Explanatory Statement
Select Legislative Instrument 2006 No. 232
Issued by the Authority of the Minister for Revenue and Assistant Treasurer
Medical Indemnity (Prudential Supervision and Product Standards) Act 2003
Medical Indemnity (Prudential Supervision and Product Standards) Amendment Regulations 2006 (No. 1)
Subsection 33(1) of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.
The Act ensures that providers of medical indemnity cover are subject to appropriate prudential supervision by the Australian Prudential Regulation Authority (APRA), by providing that only general insurers can provide medical indemnity cover to health care professionals, and only under contracts of insurance. It also sets product standards for the medical indemnity cover that those insurers are required to offer to medical practitioners.
Paragraph 8(2)(e) of the Act allows the regulations to prescribe an arrangement to which the Act does not apply. Exemptions are necessary to exclude arrangements that have unforseen or unintended consequences from being captured by the Act. Regulation 4 of the Medical Indemnity (Prudential Supervision and Product Standards) Regulations 2003 (the Principal Regulations) currently prescribes arrangements for the purposes of paragraph 8(2)(e).
The new Regulations amend the Principal Regulations to exempt further arrangements from the application of the Act. The exemptions now extend to:
• an arrangement under which either or both of a health care professional and the health care professional’s employer are the beneficiaries of an indemnity under a public liability policy in relation to health care provided to the employer’s employees;
• an arrangement under which either or both of a health care professional and a person to whom the health care professional is contracted to provide medical services are the beneficiaries of an indemnity under a public liability policy in relation to health care provided to employees of the person to whom the health care professional is contracted to provide medical services;
• an arrangement under which a person, who is not an insurer under a contract of insurance, provides medical indemnity cover to a health care professional by bearing any excess or deductible that applies under the insurance policy; and
• an arrangement under which a person provides medical indemnity cover for the conduct of health care-related research, including cover provided to students at a training institution.
The new Regulations address the following issues by exempting specified arrangements from the application of the Act, allowing health care service providers and health care professionals to access cover that may otherwise have been unavailable or unaffordable. These changes will remain until a review of the coverage of the Act can comprehensively address these arrangements.
Policies that provide public liability cover for health care professionals where the employer is not in the business of providing health care breach the Act unless the insurer is APRA-authorised. While such arrangements may have been made without any awareness that they were breaching the terms of the Act, allowing this to have continued would have been to condone breaches of the Act.
Excesses are common to the insurance arrangements of those employing health care professionals. Before the new Regulations, it was an offence under the Act for a third party, such as an employer, to agree to meet an excess unless the third party was an authorised insurer. This prevented third parties from partially self-insuring through an excess. Since the excess forms part of the cost of insurance, the absence of an excess will raise the cost of insurance. While such arrangements were being made without any awareness that they were breaching the terms of the Act, allowing this to have continued would have been to condone a breach of the Act.
Prior to the new Regulations, as part of its application to the insurance of health care services, the Act applied to the insurance of health care-related research. This reduced the already limited global market for the insurance of health care-related research to APRA-authorised insurers. The continued application of the Act to the insurance of health care-related research could have been detrimental to the conduct of medical research in Australia. It could have eventually affected research, the education of research students and university funding.
Treasury undertook consultation with medical indemnity insurers, professional associations and Government agencies in considering these regulations.
The Regulations were taken to have commenced retrospectively on 1 July 2006.
Overview
The Medical Indemnity (Prudential Supervision and Product Standards) Amendment Regulations 2006 (No. 1) were introduced to address certain issues and exemptions within the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003. Enacted by the Parliament of Australia, this legislative instrument, issued under the authority of the Minister for Revenue and Assistant Treasurer, aims to provide further exemptions from the Act's application to specific arrangements. This is achieved to allow health care service providers and health care professionals to access cover that may otherwise be unavailable or unaffordable. The policy objective behind these regulations is to address unintended consequences and breaches of the Act by exempting certain arrangements, such as public liability policies for health care professionals, third-party excess agreements, and insurance for health care-related research, from the application of the Act. These changes remain in effect until a comprehensive review of the Act's coverage can be conducted.
