd QTUH Restricted Not-for-profit Market Share: 0.42% Lysaght Peoplecare Ltd Lysaght Open Not-for-profit Market Share: 0.38% Medibank Private Ltd MPL Open For-profit 2 Market Share: 28.36% NIB Health Funds Ltd NIB Open For-profit Market Share: 7.33% Police Health Ltd Police Restricted Not-for-profit Market Share: 0.29% Railway & Transport Health Fund Ltd RT Restricted Not-for-profit Market Share: 0.42% Reserve Bank Health Society Ltd RBHS Restricted Not-for-profit Market Share: 0.04% Transport Health Pty Ltd Transport Restricted Not-for-profit Market Share: 0.07% St Luke s Medical & Hospital Benefits Association Ltd St Luke s Open Not-for-profit Market Share: 0.39% From 1 October 2009, more than 70% of the industry was for-profit Teachers Federation Health Ltd TFH Restricted Not-for-profit Market Share: 1.76% Westfund Ltd Westfund Open Not-for-profit Market Share: 0.79% 2 MPL converted to for-profit status on 1 October Review of the industry 3

13 Snapshot of the industry Hospital treatment membership, General treatment memb Insured people 9,973,864 Policies General treatment membership, services (ancillary), ,541, June ,822,120 65,945, June 2010 As at 30 June % of Australians were covered by hospital treatment insurance, 51.6% Insured people 11,541,70 Hospital treatment membership, Hospital treatment episo 9,973,864 by general treatment insurance. 9,973,864 Hospital treatment membership, June June ,538,621 4,822,120 4,822,120 nt membership, General treatment membership, ,973,864 11,541,701 Insured people Policies Insured people Policies 30 June 2010 Insured people Policies 30 June 2 Hospital treatment membership, General treatment membership, General treatment 11,541,701 services (ancillary), June 2010 Premium 65,945,825 revenue and b 65,945,825 3,238, $14, ,822,120 $1, , ,822,120 5,538,621 9,973,864 Hospital treatment episodes, June 2010 Investment revenue and profit (millions), $444 ple Insured people Policies Policies 5.0% General treatment services (ancillary), nt services (ancillary), ,945, ,945,825 Investment revenue Profit before tax Hospital treatment episodes $14,170 Investment revenue and profit (millions), ,238, ,238, $1,175 Premium revenue Premium revenue and benefits (millions), Investment revenue and profit (millions), During , General treatment services 6.6% General treatment services (ancillary), Insured Insured people people Policies Policies Hospital treatment episodes, Hospital treatment episodes, $444 $1,175 $12,227 Investment revenue Profit before tax Investment revenue 4 and profit Operations (millions), of the Private Health Insurers Premium revenue $444 ANNUAL and benefits REPORT (millions), $14, $1, $12,227

14 p, Investment revenue and profit (millions), $ June 2010 $1,175 During , Investment revenue General treatment membership, $527 million Pre-tax profit Premium revenue and 11,541, June 2010 $770 million $ Investment revenue 4,822,120 Profit before tax Premium revenue 5,538,621 Policies cillary), ,945,825 Insured people Hospital treatment episodes, Policies As at 30 June 2010, 14.3% of the insured population were over the age of 65 and accounted for 46.2% of hospital benefits paid in the previous year. 3,238,686 millions), Profit before tax During , $1,175 Premium revenue 8.4% Total benefits 7.7% Premium revenue and benefits (millions), $14, $12,227 Premium revenue Benefits Review of the industry 5

15 About this report This report is prepared pursuant to section of the PHI Act. The report is based on statistics and other information collected by PHIAC, provided mostly by insurers in the course of PHIAC s regulation of the industry. This report mainly comprises summary statistics for the industry. Most statistics referenced in this report are derived from PHIAC s quarterly statistics publications, with the exception of the insurers individual fund financial details, which are published in this report only. After consultation with industry stakeholders, the full range of statistics usually published in this report has been modified. However, all of PHIAC s statistical information, including information published in previous reports, is available on PHIAC s website. The private health insurance industry in Australia The private health insurance industry is an important component of Australia s health care system, assisting insured people with the costs associated with treatment in the hospital setting, treatment outside hospitals that serve as alternatives to hospital treatment, and for general treatment more commonly known as ancillary healthcare needs such as dental treatment, eyecare and physiotherapy. Private health insurance provides for all, or part, of the costs associated with these treatments, sharing some costs with the Commonwealth Government (through Medicare) and some with patients/policy holders through out-of-pocket costs. Private health insurance may only be offered by insurers registered under the PHI Act. Registered private health insurers are regulated by PHIAC. PHIAC s objective in regulating the industry is to protect the interests of consumers of private health insurance by ensuring a well-run and competitive industry. The private health insurance industry changed substantially during the previous decade with the introduction of government incentives aimed at boosting participation, a new framework and legislation governing insurers and, more recently, uncertainty in the economic environment. At the same time consumers of private health insurance have become more informed about their health insurance options. The introduction of the website < has played an important role in ensuring consumers have reliable and timely information about the industry and the full range of health insurance products which are available for purchase by consumers. The website is maintained by PHIO. Participation in private health insurance Participation rates in the private health insurance industry have been growing for much of the last decade and as at 30 June 2010, the total number of hospital treatment policies on issue was 4.82 million, covering 9.97 million people or 44.6% of the Australian population. This was a 2.5% increase for those covered by a hospital treatment policy over the year According to figures released in March 2010 by the Australian Bureau of Statistics (ABS), the Australian population grew by 1.8% over the 12 months to March Growth over the same period in persons covered by hospital treatment shows an increase of 2.2% evidence that the take-up of private health insurance has more than kept pace with the overall growth in the population. Figure 1 plots hospital treatment coverage as a percentage of the population since 1971, and includes key events that have had a significant impact on the industry. In the 15 years between 1984 and 1998, participation rates halved to just over 30% of the population. Those people leaving the industry tended to be younger, less-inclined-to-claim members, whereas those who stayed were the higher risk, more-inclined-to-claim members. Between 1989 and 1998, the number of insured persons under the age of 65 decreased by 29.1%, whereas the number of insured people over the age of 65 grew by 12.0%. This changed the percentage of persons covered over the age of 65, which increased significantly from 9.9% in 1989 to 14.8% in 1998, substantially increasing the risks associated with the demographic profile of the industry. 6 Operations of the Private Health Insurers ANNUAL REPORT

16 Figure 1. Hospital treatment coverage (insured persons as a % of the population) 90.00% 80.00% 70.00% 60.00% Commonwealth medical benefits at 30% flat rate restricted to those with at least basic medical cover from September 1981 Introduction of Medicare from 1 February 1984 Introduction of Lifetime Health Cover from 1 July 2000 Higher rebates for older persons from 1 April % 40.00% 30.00% 20.00% 10.00% Medibank began on 1 July A program of universal, non contributory, health insurance it replaced a system of government subsidised voluntary health insurance. 1 July A Medicare Levy Surcharge (MLS) of 1% of taxable income is introduced for higher income earners who do not take out private health insurance. 31 October Increase in MLS income thresholds, subject to annual adjustment. Introduction of 30% Rebate from 1 January % Jun-71 Jun-74 Jun-77 Jun-80 Jun-83 Jun-86 Jun-89 Jun-92 Jun-95 Jun-98 Jun-01 Jun-04 Jun-07 Jun-10 In order to arrest the decline in membership that occurred up until 1998, and boost the take-up of private health insurance, the then government introduced a number of initiatives: In 1997 a 1% Medicare Levy Surcharge (MLS) was introduced for higher income earners who did not take out private health insurance. In 1999 a 30% premium rebate was introduced as an incentive for people to take out private health insurance. In 2000, Lifetime Health Cover (LHC) was implemented. LHC imposes additional premium charges on people who take out private health insurance after the age of 30. As can be seen in Figure 1 above, the combination of these policy measures resulted in the participation rate increasing by over 14 percentage points between 1998 and 2001, as consumers returned to the private health insurance market. Figure 2 shows the pecentage of insured persons aged over 65 from 1989 to Figure 2 illustrates the dramatic impact that the government initiatives had on the age profile of the industry the percentage of insured persons aged over 65 dropped significantly as a result of increased take-up rates in private health insurance in all age groups, but particularly the younger age groups. Since that time, the percentage of persons aged over 65 has nearly returned to the levels seen prior to the introduction of the government s initiatives. The trend in the ageing of the membership is an important characteristic of the industry, but also reflects the general ageing of Australia s population. National population estimates from the ABS show that between 2005 and 2010, the proportion of people aged over 65 years was projected to increase from 12.9% to 13.7%. Over the same period of time the proportion of persons aged over 65 covered by private health insurance increased from 12.7% to 14.3%. The industry s ageing membership is a key driver behind increases in benefit outlays and it is expected that, as this trend continues, more pressure will be exerted on insurers to find new ways to manage the health risks of their membership to curtail growing costs while continuing to offer attractive products in terms of features, cover and price. Another aspect of these trends is the difference in the rate of uptake for hospital treatment and general treatment cover; the take-up of general treatment has been increasing at a slightly faster rate. As at 30 June 2010, million people, or 51.6% of the population, held general treatment cover. This was an increase of 342,957 people, or 3.1%, when compared to the previous year. Review of the industry 7

17 Figure 2. Percent of insured persons aged over 65 16% 14% 12% 10% 8% 6% 4% 2% 0% Figure 3. Net annual change for in persons covered by hospital treatment and general treatment cover by age cohort 40,000 35,000 30,000 General treatment Hospital treatment 25,000 20,000 15,000 10,000 5, , The take-up of hospital treatment and general treatment products also differs substantially by age group. Figure 3 shows the net annual change for in membership by age cohort for both hospital treatment and general treatment cover. The overall annual take-up of general treatment policies is higher than hospital treatment policies and the percentage increase across all age groups is quite similar between the two types of products. Figure 3 shows that the age group has the highest increase in members for both types of products. Statistics also show that these age groups are more likely to make claims. Comparing the number of people with hospital treatment cover to the total population of Australia also provides some further insight into participation. Figure 4 shows participation against total national population by age cohort and gender. 8 Operations of the Private Health Insurers ANNUAL REPORT

18 Figure 4. People with hospital treatment insurance against total population, by age cohort and gender 30 June Covered No cover Females Males , , , , , ,000 The figure shows that people in the oldest age groups, 90 and older, had the lowest participation rates closely followed by people aged between 20 and 29 years. The 20 to 29 age group historically has very low coverage and at 30 June 2010 only 31.9% of the population aged 20 to 29 had private health insurance for hospital cover. Private health insurance continues to be more popular with females than males in most age groups, with 45.8% of the total female population holding insurance for hospital cover at 30 June 2010, compared to males with 43.4%. Evolution of industry In 2000, there were 44 insurers operating in the private health insurance industry. Of these, 29 insurers were open access, of which four operated on a for-profit basis. The four for-profit insurers accounted for 12.5% of total market share. Contribution income was $5.46 billion against total benefits paid of $4.51 billion, and the industry had total assets of $3.26 billion. As at 30 June 2010, there were 37 private health insurers operating in the industry. Of these, 24 were open access, of which 10 operated on a for-profit basis, accounting for 70.4% of total market share. Contribution income was $14.17 billion against total benefits paid of $12.23 billion, and the industry had total assets of $9.06 billion. The growth between 2000 and 2010 shows that the industry has changed at a rapid pace. During this period, membership in terms of persons covered has grown by 21.1% and is the main reason for the substantial increases in contribution income and benefit outlays with growth in benefit outlays slightly outstripping growth in contribution income. Membership growth, however, is not uniform across the industry, and while low levels of growth can be usually sustained with little noticeable effect on an insurer, rapid growth in the membership of an insurer can have far reaching effects on its performance and capital position, and has often resulted in significant implications for policyholders in terms of higher premiums. Rapid growth has been associated with a number of failures of insurers within the last decade, emphasising the importance of planning for growth, carefully considering the implications of its achievement and closely monitoring performance during, and beyond, any growth phase. Review of the industry 9

