House of Representatives

Explanatory Memorandum

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

Chapter 3 - Registration of private health insurers

Outline of chapter

3.1 Part 2 provides a registration regime for private health insurers administered by APRA. It includes:

•

a prohibition on carrying on health insurance business without being registered and the availability of injunctions to enforce breaches of this prohibition;

•

arrangements for applying for registration, changes in registration status and cancellation of registration; and

•

APRA's powers to grant or refuse applications and cancel a private health insurer's registration.

3.2 Unless otherwise stated, all references in this Chapter relate to the Prudential Supervision Bill.

Summary of new law

3.3 Part 2 is largely based on the existing registration provisions currently provided in Parts 4-2 and 4-3 of the PHI Act, with some modifications to simplify the provisions relating to APRA's decision whether or not to register an applicant and bring about consistency with other legislation administered by APRA.

Comparison of key features of new law and current law

Detailed explanation of new law

Part 2 - Registration of private health insurers

Division 1 - Introduction

Simplified outline of this Part

3.4 Only a private health insurer may carry on health insurance business. A private health insurer is a company that is registered under this Part. Part 4-2 of the PHI Act defines the concept of health insurance business. [Part 2, Division 1, section 9]

3.5 There are two kinds of special status that some private health insurers may have. They are:

•

a for profit insurer; and

•

a restricted access insurer. [Part 2, Division 1, section 9]

Division 2 - Prohibition of carrying on health insurance business without registration

Carrying on health insurance business without registration

3.6 It is an offence for a person to carry on a health insurance business without being registered. The penalty for this offence is two years imprisonment or 120 penalty units, or both. [Part 2, Division 2, subsection 10(1)]

3.7 The penalty for such an offence has been increased from 40 penalty units under subsection 118-1(1) of the PHI Act, to two years imprisonment or 120 penalty units, or both. The increase in penalty is to deter people from operating private health insurance businesses without registration and to allow APRA to regulate private health insurance businesses (unregistered private health insurers would not be regulated by APRA).

3.8 A note is inserted beneath subsection 10(1) to clarify that if a body corporate is convicted of an offence under subsection 10(1), it may be subject to a penalty of up to five times the penalty stated in subsection 10(1). This is imposed by subsection 4B(3) of the Crimes Act 1914 (Crimes Act), as the offence can apply to a natural person or a body corporate. This note has been inserted for every offence provision to assist the reader. Whilst it may appear that some offences only apply to body corporates or natural persons, the operation of Part 2.4 of the Criminal Code Act 1995 (Criminal Code) applies where a person aids, abets, counsels or procures the commission of an offence, the offence provision can apply to that person whether they are a natural person or a body corporate. [Part 2, Division 2, subsection 10(1)]

3.9 If a person commits such an offence, the offence period is from the first day the offence and each day thereafter (including the day of conviction or later day). [Part 2, Division 2, subsection 10(2)]

3.10 All offences in the (Prudential Supervision Bill) will be fault liability offences. Therefore a relevant fault element (such as intention, knowledge or recklessness, depending on the operation of the Criminal Code), is required to commit the offence and this is also a requirement for prosecution.

Injunctions

3.11 If the Federal Court is satisfied that a person has, or will, carry on health insurance business without registration under section 10 of the Prudential Supervision Bill, it may, on the application of APRA, grant an injunction. [Part 2, Division 2, subsection 11(1)]

3.12 Pending the determination of APRA's application, the Federal Court may grant an interim injunction to stop or prevent the possible offence in section 10, but must not require the applicant to give an undertaking as to damages as a condition of granting the interim injunction. [Part 2, Division 2, subsections 11(2) and (3)]

3.13 The Federal Court may discharge or vary an injunction granted under subsection 11(1) or (2). [Part 2, Division 2, subsection 11(4)]

3.14 The Federal Court's power to grant an injunction to restrain a person from engaging in conduct may be exercised whether or not it appears that the person intends to engage in, continue to engage in or has previously engaged in such conduct. [Part 2, Division 2, subsection 11(5)]

3.15 The Federal Court is able to grant an injunction requiring a person to do an act or thing whether or not it appears to the Court that the person intends to refuse, fail again or continue to fail or refuse to do the act or thing. This includes whether the person has previously refused to fail to do the act or thing. [Part 2, Division 2, subsection 11(6)]

Division 3 - Registration

Applying for registration

3.16 A company within the meaning of the Corporations Act 2001 (Corporations Act), which is also a constitutional corporation, may apply to APRA for registration as a registered private health insurer. [Part 2, Division 3, subsection 12(1)]

3.17 The application must be in the approved form and accompanied by a copy of the applicant's proposed business rules. Additionally, the application must state that the applicant is seeking to be registered as a for profit or restricted access insurer, if that is what the applicant is seeking. [Part 2, Division 3, subsection 12(2)]

3.18 Section 12 is based on section 126-10 of the PHI Act. However insurers will no longer be obligated to provide their proposed fund rules to the Secretary of the Department of Health. Fund rules will be provided by APRA to the Department of Health through an inter-departmental administrative arrangement.

