House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)

Chapter 1 - General introduction

Context of amendments

1.1 The Council is the prudential regulator of the private health insurance industry in Australia. It was first established in 1989, under the National Health Act 1953 and continues its operations under the PHI Act.

1.2 The Council is responsible for monitoring the prudential performance of registered private health insurers. The Council's role includes:

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registration of private health insurers;

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developing solvency, capital adequacy and other prudential standards for the industry;

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publishing circulars, statistics and reports on insurer activities and performance; and

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administering the Risk Equalisation Trust Fund.

1.3 As part of the Smaller Government - additional reductions in the number of Australian Government bodies initiative announced as part of the 2014-15 Budget, the Council will cease as a separate body, and its prudential supervisory functions will be transferred to APRA.

1.4 The Smaller Government Reform Agenda will streamline government bodies and reduce duplication of Government agencies as statutory bodies will be abolished and rationalised where activities are no longer needed or can be managed within existing departmental resources. The abolition and merger of statutory bodies, including the Council, is expected to improve coordination and accountability and reduce the costs associated with separate governance arrangements.

Summary of new law

1.5 The transfer of the Council's prudential supervisory functions will be given effect by this package of Bills, which transfers the regime for the prudential regulation of private health insurers to be administered by APRA.

1.6 The package of Bills replicates elements of the regime currently set out in the PHI Act with some modifications to harmonise certain provisions with other legislation administered by APRA, reduce duplication, update investigation powers to bring them more into line with the Regulatory Powers (Standard Provisions) Act 2014 (Regulatory Powers Act) and allow the regime to operate more efficiently.

1.7 Opportunities to harmonise legislation and eliminate duplication within the private health insurance regulatory framework is consistent with the Government's deregulation agenda.

1.8 The amendments will have effect from 1 July 2015 (if the Prudential Supervision Bill receives Royal Assent before 1 July 2015) or a single day to be fixed by proclamation (if the Prudential Supervision Bill receives Royal Assent on or after 1 July 2015).

1.9 The Consequential Amendments and Transitional Provisions Bill includes amendments to:

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the Australian Prudential Regulation Authority Act 1998 (APRA Act) to provide for matters relating to secrecy of information concerning private health insurers, and to provide for the administration of industry levies;

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the Financial Institutions Supervisory Levies Collection Act 1998 (FISLC Act) to cater for the collection of private health insurance supervisory levy and the collection of collapsed insurance levy;

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the Financial Sector (Collection of Data) Act 2001 (FS(CoD) Act) to facilitate the collection of data relating to private health insurers by APRA;

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the Income Tax Assessment Act 1997 (ITAA 1997) to update or replace references to the PHI Act;

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the Life Insurance Act 1995 (Life Insurance Act) to replace a reference to the PHI Ac t;

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the Medibank Private Sale Act 2006 (Medibank Private Sale Act) to include references to the Prudential Supervision Bill in certain provisions that currently refer to the PHI Act;

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the Ombudsman Act 1976 to enable the sharing of information with APRA; and

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the PHI Act to remove the prudential supervision powers, remove references to the Council and to repeal the provisions creating the Council.

1.10 A number of transitional provisions have been provided for relating to the repeal of the provisions establishing the Council and the transfer of functions to APRA. Such transitional provisions will ensure that legal actions taken prior to the transfer day, such as the registration of private health insurers, and other processes, such as legal proceedings, will continue under the Prudential Supervision Bill. Finally, there are machinery transitional provisions for the transfer of the Council staff, assets, liabilities and records from the Council to APRA.

1.11 The Risk Equalisation Levy Amendment Bill amends the Private Health Insurance (Risk Equalisation Levy) Act 2003 (Risk Equalisation Levy Act), and the Collapsed Insurer Levy Amendment Bill amends the Private Health Insurance (Collapsed Insurer Levy) Act 2003 (Collapsed Insurer Levy Act), to replace references to the Council with references to APRA. Both of these Bills also repeal redundant provisions. The Private Health Insurance (Council Administration Levy) Act 2003 is being repealed as it is redundant and the Supervisory Levy Imposition Bill is being introduced.

1.12 The PHI Act will retain provisions relating to private health insurance policies such as the establishment and administration of the premiums reduction scheme (the Private Health Insurance Rebate) and lifetime health cover and the rules for complying health insurance products (including the community rating principle). Enforcement provisions relevant for these provisions and certain reporting provisions required to support these obligations will also be retained in the PHI Act.

Comparison of key features of new law and current law