19 Table 1. Industry structure Year No. of Open Restricted For-profit % of industry for- Total benefits paid insurers access access profit ($billion) % % % % 3.74 Figure 5. Market share as at 30 June % 25% 20% 15% 10% 5% 0% MPL BUPAAPL BUPAAH HCF HBF NIB AUHL AHM MBF Alli TFH GMHBA MU Defence CBHS Westfund H'Partners Latrobe H'guard HIF CUA St Luke's QTUH RT Lysaght Mildura GUC Navy QCH Police Phoenix DHF ACA HCI Transport CDH RBHS NHBA The change in the make-up of the industry can be seen in the Table 1 which shows the industry structure at different points over the last 15 years. In addition to the increase in for-profit insurers, Table 1 also shows the significant industry consolidation that has occurred since 1995 from 49 insurers to 37 insurers. Further to this, on 1 July 2010, the three insurers operating within the BUPA Australia group of companies BUPAAH, BUPAAPL and MBF Alliances merged to become one insurer bringing the number of insurers currently operating in the market to 35. PHIAC expects that this trend of consolidation within the industry will continue into the future. One important characteristic of the industry endures most people covered by private health insurance are covered by a small number of large insurers. The majority of market share is shared by the five largest insurers, or insurer groups, that together account for 84.1% of the market. In order of market share these are: MPL/AHM 31.3% BUPAAH/BUPAAPL/MBF Alliances 27.1% HCF/MU 10.3% HBF/H guard 8.1% NIB 7.3% 27 insurers shared the remaining 15.9% of the market. Figure 5 shows the market share of all insurers demonstrating the relatively small market share of a large number of insurers. 10 Operations of the Private Health Insurers ANNUAL REPORT

20 Despite their size, these smaller insurers play an important role in the private health insurance market in Australia. Although insurers can operate in the national market, not all insurers are active in all states. Smaller and restricted access 3 insurers often focus on a particular market niche. There are also a number of regional insurers that focus on specific areas and regions in Australia. Competition in the industry The market for private health insurance in Australia remains very competitive with insurers competing for new members and to attract members of other funds. The competition by insurers to attract younger members is intense, although the ability to target younger members through product design is limited as products offered are generally available to all current and prospective policy holders, reducing the specificity of product membership. While price is often a driver of competition, the industry also seeks to attract members through quality service, brand loyalty and broader value recognition of the private health insurance product. Insurers are limited in their ability to compete on price in the long term as large pricing differentials are usually unsustainable. The extent of competition is demonstrated by: the continued efforts through marketing and pricing strategies employed by individual insurers to attract new members to the industry as well as from other insurers the large number of private health insurance products on offer to consumers generally narrow underwriting margins of insurers. Although there is a significant degree of market concentration, smaller insurers can provide effective competition in regional and discrete, professional and trade based markets, competing for members through price, cover and service. As an industry, insurers also face significant competition from the public health system, Medicare. 3 Whereas open access insurers are available to anyone, restricted access insurers are only available through specific employment, professional or union groups. Have the products and services changed over the years? The range of services that must and may be covered by private health insurers is determined by legislation. Strict rules determine whether a product offered by an insurer is a complying health insurance product a prerequisite for the application of incentives such as private health insurance rebates. There are currently more than 30,000 complying health insurance products on offer. Private health insurance products can be generally classified into: full cover hospital treatment products that cover virtually all services permitted to be funded by health insurers medium cover hospital treatment products that identify certain cover exclusions usually related to cardiac treatment, hip and knee replacements and maternity services low cover hospital treatment products that typically feature exclusions, high excesses and/ or co-payments and limited access to private hospitals general treatment products that might cover dental, optical, physiotherapy and other allied services (but not hospital treatment). There are many private health insurance policies to choose from, depending on the budget and coverage requirements of the consumer. Each product offered by an insurer must be detailed in a Standard Information Statement. These statements are available on request by any member of the public to the relevant insurer and can also be viewed at < Most insurers product offerings are state-based. A distinction between states is made by insurers to reflect the different risk factors, cost structures, medical systems, hospitals, and demographic profiles present in each state. Consequently, most insurers set different premium rates for each state. Since 2007, insurers have been permitted to offer broader health cover (BHC) services as part of their suite of products. BHC refers to services that prevent, are part of, or substitute for traditional hospital-based services. These include hospital substitute treatment services and chronic disease management programs (CDMP). Review of the industry 11

21 Under BHC, insurers are able to offer consumers a broader range of treatment options involving clinical services delivered in safe, out of hospital settings. BHC is also used in partnership with doctors and other healthcare practitioners to provide preventative treatments that help policy holders to better manage their health and to receive treatment in a setting appropriate to their needs. Some out-ofhospital services such as general practice services and accommodation costs of residential aged care facilities are not covered by BHC. While the roll-out and take-up of these products has been slow in previous years, the number of CDMP s nearly tripled during , growing from 19,577 to 55,865. The number of insurers offering cover for CDMP s increased from 14 to 30 in and of the 30 insurers that offered CDMP s, 26 incurred claims (compared to nine the previous year). Those claims totalled $25 million compared to $9 million in It is expected that this number will continue to grow as more programs become available and the benefits of such programs become more widely accepted. Many insurers see these initiatives as important in assisting members to better manage their health issues, to reduce the frequency and severity of medical interventions associated with their condition, and minimise the costs associated with those interventions. CDMP s are available to members irrespective of age, but take-up of these programs most often occurs after age 50. In addition to the provision of funding support for services provided by third party hospital, medical and allied health service providers, some insurers also directly provide services to policy holders. In , five insurers operated dental and optical services and one insurer operated a private hospital and medical centre as a health-related business (HRB). HRB is the only other business allowed to be conducted as part of the health benefits fund of an insurer. Revenue across the industry from healthrelated business for was $343 million, an increase of approximately 10% from Other activities that are considered to be HRB include: insurance for people who are ineligible for Medicare to cover medical costs incurred in Australia such as: I. overseas students health cover provided by five insurers, and II. overseas visitors cover provided by nine insurers. acting as an agent for other service providers such as general insurers donations to medical research. A consumer perspective The biennial IPSOS 4 report Healthcare and Insurance Australia 2009 was released in November 2009 and reveals that consumers and potential consumers remain somewhat confused about aspects of private health insurance. Survey respondents supported simplification of private health insurance to make it easier to understand and make decisions. The research found consumers did not fully understand key issues such as how a product works, pricing arrangements, etc. Ensuring consumers have access to accurate, useful and targeted information in a timely manner remains a key priority for PHIAC. The IPSOS report shows that government incentives such as the MLS and the 30% rebate have helped to create and maintain demand for private health insurance. At the same time, consumers do not appear to be regularly checking to ensure their private health insurance coverage remains the most appropriate for their circumstances. There are relatively low rates of churn and few people are using web-based comparative tools to seek better coverage options. Greater promotion and use of the PHIO s recently revised consumer-oriented website < will assist in this regard. PHIAC works closely with its sister agency PHIO to ensure that consumers are informed about costs at the beginning of an episode of care through promotion of the principle of informed financial consent. While government incentives and a desire for security of access to healthcare play important roles in consumers decisions to purchase private health insurance, the IPSOS report suggests there is a 4 IPSOS is a survey-based marketing research firm which operates globally and produces reports that seek to interpret, simulate and anticipate the needs and reactions of consumers. 12 Operations of the Private Health Insurers ANNUAL REPORT

22 Figure 6. Percent of policies with excess and co-payment or exclusionary features 80% 70% 60% 50% Excess and Co-payment Exclusionary 40% 30% 20% 10% 0% Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 philosophy among many policy holders that value is associated with the capacity to claim amounts for treatments and services. This attitude sets private health insurance apart from other forms of insurance and is a challenge for insurers in product design, especially in general treatment services such as dental, optical, physiotherapy and chiropractic treatments. Details of the benefits paid by insurers are discussed in greater detail later in this report. Preference for excess and co-payments, or exclusionary products A co-payment is the agreed amount a policy holder pays when they receive hospital treatment, while an excess is the amount a policy holder must pay before health insurance benefits are payable. A policy holder may have a policy that requires an excess, or co-payment, or both being payable. Exclusionary policies offer members lower premiums as a trade-off for excluding cover for certain conditions or procedures such as maternity, cardiac surgery or hip replacements. At 30 June 2010, 76.6% of privately insured people were covered by a policy that required either an excess or co-payment be paid for hospital treatment. This has risen 0.5 percentage points since last year. The proportion of policies that have exclusions has also been rising in recent years. During , the proportion rose 11.2 percentage points to 24.0%. Figure 6 shows the percentage of policies with excess and co-payment or exclusionary features. The enhanced availability of information about private health insurance products has promoted increased policy holder understanding and sophistication in risk selection. This, together with increasing availability of co-payments and excesses, or exclusionary products, has resulted in a steady uptake of these products. Figure 6 demonstrates that the percentage of policies with co-payments and excesses options has increased at a significant rate since Further, there has been a recent increase in the percentage of policies with exclusionary features 5. During , the percentage of policy holders that had full hospital cover decreased 1.7 percentage points to 57.4%. Conversely, there was an increase of over 10 percentage points in 5 The sharp increase between and in products with exclusionary features is partly due to a reclassification of policies by some insurers. Review of the industry 13

23 policies with exclusionary features. The number of exclusionary policies is growing, indicating that consumers are increasingly seeking to reduce the cost of private health insurance cover by excluding certain treatments from their insurance coverage. Who pays for treatment? The cost of privately insured health treatment is shared between insurers, the Government and patients. During , there were 3.2 million hospital episodes and 65.9 million general treatment services that were wholly or partly funded through private health insurance. The total cost of these services was $18,190 million, which was met from: benefits provided by private health insurance $12,036 million benefits provided by Medicare $ 1,950 million out-of-pocket costs of patients $ 4,204 million The benefits paid in respect of health services received by policy holders in increased by 9.0% from much more than membership growth alone could account for. Patient contributions (out-of-pocket costs, or gaps) The gap is the amount paid by an insured person after any Medicare benefit and benefit paid by an insurer has been deducted from the amount charged. In , policy holders contributed $997 million in out-of-pocket payments towards the $11,920 million in fees charged for hospital treatment (including hospital substitute) and $3,208 million of the $6,271 million in fees charged for general treatment. The occurrence of out-of-pocket costs, or gaps, is a common concern for people holding private health insurance, and strong consumer sentiment in support of full coverage of service costs exists. Government contributions The Australian Government makes contributions to the cost of medical services provided to privately insured patients in the form of Medicare benefits for medical services related to a hospital or hospital substitute episode of care. For privately funded services, the Government provides a rebate of 75% of the Medical Benefits Schedule fee. Of the $3,938 million in privately insured, hospital related, medical costs incurred in , $1,950 million were funded by Medicare benefits. Figure 7 shows the break-up of total costs for privately insured services. Legislation and supervision of the industry Private Health Insurance Act 2007 The PHI Act is the principal legislative measure governing the private health insurance industry in Australia. It provides incentives to encourage consumers to take out private health insurance, sets rules governing private health insurance products and imposes requirements on private health insurers regarding how they conduct their health insurance business. The PHI Act also contains the administrative provisions relating to the operation of the PHI Act. This includes a range of enforcement mechanisms for monitoring and ensuring insurer compliance with the legislation, and protecting the interests of consumers. PHIAC s own administrative arrangements are also established by the PHI Act. Private Health Insurance Rules The PHI Act allows the Minister and PHIAC to make rules that detail how the PHI Act is applied, which provides greater flexibility in establishing legislative requirements to support the operation of the PHI Act. A summary of the Rules made by the Minister and the Council in relation to the PHI Act is set out in the legislation index. 14 Operations of the Private Health Insurers ANNUAL REPORT

24 Figure 7. Funding for privately insured services, Total service charges $18,190 million Funding of general services $6,271 million Government contribution 0% General services 34.4% Patient expenses 51.2% Hospital services 43.9% Medical services 21.7% Private health insurer 48.8% Funding of hospital services $7,981 million Patient expenses 5.2% Funding of medical services $3,938 million Patient expenses 14.8% Private health insurer 94.8% Government contribution 0% Private health insurer 35.7% Government contribution 49.5% Community rating and risk equalisation Registration as a private health insurer imposes restrictions on insurers that are important features of the Australian private health insurance system. The most important of these is a prohibition on discrimination. Preventing discrimination is achieved through the mechanism of Community Rating 6, which prohibits insurers from discriminating against any person on the basis of: health status age (other than age at entry under LHC) race 6 Private Health Insurance Act 2007, division 318. gender sexuality use of hospital treatment, medical or general treatment services, or general claiming history. These anti-discrimination requirements are designed to ensure that private health insurance products are available to all residents of a state or territory at the same price irrespective of factors which might ordinarily impact upon their insurability. Limited exceptions to these requirements exist in LHC. Registration also requires that insurers participate in Risk Equalisation a key mechanism supporting the principle of community rating. The Risk Equalisation Review of the industry 15