Scope and Application
The Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 applies to entities providing medical indemnity cover, specifically general insurers authorised by the Australian Prudential Regulation Authority (APRA), and the insurance products they offer to health care professionals. The Act applies nationally, covering the entire Commonwealth of Australia, and is designed to ensure that the provision of medical indemnity is subject to appropriate prudential supervision. The Act sets forth product standards that insurers must adhere to when offering indemnity cover to medical practitioners. While the Act applies broadly to all medical indemnity arrangements, certain exemptions have been introduced to address specific issues, ensuring that certain beneficial or necessary arrangements are not inadvertently restricted. These exemptions include arrangements where health care professionals or their employers benefit from public liability policies, where third parties such as employers agree to meet insurance excesses, and where cover is provided for health care-related research activities. These exemptions are intended to ensure that such arrangements do not fall under the purview of the Act, thereby preventing potential breaches and ensuring continued access to necessary cover. The application of the Act is further defined and extended through subordinate regulations, which may include additional exemptions or clarifications to ensure the Act operates effectively and efficiently within its intended scope.
Key Provisions
The Medical Indemnity (Prudential Supervision and Product Standards) Amendment Regulations 2006 (No. 1) introduce several key provisions under the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 (the Act). These regulations primarily aim to exempt certain arrangements from the application of the Act, ensuring that health care service providers and professionals can access cover that might otherwise have been unavailable or unaffordable. The exemptions introduced by these regulations cover several specific scenarios, as outlined in Regulation 4 of the Principal Regulations. Firstly, arrangements where health care professionals or their employers are beneficiaries of an indemnity under a public liability policy related to health care provided to the employer's employees are exempted (paragraph 8(2)(e)). Secondly, arrangements where health care professionals or persons to whom they are contracted are beneficiaries of an indemnity under a public liability policy related to health care provided to employees of the contracting person are also exempted. Thirdly, arrangements where a non-insurer bears any excess or deductible under an insurance policy for a health care professional are exempted. Lastly, arrangements where a person provides medical indemnity cover for health care-related research, including cover for students at training institutions, are exempted.
The Act imposes specific obligations on the parties and entities it governs, ensuring that only authorised insurers can provide medical indemnity cover to health care professionals and that this cover must be under contracts of insurance. The Act also sets out product standards for the medical indemnity cover that insurers must offer to medical practitioners. These obligations are crucial for maintaining the integrity and reliability of medical indemnity cover in Australia. The Prudential Supervision by the Australian Prudential Regulation Authority (APRA) ensures that the financial stability of insurers is maintained, thereby protecting both health care professionals and their clients.
Failure to comply with the Act can result in significant legal consequences. For instance, providing public liability cover for health care professionals where the employer is not in the business of providing health care is an offence unless the insurer is APRA-authorised. This is aimed at preventing breaches of the Act that could undermine the financial security of health care services. Similarly, it is an offence for a third party to agree to meet an excess unless they are an authorised insurer. Such offences can lead to both civil and criminal penalties, with the latter potentially resulting in substantial fines. The Act also imposes penalties for other breaches, although specific maximum penalties are not detailed in the explanatory statement. These penalties serve as a deterrent against non-compliance and help ensure that the provisions of the Act are upheld.
The new Regulations address specific issues that, if left unaddressed, could have had significant negative impacts. For instance, the exemption for public liability policies where the employer is not in the business of providing health care prevents potential breaches of the Act and ensures that such policies do not undermine the financial security of health care services. Similarly, the exemption for third parties bearing insurance excesses prevents these parties from partially self-insuring, which could otherwise increase the cost of insurance for health care professionals. Finally, the exemption for insurance of health care-related research ensures that the limited global market for such insurance is not further restricted, thereby supporting medical research and the education of research students in Australia. These changes are intended to remain in place until a comprehensive review of the Act's coverage can be conducted.