House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Health, the Hon. Tanya Plibersek, MP)

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview of the Bill

The purpose of the Bill is to remove the Australian Government Private Health Insurance Incentive Benefit (the rebate) from the Lifetime Health Cover loading (the LHC loading) component of affected premiums. It will achieve this by amending the Private Health Insurance Act 2007 (the PHI Act). Consequential amendments will be made to the Income Tax Assessment Act 1936 , and are minor. The Bill will also insert a provision in the Act to ensure the LHC loading on a premium for a complying health insurance policy for hospital treatment is no longer subsidised by a Government rebate.

The PHI Act, Income Tax Assessment Act 1997 and the Taxation Administration Act 1953 will also be amended to cease the Incentive Payments Scheme (IPS).

Human rights implications

The right to health

The right to health - the right to the enjoyment of the highest attainable standard of physical and mental health - is contained in article 12(1) of the International Covenant on Economic, Social and Cultural Rights. The UN Committee on Economic, Social and Cultural Rights (the Committee) has stated that health is a 'fundamental human right indispensable for the exercise of other human rights', and that the right to health is not to be understood as a right to be healthy, but rather entails a right to a system of health protection which provides equality of opportunity for people to enjoy the highest attainable level of health.

Discussion of the Bill

The Committee states that the notion of 'the highest attainable standard of health takes into account both the condition of the individual and the country's available resources. The right may be understood as a right of access to a variety of public health and health care facilities, goods, services, programs and conditions necessary for the realization of the highest attainable standard of health.

The Bill will ensure that recipients of the Government's private health insurance rebate are treated consistently, regardless of whether they have a LHC loading or not. This measure will ensure the sustainability of the rebate. The Bill will also improve the effectiveness of the LHC loading as an incentive for a person to take out private health insurance early in their life and maintain it, providing greater support to the principle of community rating. Ceasing the IPS claiming option will reduce unnecessary administrative burden.

Schedule 1 of the Bill removes the rebate from the LHC loading part of affected private health insurance premiums and ensures that the LHC loading component does not attract the rebate. From 1 July 2013, everybody will receive a comparable rebate relative to their premium cost and income level, disregarding any LHC loading that applies.

Under existing LHC arrangements, the Government pays a rebate as a percentage of the premium paid, which includes any applicable LHC loading that increases a premium. If the Australian Government continued to subsidise a proportion of the LHC loading the incentive to take out hospital cover is diminished. The Government is currently imposing the LHC loading to encourage people to take out private health insurance at an earlier age, and then paying a portion of this loading. This is inequitable for taxpayers and those individuals who take out, and maintain, private health insurance earlier in life.

The principle of community rating, which underpins private health insurance in Australia, requires insurers not to differentiate the premiums they charge according to individual health risk characteristics. Under community rating, people with poor health, or higher health risks, pay premiums that are lower than they would be if adjustments were made because of their health status. Community rating is an equitable method of dealing with health costs and keeps private health insurance affordable for all Australians.

This Bill may increase the cost of obtaining private health insurance for people who have a LHC loading. However, it ensures that all rebate recipients are treated consistently, subject to age and income. It also ensures that the principle of community rating in private health insurance for all Australians despite their age, race, gender and health status remains embedded as part of the Australian health system. All Australians will remain eligible for public health insurance through Medicare, the Pharmaceutical Benefits Scheme and the public hospital system. It is for these reasons that there is no incompatibility with the right to health because the legislation is for a legitimate objective and reasonable, necessary and proportionate in the circumstances.

Schedule 2 of the Bill removes the IPS option for claiming the private health insurance rebate. The purpose of this amendment is to reduce the administrative burden on insurers, DHS and the Australian Taxation Office. The introduction of Schedule 2 of the Bill will not have a major impact on policyholders.

Currently, the IPS allows an insured person to claim their rebate as a direct payment from a DHS Service Centre. The IPS option is seldom used with little known benefit for the limited number of people who use it. Over 99.9% of rebate claims are made via the Premium Reduction Scheme (PRS) and tax offset claiming options. The PRS is the most popular method, providing the immediate benefit of an upfront premium discount to policyholders and is not affected by the introduction of this Bill.

Conclusion

This Bill is compatible with human rights as it does not raise any human rights issues.

The Hon Tanya Plibersek MP, the Minister for Health