25 Trust Fund (RETF) transfers and shares certain risks across all insurers, so that insurers with an older and less healthy membership are not disadvantaged. PHIAC is responsible for administering the RETF. Prudential standards PHIAC has in place four prudential standards applicable to the industry: the capital adequacy standard the solvency standard the appointed actuaries standard, and the governance standard (commenced 1 January 2010). Solvency and capital adequacy standards 7 The solvency and capital adequacy standards are key tools that assist PHIAC in achieving its objectives of ensuring the prudential safety of individual private health insurers and protecting the interests of consumers. The solvency standard prescribes the minimum capital requirement of a health benefits fund conducted by a private health insurer. This is to ensure that, under a wide range of potential circumstances, the private health insurer will be in a position to meet its existing obligations to policy holders and other creditors. The capital adequacy standard prescribes the level of capital necessary to ensure a private health insurer will continue to meet the liabilities of existing and new policy holders into the future. Appointed actuaries and governance standards 8 Appointed actuaries are an important part of the essential prudential structure which sustains the good financial and governance standing of the private health insurance industry. The proper exercise of this exacting role necessitates that the advice given by an appointed actuary is direct, unambiguous and fearless. The appointed actuaries standard supports the appointed actuaries in the performance of their role. The standard establishes eligibility and duty requirements of appointed actuaries, the reporting and notification requirements of both appointed actuaries and insurers, and confers powers upon appointed actuaries including broad powers to access information and to attend and speak at meetings and requires that appointed actuaries report to PHIAC any occurrence of a significant breach of the PHI Act or Rules. The reporting of instances of a breach or other concerns held by actuaries to PHIAC is a necessary and fundamental element in the fulfilment of the appointed actuaries obligations. In PHIAC continued to work closely with appointed actuaries and their professional body, the Institute of Actuaries of Australia, promoting through education and professional practice improvements, a strengthening in both the understanding and performance of the appointed actuary role. To strengthen and maintain the overall governance of insurers and minimise the risk of future regulatory and market failures, PHIAC made the Private Health Insurance (Insurer Obligations) Rules 2009 to include a governance standard. The objective of the standard is to strengthen the overall governance of private health insurers by ensuring that all insurers meet minimum standards with respect to governance arrangements. The governance standard was established by PHIAC in September 2009 with a commencement date of 1 January Contained in the Private Health Insurance (Health Benefits Fund Administration) Rules Contained in the Private Health Insurance (Insurer Obligations) Rules Operations of the Private Health Insurers ANNUAL REPORT

26 Levies Private health insurers directly support the operational costs of PHIAC and PHIO. Insurers may also bear the cost of supporting other insurers in the industry that have experienced greater than average claims in older age groups or that have collapsed. These costs can be levied through specific purpose legislation. There are four private health insurance levies: the Council Administration Levy which finances the administrative costs of PHIAC the Complaints Levy which finances the administrative costs of PHIO the Risk Equalisation Levy which transfers and shares risk across the industry so that insurers with a membership demographic that is older or less healthy are not disadvantaged. This levy enables insurers to charge the same premium to everyone for the same product, regardless of their individual risk profile (risk equalisation is discussed in more detail earlier in this report) the Collapsed Insurer Levy which empowers the Council to raise a levy from the industry to help meet a collapsed insurer s liabilities to the people insured under its policies that the insurer is unable to meet itself. To date, this levy has not been imposed on the industry. A private health insurer must pay any levy imposed by the Council and any late payment penalty in respect of any unpaid amount of each levy. The PHI Act and the Private Health Insurance (Levy Administration) Rules 2007 detail when to pay, how the levy and late payment penalties are recovered, when a levy may be waived and the records required to be maintained by each private health insurer. Monies collected under each levy are placed into the Consolidated Revenue Fund and appropriated by PHIAC as required. Review of the industry 17

27 18 Operations of the Private Health Insurers ANNUAL REPORT

28 Performance review Performance review

29 outcomes The financial year saw a strengthening of the industry margins were slightly improved and recovery in financial markets and investment returns helped bolster balance sheets and restore the strength lost during the period of the global financial crisis. In addition, the industry experienced slightly higher growth than the previous year, reducing the burden from an ageing population and broadening the insurance pool. Privately insured people continued the upward trend in service usage, which grew throughout the year for both hospital and general treatment. The higher membership numbers and usage levels, together with a growth in costs, led to a significant increase in the quantum of benefits paid by private health insurers on behalf of policyholders. Financial outcomes for Due to growth in membership during and the 6.02% weighted average premium increase that took effect from 1 April 2009, premium revenue increased by $1,092 million or 8.4% from , totalling $14,170 million. The increase in premium revenue was slightly more than the increase in benefits paid, with benefits payments, including changes in provisions, totalling $12,227 million, an increase of $878 million or 7.7% from These benefits included: $8,994 million in hospital benefits $3,081 million in general treatment benefits $160 million in levies applied by the NSW and ACT Governments (an increase of $14 million) which entitle privately insured patients to emergency ambulance transport within Australia. Benefit payments continue to grow at rates significantly in excess of inflation. One driver of this growth is the ageing of the insured population, estimated to add between one and two percent per annum to benefits payments. Other significant factors contributing to the increase in benefits payments between and included: 4.1% increase in hospital days 6.6% increase in hospital admissions 5.4% increase in number of medical services provided 2.0% increase in acute bed days per person 5.4% increase in acute accommodation benefits paid per bed day 8.4% increase in medical benefits 2.8% increase in medical benefits paid per medical service 8.7% increase in benefits paid for prostheses 1.1% increase in prostheses benefits per service. In total, drawing rates, or benefits paid per person, increased by 7.1% for hospital treatment and 9.7% for general treatment (ancillary) key indicators of the industry s need for ongoing premium increases. The industry s gross margin result of 13.7% is considered sound, and after allowing for management costs of 9.2% of premium revenue ($1,300 million), the industry recorded a net margin result of 4.5%, up from 3.2% in This represents a strengthening of core business performance. In addition to the improved margin performance, the industry earned investment revenue of $443.7 million for , a significant turnaround from the losses of $83.7 million and $11.5 million in and respectively. This marked increase in investment earnings was largely due to the recovery experienced in investment markets and was a key factor behind the strong overall performance of the industry. Insurers who held investment portfolios with more growth assets, or higher risk investments, generally gained more in investment revenue recovering much of what was lost in previous years whilst revenue for insurers with more defensive portfolios remained fairly stable. Net revenue from health-related insurance businesses conducted by insurers in , which relates to overseas visitor cover and overseas student health cover, totalled $38 million. Revenue generated by non-insurance activities conducted as part of the business of a fund totalled $37 million, a 20.3% increase from Overall, the industry recorded a profit after tax of $953 million for compared with 20 Operations of the Private Health Insurers ANNUAL REPORT

30 Figure 8. Health benefits fund profit after tax for $14,170 $560 $12,227 $275 $1,025 $250 $953 HIB premium revenue Net other revenue Fund benefits HIB claims handling Other admin expenses Net other expenses Profit/(loss) after tax millions $324 million for Figure 8 shows the financial performance of the industry over the last 12 months. Historical figures show that the core business performance of the industry that is the provision of private health insurance measured by the net margin has consistently been in the range of 3 6%. This range is considered sufficient to meet the ongoing growth in costs and capital needs of the industry. Table 2 shows the performance of the industry over the previous five years. The underwriting margins achieved by private health insurers are narrow by broader insurance industry standards and are a key area of risk for insurers, demanding constant focus and attention. The profit margin, which takes into account investment revenue, has shown much more volatility ranging between 3 12%, a reflection of the uncertainty in investment returns and the relative contribution of investment returns to overall profitability. Table 2. Industry profitability Year Average weighted premium increase on 1 April Premium revenue Benefits payments Management expenses Gross margin Net margin Profit before tax Profit margin % 14,170,292 12,226,721 1,299, % 4.5% 1,174, % % 13,078,133 11,349,113 1,311, % 3.2% 404, % % 12,188,820 10,385,181 1,282, % 4.3% 562, % % 11,127,365 9,432,110 1,067, % 5.6% 1,288, % % 10,260,626 8,752, , % 5.3% 983, % Performance review

31 Figure 9. Health benefits fund assets and liabilities Loans, premiums receivable, prepayments and intangibles 3% Subsidiary and associated entities 7% Other 9% Cash 6% Equities 8% Insurance liabilities 33% Liabilities Property 6% Assets Bonds & other fixed interest securities 61% Other liabilities 8% Prudential capital requirement 29% The financial position of the Industry The strong performance of the industry in added significant strength to its capital position. As a whole, the industry held assets totalling $9,056 million with assets of $3,278 million in excess of industry capital adequacy requirements (an increase of 20.2% from ), and $3,590 million in excess of solvency requirements (an increase of 20.3% from the financial year). The PHI Act permits for-profit insurers to make distributions by way of dividends or to apply assets for purposes not related to the health insurance business conducted by them, provided they maintain sufficient capital to satisfy the requirements of the capital standards. For-profit insurers dividend payments totalled $409 million in compared to $623 million in , and assets withdrawn from funds and applied for nonhealth benefits fund purposes totalled $528 million compared to $361 million in At the end of , all private health insurers reported compliance with their prudential requirements for solvency and capital adequacy. 22 Operations of the Private Health Insurers ANNUAL REPORT

32 Figure 9 compares health benefit fund assets with liabilities as at 30 June Membership and coverage Membership of private health insurance increased during with hospital and general treatment coverage growing by 2.5% and 3.1% respectively. Membership growth occurred in almost all age groups for both hospital and general treatment cover, with the exception being hospital membership for those aged 45 to 49, which suffered a slight decrease. The number of additional people covered for hospital treatment was 228,622, and 342,957 additional people were covered for general treatment, reflecting the ongoing trend in general treatment growth. People aged over 60 represented nearly half of all growth in hospital treatment cover. Much of this growth occurred in the 60 to 69 age groups which contributed 26.0% of the total growth in hospital treatment cover and 20.3% in general treatment cover. The effect of this growth is to add pressure on benefits through higher demographic risk. People joining in these age categories receive a 35% rebate amount, but also have LHC loadings applied to their premiums. People affected by the Lifetime Health Cover loading LHC imposes a 2% loading on top of the normal premium for each year over the age of 30 that a person was not previously insured, to a maximum loading of 70% 9. For example, a person taking up private health insurance for the first time at the age of 35 would have to pay a LHC premium loading of 10%. LHC premium loadings cease if the person has had hospital cover for a continuous period of ten years. Most people with hospital cover (88.2%) have a certified age of entry of 30 and attract no LHC loading. The number of people with a certified age of entry of 30 grew by 74,202 and the number of people with a certified age of entry of more than 30 and subject to an LHC loading grew by 97,426 over the year. At the end of , there was a total of 853,630 people subject to an LHC loading. PHIO provides an online calculator at <www. privatehealth.gov.au> which allows consumers to calculate the LHC loading applicable to them. Membership by policy category The number of hospital policies held by policyholders increased by 119,451 in Most growth in policies occurred in the single and family categories with little take-up in the 2+ persons (no adults) or the 3+ adults categories. Growth in general treatment policies followed a similar pattern, increasing by 178,902 in Service usage and benefits paid The trend for growing service utilisation by privately insured people, and resulting benefits growth, continued throughout PHIAC statistics show increases in almost all major treatment categories and service settings. Hospital treatment services During , private health insurers provided financial support for 3.2 million hospital based episodes of care, an increase of 6.6% from In total, private health insurers covered more than 8.5 million patient days in hospital, which was an increase of 4.1% from Table 3 compares services and items involved in hospital treatment between and Table 3. Episodes/services by type for hospital treatment % change from Acute hospital episodes 3,235, % Hospital days 8,544, % Medical services 25,550, % Prostheses items 1,623, % Cardiac 37, % Hip 69, % Knee 84, % Lens 93, % 9 Division 37 of the PHI Act details exceptions to the general rules about LHC. Performance review