Requiring further information

3.19 APRA may give an applicant written notice requiring them to provide further information relating to their application within 90 days of the making of the application. [Part 2, Division 3, section 13]

Criteria for registration

3.20 APRA may make rules setting out criteria for registration as a private health insurer. [Part 2, Division 3, section 14]

3.21 Section 14 is based on subsection 12(1B) of the Insurance Act 1973 and is similar to a number of provisions in current Acts administered by APRA (for example, subsection 9(2A) of the Banking Act 1959). As is the case under other APRA administered Acts, the criteria will be matters to which APRA have regard, rather than a check list of preconditions that automatically determine whether an application will be granted or refused.

Deciding the application

3.22 APRA may grant the application to be registered as a private health insurer, subject to any terms and conditions it deems appropriate. [Part 2, Division 3, subsection 15(1)]

3.23 A decision to refuse or to apply terms and conditions is reviewable under section 168.

3.24 If APRA grants the application then:

•

the applicant is taken to have been registered as a private health insurer from the date specified in the instrument granting the application; and

•

if the registration is subject to terms and conditions, those are taken to have applied from the date on which the applicant is notified of the granting of the application; and

•

if the applicant sought registration as a for profit insurer it is taken to be registered as such; and

•

if the applicant sought registration as a restricted access insurer and its constitution or rules satisfy subsection 15(3), it is taken to be registered as such. [Part 2, Division 3, subsection 15(2)]

3.25 The Consequential Amendments and Transitional Provisions Bill provides that after the transition time, private health insurers may request APRA to amend or revoke one or more terms and conditions imposed upon existing registrations. The purpose of this is to allow APRA to 'clean up' obviously redundant or out-of-date conditions. Requests must be made in writing. [Schedule 2, Part 2, subitem 3(3) of the Consequential Amendments and Transitional Provisions Bill]

3.26 Subsection 15(3) applies to restricted access insurers only. An applicant's constitution or business rules satisfy subsection 15(3) if they:

•

describe the restricted access group the insurer's complying health insurance products are, or will be, available to;

•

prohibit the insurer issuing such a product to anyone outside of the group; and

•

prohibit the insurer ceasing to insure a person because they no longer belong to the group. [Part 2, Division 3, subsection 15(3)]

3.27 An insurer's registration status as being, or not being, a for profit insurer or a restricted access insurer may change after the insurer's initial registration, but only as provided for in section 19.

3.28 Subsection 15(3) is intended to act as a precondition that the initial constitution or rules must satisfy in order for the insurer to be registered as a restricted access insurer. It is not intended to have the effect that, if the insurer ceases to have such provisions in its constitution or rules, it will automatically cease to be registered as a restricted access insurer. The insurer's actual registration status will only change if and when its status is changed under section 19.

3.29 If a restricted access insurer ceases to adequately comply with subsection 15(3), a direction will be able to be given under section 200-1 of the PHI Act to modify its constitution or rules in order to comply with subsection 15(3).

3.30 The requirements for what an insurer has to do if it changes, or proposes to change, its rules will continue to be dealt with under sections 169-10, 93-20 and 93-25 of the PHI Act.

3.31 A restricted access group is defined as a group of people belonging to a particular group due to being:

•

employed in a particular profession, trade, industry or calling; or

•

employed by a particular employer or employer belonging to a particular class of employers; or

•

a past or present member of:

•

a particular profession, professional association or union; or

•

the Defence Force (or part of the Defence Force); or

•

currently or previously part of any group described in APRA rules made for the purpose of paragraph 4(e). These rules may describe a group as having one or more classes of people (whether or not they are described by reference to matters referred to in paragraphs 4(a) to (d)). [Part 2, Division 3, subsections 15(4) and (5)]

3.32 A partner or dependent children of a person who belongs to such a group is also considered as belonging to the group. [Part 2, Division 3, subsection 15(4)]

3.33 Section 15 is based on an amalgamation of section 126-20 of the PHI Act and sections 12 and 13 of the Insurance Act 1973. There has been no change to the definition of a restricted access group.

