House of Representatives

Private Health Insurance (Prudential Supervision) Bill 2015

Private Health Insurance (Prudential Supervision) (Consequential Amendments And Transitional Provisions) Bill 2015

Private Health Insurance Supervisory Levy Imposition Bill 2015

Private Health Insurance Supervisory Levy Imposition Act 2015

Private Health Insurance (Risk Equalisation Levy) Amendment Bill 2015

Private Health Insurance (Risk Equalisation Levy) Amendment Act 2015

Private Health Insurance (Collapsed Insurer Levy) Amendment Bill 2015

Private Health Insurance (Collapsed Insurer Levy) Amendment Act 2015

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:

registration of private health insurers;
developing solvency, capital adequacy and other prudential standards for the industry;
publishing circulars, statistics and reports on insurer activities and performance; and
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:

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;
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;
the Financial Sector (Collection of Data) Act 2001 (FS(CoD) Act) to facilitate the collection of data relating to private health insurers by APRA;
the Income Tax Assessment Act 1997 (ITAA 1997) to update or replace references to the PHI Act;
the Life Insurance Act 1995 (Life Insurance Act) to replace a reference to the PHI Ac t;
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;
the Ombudsman Act 1976 to enable the sharing of information with APRA; and
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

New law Current law
Establish APRA as the prudential regulator of the private health insurance industry. The Council is the prudential regulator for the private health insurance industry.
The main provisions of the Prudential Supervision Bill:

provide for registration of private health insurers and prohibit entities, that are not registered, from carrying on a health related business (Part 2);

require private health insurers to have health benefits funds, and outline obligations relating to the operation of such funds (Part 3, Divisions 2 and 3);

provide for APRA to approve restructures, mergers, acquisition and termination of health benefits funds (Part 3, Divisions 4 and 5);

give APRA power to appoint an external manager of a health benefit fund and outline the powers and duties of external managers and terminating managers (Part 3, Divisions 6, 7 and 8);

outline duties and liabilities of directors (Part 3, Division 9);

allow APRA to establish prudential standards and exercise powers under the standards, and give directions and require health benefits funds to comply with such standards and directions (Part 4);

outline obligations of private health insurers such as the appointment of actuaries and reporting and notification requirements (Part 5, Divisions 2, 3 and 4);

provide for the monitoring and investigation of private health insurers (Part 6);

provide that APRA can obtain an enforceable undertaking from a person in connection with a matter in relation to which APRA has a power or function under the Act or the risk equalisation legislation (Part 7);

provide that APRA may seek remedies for a contravention of an enforceable obligation (Part 8);

provide for a review of APRA's decisions by the Administrative Appeals Tribunal (AAT) (Part 9); and

set out matters in relation to approvals, determinations and rules (Part 9).

The main provisions in the PHI Act that relate to the Council and its supervisory role include the:

registration of private health insurers and the prevention of entities not registered from carrying on a health insurance business (Parts 4-2 and 4-3);

prevention of private health insurers from offering or advertising health insurance business other than as a complying health insurance product (Part 3-3);

requirement for private health insurers to have health benefits funds and obligations relating to the operation of such funds (Part 4-4);

establishment of solvency and capital adequacy standards and directions by the Council and the requirement for health benefits funds to comply with such standards and directions (Part 4-5);

establishment of prudential standards and directions for private health insurers and the requirement for insurers to comply with such standards and directions (Part 4-4);

restructure, merger, acquisition and termination of health benefit funds (Part 4-4 and 6-5);

outline of duties and liabilities of directors (Part 4-4);

obligations of private health insurers such as the appointment of actuaries and reporting and notification requirements (Part 4-5);

the Council's ability to supervise compliance by private health insurers with their obligations with respect to matters regulated by the Council ('Council-supervised obligations') (Parts 5-2 and 5-3);

the Council's general enforcement powers including the ability to seek remedies for a contravention of a Council-supervised obligation (Part 5-2);

appointment of an external manager of a health benefits fund and the powers and duties of external managers (Parts 5-3 and 6-5);

continuation, purpose, functions and administration of the Council (Part 6-3);

review of the Council's decisions by the AAT (Part 6-9); and

ability of the Council to make certain Private Health Insurance Rules, via legislative instrument (Part 6-10).


Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).