33 Figure 10. Length of stay (hospital days) by age, males females average all The number of hospital episodes increased in all four hospital setting categories over The number of episodes for were: 2,284,538 private hospital 5.3% 466,636 public hospital 8.2% 470,273 day hospital 11.6% 13,720 hospital-substitute treatment 6.1% Usage of day-only services During there was an increase in day-only stays of 8.8% from , to a total of 2,037,840 days. A day-only service occurs when an insured person is accommodated as a patient in a public or private hospital for day treatment. A same-day patient is a patient who is admitted and discharged on the same date, having had same-day surgical or diagnostic treatment 10. The number of same day services is expected to continue to grow strongly, reflecting advancing medical techniques and the wide and growing range of services performed as same day treatments. Most day-only stays 66.0% occurred in private hospitals, with 23.1% in day hospital facilities, 10.4% in public hospitals and 0.6% as hospitalsubstitute treatment in non-hospital settings. The length of hospital stays The average length of a hospital stay for privately insured patients decreased during by 2.3% to 2.64 days. This fall is attributed to the increase in day-only episodes. The length of stay for females is greater than males across all age groups. While males in the older age groups typically incur more hospital episodes than females, the average length of stay is shorter. The length of stay trends upward for older people, increasing significantly from the age of 75, as shown in Figure 10. Hospital treatment benefits The effect of membership growth, growing utilisation rates and increasing treatment costs resulted in strong growth in benefits paid by insurers for hospital treatment. Insurers paid $8 973 million in hospital treatment benefits during , an increase of 9.5% from Same-day patients also include patients who were intended as overnight patients but who left of their own accord on the same day as their admission, or patients who died or were transferred on their first day in hospital. 24 Operations of the Private Health Insurers ANNUAL REPORT

34 Figure 11. Hospital treatment benefits paid by age for Female Male , , , , , ,000 $'000 All major categories of hospital treatment benefits increased in : $6,295 million for hospital services 9.9% I. $5,387 million for private hospital 9.8% II. $618 million for public hospital 8.3% III. $286 million for day hospital 15.5% IV. $4 million for hospital-substitute treatment 8.2% $1,407 million for medical services 8.4% $1,271 million for prostheses items 8.7% The age groups for which most hospital benefits are paid are between 60 and 79 years. Older age groups draw significantly higher amounts of benefits per person than younger groups. For example, those aged between 60 and 79 claim on average $2,471 in benefits per year, whereas those aged between 20 and 39 only claim on average $532 in benefits per year. Figure 11 shows hospital treatment benefits by age for The relatively large amount of benefits paid to the female age groups is a normal occurrence in claiming patterns, and is associated with obstetric care. When averaged across the total population with private health insurance, the benefits paid per person for hospital treatment increased from $849 in to $909 in The breakup of these benefits into treatment categories, of hospital, medical services and prostheses is shown in Figure 12. Performance review

35 Figure 12. Hospital treatment benefits per person 2009 $ Hospital $638 Medical $143 Prostheses $129 Figure 13. Medical benefits by speciality group Orthopaedic 8% Pathology 6% Gen Surgical 6% Cardiothoracic 5% Assistance at operations 3% Obstetrics 8% Consultant 9% Anaesthesia 24% Other 39% Ophthalmology 5% Other 5% Diagnostic 5% Colorectal 6% Urology 3% ICU 2% ENT 2% Neurosurgical 2% Vascular 1% Plastic/reconstructive 2% Medical services and benefits Insurers pay medical benefits for in hospital services provided by medical specialists. The amount that insurers pay toward these costs will depend on the Government contribution for the service (75% of the Medical Benefits Schedule fee) and the agreement the insurer has with the specialist provider. If the agreement between the insurer and specialist provider does not cover all costs, an out-of-pocket contribution toward the cost of the service will need to be made by the patient. The number of medical services increased 5.4% in , totalling 25.6 million services and drawing $1,407 million in medical benefits paid by insurers over the year an increase of 8.4%. Figure 13 shows the break-up of medical benefits, as a percentage, by specialist group. Out-of-pocket costs, or gaps for medical services In , 85% of all medical services did not require a gap payment to be made by the patient. On average, the out-of-pocket payment for a medical service, where a gap payment was required to be made, was $ On a hospital per episode basis the average out-ofpocket cost was $ Operations of the Private Health Insurers ANNUAL REPORT

36 Figure 14. Medical benefits and out-of-pocket expenses by speciality group 98% 98% 88% 84% 78% 94% 88% 72% 96% 73% 73% 79% 61% 75% 82% 91% 92% 90% 2% 2% 12% 16% 22% 6% 12% 28% 4% 27% 27% 21% 39% 25% 18% 9% 8% Specialist consultants ICU Obstetrics Anaesthesia General surgical Colorectal Vascular Urology Cardiothoracic 10% Gap % of charge Neurosurgical ENT Ophthalmology Benefits % of charge Plastic/reconstruct Orthopaedic Assist at operations Diagnostic Pathology Other The extent of the gap for medical services varies depending on the specialty group and are shown in Figure 14. Prostheses services and benefits Under the PHI Act 12, private health insurers are required to pay benefits for a range of prostheses that are provided as part of an episode of hospital treatment or hospital substitute treatment for which a patient has cover and for which a Medicare benefit is payable for the associated professional service. The type of products on the Prostheses List include cardiac pacemakers and defibrillators, cardiac stents, hip and knee replacements and intraocular lenses, as well as human tissues such as human heart valves, corneas, bones (part and whole) and muscle tissue. The list does not include external legs, external breast prostheses, wigs or other external devices (some of which may be covered by Medicare). Use of prosthetic items has shown a considerable increase in recent years because of a rise in utilisation due to the ageing population, advancements in technology and membership growth. The number of prosthetic items paid for through private health insurance increased 7.6% in to 1.6 million, and related benefits totalled $1,271 million, an increase of 8.7%. Since , prostheses benefits have increased by 63.6%, driven primarily by service utilisation that has increased by 44.0%. In addition to increased use of prosthetics, the cost of particular items continues to rise due to factors such as advancing technology and more complex manufacturing processes. 12 Contained in Private Health Insurance Rules (Prostheses) Rules 2009 (No.2). Performance review

37 Figure 15. Benefits paid for prostheses (millions) Cardiac pacemaker $72 6% Hip $178 14% Knee $187 15% Lens $41 3% Cardiac defibrillator $93 7% Cardiac stent $58 4% Other $642 51% Figure 15 displays the benefits paid by the categories of prostheses reported to PHIAC. Preventative and substitute type treatments Growth in the utilisation of hospital-substitute treatment was low in Hospital-substitute treatment episodes increased by 6.1%, totalling Utilisation of hospital-substitute treatment services by age for the year was similar to the pattern for hospital treatment services. Figure 16 shows the number of hospital-substitute episodes by age cohort for and Preventative programs such as CDMP s are intended to reduce complications associated with diagnosed chronic disease, or to prevent/delay the onset of chronic disease for a person with identified multiple risk factors for chronic disease. CDMP s were mostly used by people who were in the age groups that are more likely to use hospital services. Figure 17 shows CDMP utilisation for compared to While it is apparent that this large increase is from a small base, it remains significant as it indicates that the number of programs available to consumers is increasing rapidly. General treatment Cover for general treatment is an important element in maintaining the attractiveness of the private health insurance offering as general treatment cover is routinely utilised by privately insured people across all age groups. People taking up general treatment cover are able to access benefits shortly after purchasing a policy due to shorter waiting periods for general treatment services. In some cases, waiting periods are waived by the insurer allowing the policy holder to make claims immediately. The everyday utility of the cover is an important factor in decisions to retain private health insurance. 28 Operations of the Private Health Insurers ANNUAL REPORT

38 Figure 16. Hospital-substitute episodes by age, Episodes Age cohort Figure 17. CDMP utilisation by age, Programs Age cohort On average, the benefits paid to a person for general treatment (ancillary) during increased from $274 to $300. for general treatment services (excluding hospitalsubstitute and CDMP s). During , policy holders received 65.9 million general treatment services. Table 4 shows the increases in usage for the major general treatment ancillary service categories. These categories collectively accounted for 84.0% of the benefits paid Performance review

39 Table 4. General treatment services covered in General treatment services % change from ,945, % Dental 28,359, % Chiropractic 8,795, % Physiotherapy 8,561, % Optical 8,045, % Insurers paid $3,063 million in benefits for general treatment services inclusive of CDMP s an increase of 7.6% from Benefits paid for the major general treatment categories were: dental $1,571 million optical $524 million physiotherapy $242 million chiropractic $215 million. Outlook for the industry The private health insurance industry at the end of demonstrates strength and resilience in its core product offerings with an innovative momentum now apparent in the emergence of BHC measures aimed to improve the overall health of the privately insured, influence the longer term health risks of the membership and enhance the attractiveness of the private health insurance product. While the industry is very well matched to the current environment and could be expected to continue to provide financial cover for the costs of health services for the insured, it must be remembered that private health insurance in Australia is an integrated component of the overall health system and changes to that system are underway. Means testing of the PHI Rebate The proposal for means testing of the private health insurance rebate is one of those proposed changes. The proposal, which has been reaffirmed by the recently elected Gillard Labor Government, would see a phased means test applied to the payment of the rebate with the rebate eventually being removed for persons and couples on higher incomes. In its 2009 Report on the Operations of the Private Health Insurers PHIAC expressed the view that the prudential impact of the changes, if implemented, would not be significant. PHIAC has seen no reason to alter that assessment in the intervening period. COAG Health Reforms The suite of changes announced as part of the Council of Australian Governments (COAG) meeting in April 2010 to establish a national health and hospitals network should also be noted. Under the agreements reached with the States and Territories (apart from Western Australia), the Commonwealth will contribute an additional $5.3 billion to the Australian public health system. A range of important health and health-related measures will be supported including: $800 million in capital and recurrent funding to support access to elective surgery; $750 million in capital and recurrent funding to support a 4-hour national access target for hospital emergency departments; $1.6 billion to deliver around 1,300 sub-acute care beds; and $200 million in flexible funding for emergency departments, elective surgery and/or sub acute care. Further, an amount of $466 million is to be provided to establish a system of personally-controlled electronic health records. While these measures focus, quite properly, upon the public health system, in PHIAC s view the package presents a range of challenges and opportunities for the private health insurance sector. This much seems clear: in what seems set to be a dynamic and changing environment for the entire health system, those insurers who nimbly and creatively address the opportunities and challenges emerging from the COAG changes are most likely to be those that will prosper into the future. 30 Operations of the Private Health Insurers ANNUAL REPORT