Notifying the decision

3.34 If APRA grants the application for registration as a private health insurer, it must:

•

notify the applicant in writing of the grant, including any terms and conditions to which it is subject; and

•

publish details of the grant in the Gazette within one month of granting the registration. [Part 2, Division 3, subsection 16(1)]

3.35 If APRA refuses the application, it must notify the applicant of this in writing. [Part 2, Division 3, subsection 16(2)]

APRA can be taken to refuse application

3.36 APRA is taken to have refused the application for registration as a private health insurer (allowing merits review under section 168, if requested) if it does not notify the applicant of its decision by the later of:

•

90 days after the application was made; or

•

90 days after further information was provided to APRA under section 13. [Part 2, Division 3, section 17]

APRA to ensure that up-to-date record of information about private health insurers is publicly available.

3.37 APRA must publish on its website an up-to-date record of private health insurers. The records must contain the insurer's name, registration status, which States and Territories it operates in and contact details such as address, telephone number and website. [Part 2, Division 3, section 18]

Changing registration status

For profit insurer

3.38 Private health insurers may, by notifying APRA in the approved form, change their status from for profit insurer to not for profit insurer or, with the approval of APRA under section 20, from not for profit to for profit. [Part 2, Division 3, subsections 19(1) and (2)]

Restricted access insurer

3.39 Private health insurers may, by notifying APRA in the approved form, change their status from restricted access insurer to other insurer or change their status to restricted access insurer (subject to compliance with subsection 15(3)). [Part 2, Division 3, subsections 19(4) and (5)]

3.40 APRA must notify changes of for profit or not for profit status to the Health Secretary, the Private Health Insurance Ombudsman and the Commissioner of Taxation. Changes of restricted access registration should also be notified to the Health Secretary and the Private Health Insurance Ombudsman. [Part 2, Division 3, subsections 19(3) and (6)]

Conversion to for profit status

3.41 A private health insurer may apply to APRA for approval to convert to for profit status. The application must be made in the approved form and be given to APRA least 90 days before the proposed date of effect. [Part 2, Division 3, subsections 20(1) and (2)]

3.42 APRA must approve the application within 30 days after the application was made if it is satisfied that the application has been made in the approved form and the conversion scheme does not in substance involve the demutualisation of the insurer. [Part 2, Division 3, subsection 20(3)]

3.43 If the scheme does in substance involve the demutualisation of the insurer then the processes in subsections 20(4) and (5) will apply.

3.44 APRA rules may set out criteria for deciding if an application to convert to for profit status does not involve demutualisation of the insurer. [Part 2, Division 3, subsection 20(6)]

3.45 If an application to convert to for profit status is not approved through the operation of subsection 20(3), the application must be advertised publicly at least 45 days before the proposed date of effect. [Part 2, Division 3, paragraph 20(4)(a)]

3.46 APRA may seek further information on the application within 90 days of it being made. [Part 2, Division 3, paragraph 20(4)(b)]

3.47 Providing that the insurer has complied with subsection (2) and paragraph (4)(b), APRA must approve the application if satisfied that the conversion scheme:

•

would not result in a financial benefit to a person (including a natural person and a corporate person) who is not a policy holder or not insured through a health benefits fund conducted by the insurer; and

•

would not result in an inequitable distribution of financial benefits between policy holders and persons insured through a health benefits fund conducted by the insurer. [Part 2, Division 3, subsection 20(5)]

3.48 APRA must provide written notice to the insurer on the outcome of the application, however, this approval is not a legislative instrument. The statement that the approval is not a legislative instrument is included to assist readers, as the instrument is not a legislative instrument under general principles, therefore does not constitute a substantive exemption from the definition of a legislative instrument in the Legislative Instruments Act 2003 (Legislative Instruments Act), but is a statement of the 'status quo'. [Part 2, Division 3, subsection 20(7)]

3.49 APRA is required to notify the insurer of its decision in writing as currently required under subsection 126-42(7) of the PHI Act. [Part 2, Division 3, subsection 20(8)]

3.50 Refusals of applications are reviewable under section 168.

Example 3.1

CALM Health Insurance applies to APRA to change its status to for profit from 7 October. To do so, CALM Health Insurance provides APRA with the approved form on 3 July - more than 90 days in advance of when the conversion is to take effect. In considering the application, APRA sought further information from CALM Health Insurance as to whether the conversion scheme involved a demutualisation. After considering the information, APRA is satisfied that it is not a demutualisation, approves the conversion and notifies CALM Health Insurance in writing within 30 days of lodgement.

Cancellation of registration

3.51 APRA must cancel the registration of a private health insurer if:

•

it has not conducted health insurance business for 12 months;

•

its health benefits funds have been terminated under Division 5 of Part 3; or

•

the insurer is no longer a company within the meaning of the Corporations Act. [Part 2, Division 3, subsection 21(1)]

3.52 APRA must notify the insurer in writing of the cancellation and publish in the Gazette a notification of the cancellation within one month. [Part 2, Division 3, subsection 21(2)]

3.53 APRA will advise the Department of Health of any cancellation of registration through an inter-departmental administrative arrangement.