40 Statistics, indexes and glossary Statistics, indexes and glossary 31

41 Statistical tables Statement of financial performance Revenue Benefits Expenses All figures $'000 HIB premium revenue Investment revenue Net HRB and other revenue Total revenue Fund benefits State ambulance levies Total fund benefits HIB expenses HIB claims handling Industry 14,170, , ,945 14,729,976 12,067, ,695 12,226,721 1,024, ,241 ACA 16, ,247 13, , AHM 445,143 14,878 1, , ,488 6, ,144 31,309 9,747 AUHL 422,698 12,176 1, , ,662 1, ,411 33,785 8,267 BUPAAH 1,494,670 17,267 12,189 1,524,126 1,254,855 3,147 1,258, ,837 37,629 BUPAAPL 2,281,925 32,299 66,217 2,380,441 1,911,735 35,595 1,947, ,037 57,976 CBHS 205,368 6, , ,317 2, ,175 6,885 4,207 CDH 7, ,492 6, , CUA 63,725 1, ,616 57, ,673 5,885 1,069 Defence 224,108 9,487 2, , ,159 2, ,230 8,793 4,515 DHF 20,805 1, ,353 16, ,966 1,645 1,101 GMHBA 216,897 6, , , ,749 19,813 2,030 GUC 72,763 2,358 (573) 74,548 53, ,463 7,491 1,268 HBF 933,492 70,409 1,802 1,005, , ,403 78,609 8,662 HCF 1,299,901 47,395 2,792 1,350,087 1,154,769 31,891 1,186,660 67,722 27,744 HCI 10, ,311 9, ,390 1, H'guard 79,091 7, ,464 63, ,297 6, HIF 63,453 2, ,728 54,480-54,480 5,953 1,293 H'Partners 95,563 5,274 1, ,826 86,832-86,832 6,954 1,220 Latrobe 90,844 5, ,405 79, ,280 5,266 3,548 Lysaght 63,025 1, ,014 54, ,296 4,064 1,495 MBF Alli 274,140 4, , ,774 2, ,640 13,873 3,612 Mildura 27,875 2,815 (11) 30,679 24, , ,316 MPL 3,823, ,897 22,238 3,968,135 3,253,546 32,436 3,285, ,769 58,882 MU 226,178 4,992 1, , ,428 4, ,604 18,144 4,300 Navy 41,175 2, ,166 32, ,377 2,387 1,505 NHBA 13, ,017 10, , NIB 901,358 30, , ,819 22, ,865 71,830 14,407 Phoenix 20, ,327 17, , Police 57, ,693 52, ,711 3, QCH 46,069 2,511-48,580 38, ,067 2,640 2,333 QTUH 82,371 2,849 (835) 84,385 70, ,055 6,793 1,107 RBHS 8, ,526 6, , RT 67, ,529 61, ,834 10, St Luke's 61,348 2,871-64,219 50, ,640 4,577 2,379 TFH 298,976 11, , ,045 7, ,173 15,613 4,764 Transport 10, ,505 9,410-9, Westfund 101,666 5, ,378 89,759 1,477 91,236 6,492 3, Operations of the Private Health Insurers ANNUAL REPORT

42 Profitability Other expenses* Total expenses Surplus/ (deficit) before tax Taxation expense Surplus/ (deficit) after tax Non HBF related surplus/ (deficit) Surplus/ (deficit) of the insurer Gross margin Management expenses Net margin 28,535 1,328,309 1,174, , ,216 27, , % 9.2% 4.5% - 1,270 2,081-2,081-2, % 7.6% 9.4% - 41,056 27,222 8,131 19,091-19, % 9.2% 2.5% 2,659 44,712 45,288 13,184 32,104-32, % 9.9% 8.1% - 144, ,658 36,481 85,177 1,811 86, % 9.7% 6.2% 18, , ,801 50, ,997 22, , % 10.6% 4.1% ,193 10,499-10,499-10, % 5.4% 2.0% % 10.9% -4.3% - 6, % 10.9% -1.4% 2,000 15,308 22,252-22,252 1,147 23, % 5.9% 5.6% - 2,746 2,641-2,641-2, % 13.2% 5.3% - 21,843 5,850-5,850-5, % 10.1% -0.3% 99 8,858 11,227 3,324 7,903-7, % 12.0% 13.1% - 87,271 98,028-98,028-98, % 9.3% 2.8% 5, ,466 62,962-62,962-62, % 7.3% 1.4% - 1, % 13.4% -0.3% - 7,824 15,342-15,342-15, % 9.9% 10.1% - 7,246 5,002-5,002-5, % 11.4% 2.7% - 8,174 7,820-7,820-7, % 8.6% 0.6% 78 8,892 8,233-8,233-8, % 9.7% 3.0% - 5,560 4,158-4, , % 8.8% 3.4% - 17,486 47,666 19,309 28,357-28, % 6.4% 15.7% - 2,104 4,367-4,367-4, % 7.5% 5.6% - 340, ,501 60, ,629 1, , % 8.9% 5.1% ,744 17,695 6,013 11,682-11, % 9.9% 4.9% - 3,892 6,896-6, , % 9.5% 9.5% - 1,420 2, , , % 10.4% 14.6% - 86,237 77,881 22,909 54,972-54, % 9.6% 5.2% - 1,534 2,000-2,000-2, % 7.4% 6.6% - 4,061 1,921-1,921-1, % 7.0% 1.9% - 4,973 5,540-5,540-5, % 10.8% 6.6% - 7,900 6,430-6,430-6, % 9.6% 5.4% ,269-1,269-1, % 8.8% 12.1% - 11,037 (5,342) - (5,342) - (5,342) 6.8% 16.4% -9.6% - 6,956 6,623-6,623-6, % 11.3% 6.1% - 20,377 25,180-25,180-25, % 6.8% 4.5% % 8.0% -1.4% - 10,035 7,107-7,107-7, % 9.9% 0.4% *Other expenses includes borrowing costs and all other costs paid\payable from the fund. Statistics, indexes and glossary 33

43 Statement of financial position Health Benefits Fund Assets All figures $ 000 Financial assets Cash Equities Bonds & other fixed interest Property Subsidiary & associated entities Investments Loans Premiums recievable Intangibles DAC & FITBS Prepayments Other Total assets Unearned premium liabilities Industry 581, ,785 5,540, , ,892 73,109 70,449 87,760 14, ,189 9,055,891 1,602,683 ACA , , AHM 20, ,578 36, ,122 6,323 1,476 28, ,747 41,057 AUHL 85,680 24,588 50,782 25,564-3,283 1,244 9, , ,250 78,063 BUPAAH , ,593 2,417 2, , , ,692 BUPAAPL ,830-1,323-5,343 23,119 2, , , ,876 CBHS 2,082 4, ,148 3, , , ,133 7,715 CDH 1,591-5, , CUA 3,308-33, ,811 40,960 2,160 Defence 4,831 24, , , , ,288 19,783 DHF , ,366 26,283 7,057 GMHBA 4, ,933 4, , , ,752 30,290 GUC 18,433 4,391 9,170 3, ,269 2, ,255 47,591 7,374 HBF 33,530 96, ,047 32,294 33,745 14,393 6,372 1, , , ,584 HCF 44, , ,464 69, , , ,829 61, , ,440 HCI 1,283-9, ,446 1,122 H guard 5,809 4,958 60,106 3, ,403 78,775 11,100 HIF 4,358 1,999 46,504 6, ,483 63,219 7,451 H Partners ,568 34,816 10, ,566 72,039 5,607 Latrobe (1,978) - 110,654 7,326 1, , ,272 11,650 Lysaght 1 4,033 30,117 5, ,644 42,854 4,073 MBF Alli , , ,842 24,687 Mildura 2,796-46,262 5, ,859 58,800 4,031 MPL 144, ,449 1,409, , ,823-10,740 27,079 3, ,890 2,707, ,351 MU 40,494-66,866 40, ,228 2,300-8, ,690 19,073 Navy 2,954 9,067 32,061 4, ,603 51,203 6,280 NHBA - - 7, , NIB 117,567 4, ,116 67, ,337 10,846 1,279 34, ,991 54,443 Phoenix 4,495-11, ,579 17,419 2,760 Police 4,830 1,301 7,374 3, ,130 19,916 1,981 QCH 3,344-42,695 4, ,834 52,635 7,475 QTUH 10,918 5,737 36,012 20, ,904 77,795 5,979 RBHS 519-5, , RT 7, ,703 14, , ,576 46,047 9,837 St Luke s 58 2,519 45,903 6, , ,117 63,084 7,690 TFH 9,840 8, ,152 5, , , ,940 28,165 Transport 872-8, ,950 1,737 Westfund 41-88,906 3, ,686 99,813 15, Operations of the Private Health Insurers ANNUAL REPORT

44 Health Benefits Fund Liabilities Private Health Insurer Capital Prudential Reserves Unpresented & outstanding claims Other fund liabilities Interest bearing liabilities Payables provisions & other liabilities Total liabilities Health benefits fund capital Non health fund assets Non health fund liabilities Contributed equity Equity Reserves Retained profits Total equity Solvency capital/risk multiple Solvency reserve 1,386, ,152 29, ,148 3,813,720 5,267, ,356 97,904 3,047,058 (2,651,027) 5,276,596 5,672, ,718,673 1, ,064 12, ,708 12, ,739 41,105 4,924-34, , , ,000 (362,310) 226, , ,046 37,208-25,000 18, , , ,587 83, , ,565 20,000-32, , ,627 29,439 13,157 96,400 (2,356) 124, , , , , , , ,349-2,410,000 (2,410,000) 715, , ,994 20,493 6,555-2,280 37,043 86, ,373 86, , ,306 2,198 5, ,284 5, ,487 4, ,487 34, ,473 34, ,503 27,503 8,094-6,250 61, ,658 2, ,346-94, , ,445 1, ,481 16, ,802 16, ,118 16,596 15,376-5,417 67,680 97, ,125 97, ,797 6,700 3,042-5,148 22,264 25, ,715-13,613 25, ,486 87, , , , , , , ,749 95,885 1,934-67, , , , , , , ,429 9, ,017 9, ,013 8, ,226 20,858 57, ,918 57, ,138 6, ,390 15,384 47, ,699 44,136 47, ,009 5, ,071 15,268 56, ,771 56, ,270 8, ,983 22, , , , ,757 4,068 1,572-1,805 11,518 31, ,694 31, ,110 39,509 4,351-31, ,210 43, ,595-13,037 43, ,337 1, ,636 7,689 51, ,820 47,290 51, , ,581 6, ,133 1,034,392 1,672, ,879 84,568 85,000 17,819 1,591,188 1,694, ,256 22,502 6,399-13,166 61,140 99, ,867 97,683 99, ,830 2, ,969 11,327 39, ,027 39,062 40, , ,567 5, ,130-3,777 5, ,717 62,119 30,028 3,593 47, , , , , ,069 1, ,491 12, ,929 12, ,955 3,432 2, ,919 11, ,656 11, ,843 2, ,252 41, ,383 41, ,030 6, ,855 15,596 62, ,844 54,355 62, , , ,479 6, ,417 7, ,842 20,302 25, ,727 24,018 25, ,778 3,399-1,138 1,787 14,014 49, ,412 49, ,079 33,399 5,761-6,801 74, , , , , ,705 7, ,245 7, ,563 7, ,324 27,269 72, ,800 72, ,745 Statistics, indexes and glossary 35

45 Membership, revenue and expenses by insurer Policies People Average Policies Average People Hospital treatment General treatment only Whole fund Hospital treatment General treatment only Whole fund Hospital treatment General treatment only Whole fund Hospital treatment General treatment only Industry 4,822, ,218 5,549,338 9,973,864 1,587,435 11,561,299 4,758, ,137 5,462,624 9,864,901 1,546,596 ACA 4, ,610 9, ,536 4, ,586 9, AHM 147,551 15, , ,046 31, , ,219 15, , ,279 30,366 AUHL 156,937 10, , ,125 21, , ,241 10, , ,179 21,434 BUPAAH 474,936 63, , , ,907 1,118, ,713 59, , , ,436 BUPAAPL 754, , ,929 1,579, ,332 1,826, , , ,840 1,559, ,120 CBHS 64,163 6,109 70, ,464 13, ,089 62,867 5,839 68, ,889 13,089 CDH 2, ,635 5, ,698 2, ,574 5, CUA 19,674 2,848 22,522 39,955 6,129 46,084 19,128 2,708 21,836 39,238 5,928 Defence 73,582 10,988 84, ,408 17, ,428 71,371 10,746 82, ,465 16,839 DHF 6, ,410 13, ,197 6, ,043 12, GMHBA 79,294 12,174 91, ,130 30, ,498 76,488 12,223 88, ,632 30,811 GUC 17, ,274 46,326 1,227 47,553 16, ,111 43,317 1,124 HBF 321, , , , , , ,913 98, , , ,532 HCF 446,803 55, ,873 1,020, ,087 1,152, ,345 54, , , ,943 HCI 3, ,783 7,335 1,578 8,913 3, ,755 7,269 1,538 H guard 24,345 2,333 26,678 55,883 5,194 61,077 24,139 2,297 26,436 56,042 5,180 HIF 23,059 4,587 27,646 47,895 9,220 57,115 21,797 4,030 25,827 45,210 8,195 H Partners 26,248 9,838 36,086 55,779 20,873 76,652 25,694 9,708 35,402 54,891 20,685 Latrobe 36,168 2,218 38,386 73,915 5,229 79,144 33,861 2,234 36,095 69,700 5,355 Lysaght 18,183 2,916 21,099 42,853 6,057 48,910 17,480 2,575 20,055 41,472 5,313 MBF Alli 73,325 21,996 95, ,543 54, ,611 74,889 22,737 97, ,582 56,190 Mildura 10,807 3,723 14,530 19,743 8,343 28,086 10,759 3,698 14,457 19,818 8,356 MPL 1,359, ,946 1,573,895 2,661, ,219 3,147,085 1,351, ,576 1,558,092 2,651, ,376 MU 66,543 2,727 69, ,293 6, ,309 68,956 2,811 71, ,864 6,185 Navy 12,294 1,625 13,919 27,733 2,348 30,081 12,014 1,587 13,601 27,235 2,359 NHBA 3, ,229 9, ,503 3, ,845 9, NIB 368,768 38, , ,061 84, , ,440 36, , ,236 81,954 Phoenix 5, ,286 12,537 1,000 13,537 5, ,248 12,476 1,000 Police 14,530 1,480 16,010 39,053 3,905 42,958 14,097 1,329 15,426 37,822 3,489 QCH 13, ,544 32, ,804 12, ,079 31, QTUH 22, ,153 48,524 1,821 50,345 21, ,406 47,216 1,772 RBHS 2, ,051 3, ,861 2, ,043 3, RT 22,441 1,123 23,564 48,563 2,841 51,404 21, ,243 46,038 2,079 St Luke s 19,244 2,381 21,625 39,790 5,239 45,029 19,010 2,310 21,320 39,366 5,081 TFH 91,528 6,195 97, ,577 12, ,144 89,314 6,166 95, ,669 12,358 Transport 3, ,800 7, ,038 3, ,640 6, Westfund 30,982 13,035 44,017 73,923 27, ,871 30,088 12,614 42,703 72,177 27, Operations of the Private Health Insurers ANNUAL REPORT

46 Premium Revenue ($ 000) Fund Benefits ($ 000) Management Expenses Per Whole fund Hospital treatment General treatment General treatment ambulance only Total Hospital treatment General treatment General treatment ambulance only State levies Total Average policy Average people 11,411,497 10,157,881 3,996,818 15,593 14,170,292 8,989,906 3,052,757 24, ,695 12,226,721 $238 $114 10,428 10,674 6,061-16,735 8,732 4, ,896 $277 $ , , , , ,133 99,355-6, ,144 $251 $ , , , , ,409 73,253-1, ,411 $254 $146 1,103,705 1,118, , ,494, , , ,147 1,258,002 $272 $131 1,797,510 1,664, ,453 1,598 2,281,925 1,465, , ,595 1,947,330 $282 $ , ,391 69, , ,568 58,749-2, ,175 $161 $68 5,572 5,897 1,247-7,144 5,470 1, ,675 $302 $140 45,165 46,273 17,453-63,725 41,381 16, ,673 $318 $ , ,655 59, , ,383 49,776-2, ,230 $162 $71 12,588 15,683 5,122-20,805 13,379 3, ,966 $454 $ , ,788 57, , ,759 48, ,749 $246 $114 44,441 39,933 32,830-72,763 31,555 22, ,463 $512 $ , , ,946 3, , , ,740 13, ,403 $209 $102 1,129, , ,367 3,057 1,299, , ,816 5,648 31,891 1,186,660 $194 $85 8,807 7,745 3,052-10,797 6,759 2, ,390 $384 $164 61,222 59,985 19,106-79,091 51,010 12, ,297 $296 $128 53,405 40,668 22,785-63,453 37,153 17, ,480 $281 $136 75,577 60,459 35,103-95,563 54,319 32, ,832 $231 $108 75,055 76,001 14,842-90,844 69,848 9, ,280 $244 $117 46,785 43,107 19, ,025 37,557 16, ,296 $277 $ , ,555 94, , ,750 65,023-2, ,640 $179 $77 28,174 19,140 8,735-27,875 17,202 6, ,208 $146 $75 3,122,871 2,800,431 1,019,487 3,082 3,823,000 2,430, ,733 2,378 32,436 3,285,982 $219 $ , ,146 65,734 1, , ,492 48, , ,604 $313 $129 29,593 28,616 12,559-41,175 23,469 9, ,377 $286 $132 9,848 9,544 4,123-13,666 6,973 3, ,244 $369 $ , , ,673 1, , , , , ,865 $218 $111 13,476 14,862 5,821-20,683 12,410 5, ,793 $246 $114 41,311 37,304 20,594-57,898 34,018 18, ,711 $263 $98 31,909 33,483 12,586-46,069 28,235 9, ,067 $380 $156 48,988 54,501 27,869-82,371 47,744 22, ,055 $353 $161 3,857 4,737 3,516-8,253 3,484 2, ,530 $356 $189 48,118 50,087 17, ,419 48,548 13, ,834 $496 $229 44,447 44,961 16,387-61,348 39,474 11, ,640 $326 $ , ,407 92, , ,119 78, , ,173 $213 $98 7,666 6,961 3,110-10,072 6,482 2, ,410 $221 $105 99,370 73,528 27, ,666 66,204 23, ,477 91,236 $235 $101 Statistics, indexes and glossary 37

47 Health-related business Revenue Expenses All figures $ 000 Overseas students health cover Overseas visitors cover Other health-related activities Total revenue Overseas students health cover Overseas visitors cover Other health-related activities Total expenses Industry 75, , , ,162 ACA AHM 15,448-42,113 57,561 AUHL - 6,645-6,645 BUPAAH 3,622 22,551-26,174 BUPAAPL - 14,839-14,839 CBHS CDH CUA Defence DHF GMHBA GUC - 11,080-11,080 HBF - 4,186-4,186 HCF - 1,361 38,977 40,338 HCI H guard HIF H Partners ,530 20,530 Latrobe Lysaght MBF Alli Mildura - - 6,244 6,244 MPL 56,304 76, ,079 MU Navy NHBA NIB Phoenix Police QCH QTUH - - 8,615 8,615 RBHS RT St Luke s TFH - - 5,344 5,344 Transport Westfund - - 6,156 6,156 77,270 98, , , ,168-41,813 56,981-5,109-5,109 3,440 10,544-13,984-9,245-9, ,653-11,653-2,384-2, ,977 39, ,773 18, ,255 6,255 58,516 58, , ,264 9, ,098 5, ,358 5, Operations of the Private Health Insurers ANNUAL REPORT

48 Legislation index The legislation index provides details of Acts and Rules that govern the private health insurance industry or the practices of private health insurers. It includes legislation relevant to private health insurers, policy holders of health benefit funds and health insurance related government agencies. Full versions of most Commonwealth Legislation are available at < This index was updated at the time of writing. Rules are subject to unincorporated amendments, for the most up-to-date version/s check the home page for each Rule on the comlaw website. COMMONWEALTH ACTS Corporations Act 2001 Act compilation (current): C2009C00429 Administering department: AG, Treasury Start date: 1 July 2009 An Act to make provision in relation to corporations and financial products and services, and for other purposes. Crimes Act 1914 (Cwlth) Act compilation (current): C2009C00333 Administering department: AG Start date: 1 July 2009 An Act relating to offences against the Commonwealth. Criminal Code Act 1995 (Cwlth) Act compilation (current): C2009C00380 Administering department: AG Start date: 5 August 2009 An Act relating to the criminal law. Health Insurance Act 1973 Act compilation (current): C2010C00442 Administering department: Health Start date: 1 July 2010 An Act providing for payments by way of medical benefits and payments for hospital services and for other purposes. Health Legislation Amendment Act 2007 Act compilation (current): C2007A00180 Administering department: Health Date of assent: 28 September 2007 An Act to amend the law in relation to health and private health insurance, and for related purposes. Life Insurance Act 1995 Act compilation (current): C2010C00545 Administrating department: Treasury Start date: 27 July 2010 An Act relating to life insurance, and for related purposes. Medicare Levy Act 1986 Act compilation (current): C2010C00704 Administering department: Treasury Start date: 1 October 2010 An Act to impose a Medicare Levy upon certain incomes. National Health Act 1953 Act compilation (current): C2010C00739 Administering department: Health Start date: 1 November 2010 An Act relating to the provision of pharmaceutical, sickness and hospital benefits, and medical and dental services. Statistics, indexes and glossary 39

49 Privacy Act 1988 Act compilation (current): C2010C00731 Administering department: AG, PMC Start date: 1 November 2010 An Act to make provision to protect the privacy of individuals, and for related purposes. Private Health Insurance Act 2007 Act compilation (current): C2010C00587 Administering department: Health Start date: 1 July 2010 An Act to regulate private health insurance, and for related purposes. Private Health Insurance (Collapsed Insurer Levy) Act 2003 Act compilation (current): C2007C00197 Administering department: Health Start date: 1 April 2007 An Act to impose a levy to be known as the collapsed insurer levy on private health insurers. Private Health Insurance (Complaints Levy) Act 1995 Act compilation (current): C2007C00198 Administering department: Health Start date: 1 April 2007 An Act to impose a levy on health insurance business conducted by private health insurers. Private Health Insurance (Council Administration Levy) Act 2003 Act compilation (current): C2007C00189 Administering department: Health Private Health Insurance (Risk Equalisation Levy) Act 2003 Act compilation (current): C2007C00193 Administering department: Health Start date: 1 April 2007 An Act to impose a levy to be known as the Risk equalisation levy on private health insurers. Private Health Insurance (Transitional Provisions and Consequential Amendments) Act 2007 Act compilation (current): C2007A00032 Administering department: Health Date of assent: 30 March 2007 An Act to provide for transitional matters, and make consequential amendments, relating to the enactment of the Private Health Insurance Act. Taxation Laws Amendment (Private Health Insurance) Act 1998 Act compilation (current): C2004C01243 Administering department: Treasury Start date: 3 July 2002 An Act to amend the law relating to income tax in respect of private health insurance. Trade Practices Act 1974 Act compilation (current): C2010C00623 Administering department: DBCDE, Infrastructure, DIISR, Treasury Start date: 14 July 2010 An Act relating to certain trade practices. Start date: 1 April 2007 An Act to impose a levy to be known as the Council administration levy on private health insurers. 40 Operations of the Private Health Insurers ANNUAL REPORT

50 COMMONWEALTH RULES Private Health Insurance (Accreditation) Rules 2008 Legislative instrument: F2008L02106 Administering department: Health Date of making: 12 June 2008 These Rules provide for matters required or permitted by section 81-1 of the Private Health Insurance Act 2007 (the Act) or necessary or convenient to be provided in order to carry out or give effect to that section of the Act. Private Health Insurance (Benefit Requirements) Rules 2008 (No. 2) Legislative instrument: F2009C00345 Administering department: Health Start date: 13 May 2009 These Rules revoke the Private Health Insurance (Benefit Requirements) Rules 2008 (No. 1) and provide for the minimum benefit requirements for psychiatric, rehabilitation and palliative care and other hospital treatment. Private Health Insurance (Council Administration Levy) Rules 2007 Legislative instrument: F2009C00531 Administering department: Health Start date: 1 September 2009 These Rules specify the rate of Council Administration Levy, and also specify Council Administration Levy days, and the census day. Private Health Insurance (Council) Rules 2007 Legislative instrument: F2007L00899 Administering department: Health Date of making: 30 March 2007 These Rules specify matters relating to the public information functions of PHIAC and the periods of appointment for the Commissioner of PHIAC, Deputy Commissioner and members of the council. Private Health Insurance (Complaints Levy) Rules 2007 Legislative instrument: F2009C00135 Administering department: Health Start date: 1 December 2008 These Rules specify the rate of Complaints Levy and also specify Complaints Levy days and the census day. Private Health Insurance (Complying Product) Amendment Rules 2008 (No. 2) Legislative instrument: F2009L00433 Administering department: Health Date of making: 6 February 2009 These Rules amend the Private Health Insurance (Complying Product) Rules 2008 (No. 2) to alter the Nursing Home Type Patient contribution at public hospitals in Western Australia. Private Health Insurance (Data Provision) Rules 2010 Legislative instrument: F2010L01753 Administering department: Health Date of making: 22 June 2010 These Rules revoke the Private Health Insurance (Data Provision) Rules 2009 and specify the kinds of information relating to the treatment of insured persons that private health insurers are to give to the Secretary of the Department of Health and Ageing. Private Health Insurance (Health Benefits Fund Administration) Rules 2007 Legislative instrument: F2008C00605 Administering department: Health Start date: 15 November 2008 These Rules are made by PHIAC under item 1 of the table in section for the purposes of part 4 4 of the Private Health Insurance Act. These Rules specify requirements for the administration and operation of health benefits funds, including requirements about the expenditure and application of fund assets, restructure of health benefits funds and merger and acquisition of health benefits funds. Statistics, indexes and glossary 41

51 These Rules specify risk equalisation jurisdictions for the purposes of the Act and establish Solvency and Capital Adequacy Standards for the conduct of health benefits funds. Private Health Insurance (Health Benefits Fund Enforcement) Rules 2007 Legislative instrument: F2007L00901 Administering department: Health Date of making: 30 March 2007 These Rules deal with the external management of health benefits funds. Private Health Insurance (Health Benefits Fund Policy) Rules 2007 (No. 3) Legislative instrument: F2007L04453 Administering department: Health Date of making: 22 November 2007 These Rules provide limitations on the amount of brokerage and commission that can be paid in respect of health insurance premiums. These Rules revoke and replace the Private Health Insurance (Health Benefits Fund Policy) Rules 2007 (No. 2). Private Health Insurance (Health Insurance Business) Rules 2010 Legislative Instrument: F2010L01740 Administering department: Health Date of making: 24 June 2010 These Rules revoke and replace the Private Health Insurance (Health Insurance Business) Rules 2009 and provide for private health insurers to expand hospital products to cover a broader range of services that substitute for or prevent hospitalisation, and categorise privately insured services as being hospital or general treatment. Private Health Insurance (Incentives) Rules 2007 Legislative Instrument: F2007L00903 Administering department: Health Date of making: 30 March 2007 These Rules provide for matters relating to the premiums reductions scheme and the incentive payments which give effect to the private health insurance rebate. Private Health Insurance (Insurer Obligations) Rules 2009 Legislative instrument: F2009L03634 Administering department: Health Date of making: 19 September 2009 These Rules revoke the Private Health Insurance (Insurer Obligations) Rules 2007 and establish prudential standards for private health insurers that set minimum requirements for the governance arrangements of private health insurers, specify appointed actuary requirements of private health insurers and detail reporting and notification requirements for private health insurers. Private Health Insurance (Levy Administration) Rules 2010 Legislative instrument: F2010L00144 Administering department: Health Date of making: 14 January 2010 These Rules revoke the Private Health Insurance (Levy Administration) Rules 2007 and make a new set of rules with the addition of a new rule 8. Private Health Insurance (Lifetime Health Cover) Rules 2007 Legislative instrument: F2007L00906 Administering department: Health Date of making: 30 March 2007 These Rules set out administrative matters relating to Lifetime Health Cover. Private Health Insurance (Ombudsman) Rules 2007 Legislative instrument: F2007L00907 Administering department: Health Date of making: 30 March 2007 These Rules deal with requirements in relation to the appointment of the PHIO and with requirements relating to mediation. 42 Operations of the Private Health Insurers ANNUAL REPORT

52 Private Health Insurance (Prostheses Application and Listing Fee) Rules 2008 (No. 1) Legislative instrument: F2009C00276 Administering department: Health Date of making: 15 January 2009 These Rules provide for the fees for human tissue prosthesis and other prosthesis, and revoke Private Health Insurance (Prostheses Application and Listing Fee) Rules 2007 (No. 2). Private Health Insurance (Prostheses) Rules 2010 (No. 2) Legislative instrument: F2010L02191 Administering department: Health Date of making: 26 July 2010 These Rules revoke the Private Health Insurance (Prostheses) Rules 2010 (No. 1) and determines benefits for listed prostheses and medical treatments. Private Health Insurance (Registration) Rules 2009 (No. 2) Legislative instrument: F2009L02701 Administering department: Health Date of making: 3 July 2009 These Rules revoke and replace the Private Health Insurance (Registration) Rules 2009 to provide for changes following the change of name of a listed entity. Private Health Insurance (Risk Equalisation Administration) Rules 2007 Legislative instrument: F2008C00039 Administering department: Health Start date: 19 December 2007 Private Health Insurance (Risk Equalisation Levy) Rules 2007 Legislative instrument: F2007L00911 Administering department: Health Date of making: 30 March 2007 These Rules specify the 21st day of the second month of each quarter as a Risk Equalisation Levy day for a financial year. Private Health Insurance (Risk Equalisation Policy) Rules 2007 Legislative instrument: F2007L00912 Administering department: Health Date of making: 30 March 2007 These Rules specify what the eligible benefits are to be paid for by a private health insurer. Private Health Insurance (Transition) Rules 2007 Legislative instrument: F2008C00163 Administering department: Health Start date: 8 March 2008 The purpose of the Rules is to deal with transitional matters not other wise provided for in the Transitional Provisions Act. Private Patients Hospital Charter Legislative instrument: F2006L01224 Administering department: Health Date of making: 14 April 2006 This details the rights and responsibilities as a private patient in hospital. This statement revokes all previous statements issued under section 73F of the National Health Act These Rules are made by the Private Health Insurance Administration Council (the Council) under item 3 of the table in section , for the purposes of Part 6-7 of the Private Health Insurance Act 2007 (the Act). Statistics, indexes and glossary 43

53 State Legislation Australian Capital Territory Full versions of territory legislation are available at < Emergencies Act 2004 Act number: A R15 (current) Effective: 20 August 2010 Fair Trading Act 1992 Act number: A R20 (current) Effective: 6 October 2010 New South Wales Full versions of state legislation are available at < Health Insurance Levies Act 1982 No 159 Act number: 159 Current version for: 28 June 2010 Fair Trading Act 1987 No 68 Act number: 68 Current version for: 13 August 2010 Victoria Full versions of state legislation are available at < Fair Trading Act 1999 Act no. 16/1999, version 047 Effective date: 1 November 2010 Queensland Full versions of state legislation are available at < South Australia Full versions of state legislation are available at < Fair Trading Act 1987 Version: Gazette p2965 Subordinate legislation: Fair Trading (General) Regulations 1999 Western Australia Full versions of state legislation are available at < Fair Trading Act 1987 Act No. 108 of 1987 Currency Start: 5 February 2010 Tasmania Full versions of state legislation are available at < Fair Trading Act 1990 Royal Assent: 29 November 1990 Current view: 1 August 2004 Northern Territory Full versions of territory legislation are available at < Consumer Affairs and Fair Trading Act In force: 13 October 2010 Reprint number: REPC062 Fair Trading Act 1989 Reprint No. 7G Reprinted: 1 July 2010 Subordinate legislation: Fair Trading Regulation Operations of the Private Health Insurers ANNUAL REPORT

54 Glossary Acute accommodation/patient An episode of acute care for an admitted patient where the principal clinical intent is to: manage labour (obstetric) cure illness or provide definitive treatment of injury perform surgery relieve symptoms of illness or injury (excluding palliative care) reduce severity of illness or injury protect against exacerbation or complication of an illness or injury which could threaten life or normal functions perform diagnostic or therapeutic procedures. This does not include nursing home type patients. Age based pool (ABP) The age based pool equalises benefits for the Risk Equalisation Levy. Pooling is based on adding a proportion of applicable benefits, 55 and above, in a sliding scale. Applicable benefits include benefits paid for hospital and hospital-substitute, and medical benefits associated with those hospital services, as well as eligible benefits paid for chronic disease management programs. The amount to be notionally allocated to the ABP in a quarter is to be calculated in accordance with the formula pc, where: p is the percentage of the eligible benefit paid having regard to the age cohort, as specified in the ABP table, into which the insured person falls on the day or days on which the insured person receives the treatment to which the eligible benefit relates, and C is the gross benefit in the current quarter for the age cohort. Age based pool Age cohorts % % % % % % % % Agreement Age % of eligible benefits included in pool An agreement entered into between a medical practitioner, within the meaning of that term in subsection 3 (1) of the Health Insurance Act 1973, and an insurer under which the practitioner agrees to accept payment by the insurer in satisfaction of the amount that would, apart from the agreement, be owed to the practitioner in relation to the treatment provided to the insured person. Benefits The financial section of this report refers to benefits reported in financial statements which are determined by application of accounting standards and are accrual based. These include claims incurred but not reported and claims that are processed but no yet paid. All other benefit statistics refer to benefits paid for hospital treatment and general treatment services and differ as they are derived on a cash basis. Broader Health Cover Services Broader health cover services covers services that prevent, are part of, or substitute for hospitalisation. General practice services and accommodation costs of residential aged care facilities are not covered by BHC. Statistics, indexes and glossary 45

55 Chronic disease management program A CDMP is intended to reduce complications in a person with a diagnosed chronic disease and prevent or delay the onset of chronic disease for a person with identified multiple risk factors for chronic disease. Community rating Community rating means that health funds cannot charge members different premiums for the same level of cover because of their age (other than age at entry), claims history, gender, health or place of residence (other than state). Complying health insurance policy A complying health insurance policy is an insurance policy that meets: a) the community rating requirements b) the coverage requirements c) if the policy covers hospital treatment the benefit requirements d) the waiting period requirements e) the portability requirements f) the quality assurance requirements g) any requirements set out in the Private Health Insurance (Complying Product) Rules for the purposes of this paragraph. Complying health insurance product A complying health insurance product is a product made up of complying health insurance policies. Eligible benefits for risk equalisation Benefits paid by an insurer for any of the following: hospital treatment. hospital-substitute treatment planning and coordination services for CDMP allied health services which are provided as part of a CDMP Episode The period of admitted patient care between a formal or statistical admission and a formal or statistical separation (for example, discharge, death) characterised by only one care type. Excess and co-payments Are an amount of money a policy holder agrees to pay before private health insurance benefits are payable. For-profit organisation An insurer that is registered, or taken to be registered, under part 4 3 of the PHI Act as a for-profit insurer. For-profit insurers are subject to different requirements regarding the assets contained in its health benefits fund/s (see division 137 of the PHI Act) and are subject to income tax (also see not-for-profit organisation). General treatment General treatment is treatment (including the provision of goods and services) that is intended to manage or prevent a disease, injury or condition and is not hospital treatment. General treatment ambulance only Means policies that cover ambulance services but do not cover any other hospital or general treatment. Gross margin The difference between total contribution income and total cost of benefits, which include state levies, expressed as a percentage or in dollar terms. Health insurance business The business of undertaking liability, by way of insurance or an employee health benefits scheme, that relates to hospital treatment and general treatment. Health related business Any one or more of the following: a) a business of providing goods or services (or both) to manage or prevent diseases, injuries or conditions b) a business of undertaking liability, by way of insurance, to indemnify people who are ineligible for Medicare for costs associated with providing treatment, goods or services that are provided to: I. those people in Australia II. manage or prevent diseases, injuries or conditions 46 Operations of the Private Health Insurers ANNUAL REPORT

56 c) a business of providing a financial service to assist people insured under complying health insurance products to meet the costs associated with treatment, goods or services that are provided to manage or prevent diseases, injuries or conditions d) any other business, or business included in a class of businesses, specified in the Private Health Insurance (Health Benefits Fund Policy) Rules for the purposes of this paragraph. Hospital treatment Treatment (including the provision of goods and services) that is: a) intended to manage a disease, injury or condition b) provided to a person: I. by a person who is authorised by a hospital to provide the treatment II. under the management or control of such a person c) either: I. provided at a hospital II. provided or arranged with the direct involvement of a hospital. Hospital treatment memberships are categorised by family type: single, family, single parent, couple, 2+ persons no adults, and 3+ adults. Hospital treatment membership is further classified by whether the product has exclusions and whether the product is subject to an excess or co-payment. Hospital-substitute treatment Means general treatment that: a) substitutes for an episode of hospital treatment b) is any of, or any combination of nursing, medical, surgical, podiatric surgical, diagnostic, therapeutic, prosthetic, pharmacological, pathology or other services or goods intended to manage a disease, injury or condition c) is not specified in the Private Health Insurance (Complying Product) Rules as a treatment that is excluded from this definition d) must be part of a hospital treatment policy. Insured person All persons covered by health insurance policies. Joint policy For the purpose of the Council Administration Levy, means a policy under which two or more persons are insured. Known gap agreement An agreement where the medical practitioner agrees to accept a payment by the insurer in part satisfaction of the amount owed and the patient has provided informed financial consent so that the gap or out-of-pocket expenses to be paid by the insured person are known in advance. Length of stay The time a patient stays in hospital treatment for an episode of care, measured in patient days. A same-day patient is allocated a length of stay of one patient day. The length of stay of an overnight stay patient is calculated by subtracting the date the patient is admitted from the date of separation. Lifetime Health Cover A private health insurer must increase the amount of premiums payable for hospital cover in respect of an adult if the adult did not have hospital cover on his or her Lifetime Health Cover base day (generally the 1 July following the adult s 31st birthday). The penalty is 2% above the base rate for each year over 30 at the time of joining. Exceptions to this are: people born on or before 1 July 1934 people over 31 and overseas on 1 July 2000 persons yet to turn 31. The maximum loading a person can be required to pay is 70%, payable by people who first take out hospital treatment cover at age 65 or older. A private health insurer must stop charging premiums above the base rate for hospital cover in respect of an adult, if the adult has had hospital cover for a continuous period of 10 years (commencing from 1 April 2007). Statistics, indexes and glossary 47

57 Management expenses The operating expenses incurred in the course of normal fund operations (i.e. salaries, commission, rent). The percentage relationship between management expenses and contribution income will be influenced by such factors as the structure of an organisation, the level of contribution rates, assistance from employers in the case of some restricted access insurers, and establishment costs for new organisations. Market share Market share is the proportion of policies that each insurer holds in comparison with total policies, expressed as a percentage. Medicare Benefits Schedule A fee set by the Australian Government for services provided by medical professionals for which a rebate is payable. Medicare Benefits Schedule Fee rebate The government provides a rebate on some medical fees as listed in the Medicare Benefits Schedule (MBS). This rebate is currently 75% of the MBS fee for part of an episode of hospital treatment or hospital-substitute treatment, and 85% of the MBS fee for medical fees incurred out-of-hospital. Medicare Levy Surcharge An Australian Government private health insurance initiative to encourage high-income earners to take out private health insurance. The surcharge imposes an additional 1% on top of the Medicare levy for high-income earners who are not policy holders of private hospital treatment cover offered by an insurer, or to high-income earners with a maximum excess of $500 a year for single policies, or more than $1,000 for all other policies. The income thresholds that applied in were $73,000 for a single person with no dependents and $146,000 for couples and families. The threshold increases by $1,500 for each child in excess of one (for example, a couple with two children would have a threshold of $147,500). For the financial year, the MLS income thresholds will be $77,000 for a single person and $154,000 for families, plus $1,500 for each dependent child after the first. Membership statistics Membership statistics refer to an insurer s number of policies and the number of insured persons covered under those policies (coverage). Net margin Gross margin less management expenses, expressed as a percentage of contribution income. No gap agreement An agreement where the medical practitioner agrees to accept a payment by the insurer in full satisfaction of the amount owed so that there is no gap, or no out-of-pocket expenses to be paid by the insured patient. Not-for-profit An insurer that is registered, or taken to be registered, under part 4 3 of the PHI Act as a notfor-profit insurer. Not-for-profit insurers are exempt from income tax under section of the Income Tax Assessment Act Nursing home type patient Means a patient in the hospital who has been provided with accommodation and nursing care, as an end in itself, for a continuous period exceeding 35 days. Open access insurer Open health benefits funds have no restrictions on who may join. Outstanding claims Claims that have been: reported and have not yet been settled incurred but not yet reported (incurred but not reported) incurred but not yet fully settled (incurred but not enough reported) administratively finalised but which may be reopened. Payments to or from RETF The net amount paid or payable to or from the Risk Equalisation Trust Fund in respect of the financial year. A negative figure denotes a payment to the pool. 48 Operations of the Private Health Insurers ANNUAL REPORT

58 Percentage point A unit expressing the difference between two percentages. A fall from 10% to 9% would be a fall of one percentage point. Policy holder A holder of a policy that is referable to a health benefits fund. Private health insurance policy An insurance policy that covers hospital treatment or general treatment or both (whether or not it also covers any other treatment or provides a benefit for anything else). Private Health Insurance Rebate The Private Health Insurance Rebate applies to all people, provided that they are eligible for Medicare and have purchased a complying health insurance product that provides hospital treatment cover, general treatment cover or both. The rebate is usually applied at a rate of 30% of the total premium. It increases to 35% for policy holders aged between 65 and 69 years, and 40% for policy holders aged 70 years and over. Unearned premium liabilities The unearned premium liability is the liability determined in respect of premiums paid in advance, being premiums paid for policies prior to the date of valuation which provide cover in respect of some period beyond the valuation date. Prudential standards The standards currently in force are: Solvency standard schedule 2 of the Private Health Insurance (Health Benefits Fund Administration) Rules 2007 Capital adequacy standard schedule 3 of the Private Health Insurance (Health Benefits Fund Administration) Rules Appointed actuary standard schedule 2 of the Private Health Insurance (Insurer Obligations) Rules 2009 Governance standard schedule 1 of the Private Health Insurance (Insurer Obligations) Rules Restricted access group A restricted access group is a group of people who all belong to a particular group, based on whether they: are or were employed in a particular profession, trade, industry or calling are or were employed by a particular employer or by an employer who belongs to a particular class of employees are or were members of a particular profession, professional association or union are or were members of the defence force or part of the defence force are or were part of any group described in the Private Health Insurance (Registration) Rules. The partners and dependent children of people who belong to such a group are also taken to belong to that group. Restricted access insurer Restricted access insurers are insurers that are registered to offer complying health insurance products to a restricted access group, as per the insurer s constitution. Restricted access insurers are prohibited from issuing a complying health insurance product to a person who does not belong to the restricted access group. Risk equalisation Risk equalisation is a system for sharing the hospital treatment costs of high-risk groups and high cost claims between insurers that commenced on 1 April It is comprised of three elements: an age based pool that shares the costs of treatment for people aged 55 and above a high cost claimants pool that shares the costs of claims greater than $50,000 the transfer of money between insurers and the RETF, based on the experience and relative risk of their health benefits fund membership base. Risk equalisation is an iteration of the previous arrangement known as reinsurance, and is a fundamental component of the system of community rating in the private health insurance industry. The operation of risk equalisation is Statistics, indexes and glossary 49

59 governed by the Private Health Insurance (Risk Equalisation Policy) Rules 2007 and the Private Health Insurance (Risk Equalisation Administration) Rules Risk Equalisation Trust Fund The pool of monies established on 1 April 2007 that is used for the risk equalisation arrangements that underpin community rating in private health insurance. Rounding Most monetary amounts shown in tables and figures have been rounded to the nearest $1,000. Where numbers have been rounded, discrepancies may occur between sums of component items and totals. However, actual figures have been used in respect of the membership statistics reported. Most percentage amounts shown are rounded to one decimal place. Separation The process by which an episode of care for an admitted patient ceases. The mode of separation may be statistical, discharge, transfer or death. Solvency risk multiple A measure of a health benefits fund s compliance with the Solvency Standard. The solvency risk multiple is calculated by dividing the capital of the health benefits fund by the solvency reserve (as calculated and defined in schedule 2 of the Private Health Insurance (Health Benefits Fund Administration) Rules 2007). State levies Amounts payable to the New South Wales and Australian Capital Territory governments in respect of levies on policy holders of insurers for ambulance cover. Waiting periods A waiting period is an initial period of health fund membership during which no benefit is payable for certain procedures and services. They can also apply when the policy holder changes or upgrades their health insurance cover. Single equivalent unit (SEU) SEUs are used as a standard measure of the number of policies, as the number of persons covered under a policy may vary. Single, 2+ persons no adults and single parent policies are counted as one SEU. Couple, family and 3+ adults are counted as two SEUs. From 1 April 2007 the definition of SEUs changed. For example, single parent policies were previously counted as two SEUs. To keep a consistent data series, PHIAC has applied the new definition of SEUs to the historical calculation of SEUs. Single policy For the purpose of the Council Administration Levy, means a policy under which only one person is insured. 50 Operations of the Private Health Insurers ANNUAL REPORT

60 Index of figures and tables List of Figures Figure 1. Hospital treatment coverage (insured persons as a % of the population) Figure 2. Percent of insured persons aged over Figure 3. Figure 4. Net annual change for in persons covered by hospital treatment and general treatment cover by age cohort People with hospital treatment insurance against total population, by age cohort and gender 30 June Figure 5. Market share as at 30 June Figure 6. Percent of policies with excess and co-payment or exclusionary features Figure 7. Funding for privately insured services, Figure 8. Health benefits fund profit after tax for Figure 9. Health benefits fund assets and liabilities Figure 10. Length of stay (hospital days) by age, Figure 11. Hospital treatment benefits paid by age for Figure 12. Hospital treatment benefits per person Figure 13. Medical benefits by speciality group Figure 14. Medical benefits and out-of-pocket expenses by speciality group Figure 15. Benefits paid for prostheses (millions) Figure 16. Hospital-substitute episodes by age, Figure 17. CDMP utilisation by age, List of Tables Table 1. Industry structure Table 2. Industry profitability Table 3. Episodes/services by type for hospital treatment Table 4. General treatment services covered in Statement of financial performance Statement of financial position Membership, revenue and expenses by insurer Health-related business Statistics, indexes and glossary 51

61 Index A About PHIAC, vi Acronyms and abbreviations, v Appointed actuary, 16 assets, 22 B benefit payments, 20 Broader Health Cover, 12 C Capital adequacy standard, 16 capital position, 35 chronic disease management programs, 12, 28, 29 Commissioner s report, vii community rating, 15 consumer perspectives, contact details, 54 D day-only, 24 E equity, 35 excess and co-payment, exclusionary products, F financial performance, 20, financial position, 22, G gap payments, 14, general treatment, 28 benefits, 30 membership, 7 services, 4 glossary, 45 governance Standard, 16 government contributions, 14 H health-related business, 12, 38 hospital-substitute treatment services, 28, 29 hospital treatment, I benefits, day-only services, 24 length of stay, 24 membership, 6, 9 services, 4 insurers, 2 investment revenue, 5, 20 IPSOS report, Healthcare and Insurance Australia 2009, L legislation and supervision, 14 17, Commonwealth Acts, Commonwealth Rules, community rating and risk equalisation, prudential standards, 16 State legislation, 44 Letter of transmittal, iii levies, 17 Lifetime Health Cover, 7, 23 M management expenses, 21, 32 market share, 10 medical services and benefits, Medicare Levy Surcharge, 6 membership, 23, general treatment, 4 hospital treatment, 4, 9 by policy category, Operations of the Private Health Insurers ANNUAL REPORT

62 O open access, 2 out-of-pocket payments, 14, P participation, 6 9 payment for treatment, 14 government contributions, 14 patient contributions, 14 for privately insured services, 15 performance, financial outcomes, financial position, 22 premiums, 5, 20 private health insurance industry, 2 3, 6 17 ageing membership, 6 7 assets and liabilities, 22 competition, 11 consumer perspectives, contribution income, 9 evolution of, 9 12 legislation and supervision, market share, 10 participation, 6 9 registration, 15 snapshot, 4 5 structure of, 10 Private Health Insurance Ombudsman, 12 private health insurance rebate, 7, 30 Private Patients Hospital Charter, 43 products and services, broader health cover services, chronic disease management programs, 12, 28, 29 dental and optical services, 12, 30 exclusionary products, hospital treatment, 11 general treatment, 11 hospital-substitute treatment, 12 profit, 4, 21, 33 prostheses services and benefits, prudential standards, 16 appointed actuaries, 16 governance standard, 16 solvency and capital adequacy standards, 16 R restricted access, 2 risk equalisation, Risk Equalisation Trust Fund, S service usage and benefits paid, Solvency standard, 16 W website, vi Statistics, indexes and glossary 53

63 Contact details Location Private Health Insurance Administration Council Level Brisbane Avenue Barton ACT 2600 Contact officer Chief Executive Officer Mr Shaun Gath Telephone: Fax: [email protected] Website: < 54 Operations of the Private Health Insurers ANNUAL REPORT

64 Notes Statistics, indexes and glossary 55

65 Notes 56 Operations of the Private Health Insurers ANNUAL REPORT

66 Protecting consumers of private health insurance. Ensuring a well-run and competitive industry.