EXPLANATORY STATEMENT
Issued by the Authority of the Private Health Insurance Administration Council
Private Health Insurance Act 2007
Private Health Insurance (Health Benefits Fund Administration)
Amendment Rules 2008 (No. 1)
Authority for the Rules
The Private Health Insurance (Health Benefits Fund Administration) Amendment Rules 2008 (No. 1) (the Rules) are made by the Private Health Insurance Administration Council (the Council) under item 1 of the table in section 333-25, for the purposes of Part 4-4 of the Private Health Insurance Act 2007 (the Act).
Section 333-25 of the Act provides that the Council may make rules providing for:
(a) matters required or permitted by the corresponding Chapter, Part or section of the Act to be provided; or
(b) necessary or convenient to be provided in order to carry out or give effect to that Chapter, Part or section.
The Rules are a legislative instrument for the purposes of the Legislative Instruments Act 2003.
All legal and other requirements for making the Rules have been met.
Purpose of the Rules
The purpose of these rules is to specify matters that PHIAC can take into account where there is the proposed transfer of policies from a not-for-profit insurer to the health benefits fund of a for-profit insurer. The objective of the rules is to permit the Council to consider issues relating to financial benefits gained through the proposed transfer of policies as criteria for approving or refusing to approve applications under section 146-5 of the Act.
The criteria for consideration is similar to the matters specified in section 126-45 dealing with applications by a not-for-profit insurer for a change of status to a for profit insurer when the change involves in substance a demutualisation.
These Rules permit the Council to take into account whether the policy holders of the not-for-profit health insurer transferring its policies could be disadvantaged where the transfer is to a for-profit insurer, including in being treated differently from policy holders in a demutualisation under section 126-45. They also deal with the situation where the Council requests applicants to amend in a particular way the arrangement that is the subject of the application, and make it is a criterion for refusal that the applicants fail to amend the arrangement within a specified time.
The Amendment Rules:
- specify additional criteria for refusing a transfer the Council in approving the transfer of business of a health benefits fund from a not-for-profit insurer to a for-profit insurer and the criteria for Council approval of the proposal;
- specify as a criterion for refusal that the applicants fail to amend the arrangement within a specified time as requested by the Council.
An explanation of each of the Rules is set out in the Attachment.
Summary of the Impact of the Rules
The Rules are unlikely to have any substantive impact on applicants for approval of an arrangement under section 126-42 of the Act as those applicants which wish to transfer the policies of a not-for-profit insurer to a for profit insurer will need only to provide a small amount of additional information to the Council with the application, and any cost to provide the information will be one-off.
It is expected that the information to be provided will be the type of information that an applicant would seek itself as part of considering the benefits and disadvantages of a transaction involving the transfer of policies. Further, the Rules apply only to not-for-profit insurers, being entities which are unable to distribute profits or use health benefit funds for any purposes other than their health insurance business, so the consideration of the distribution of financial benefits to the insurer's policy holders or other insureds, if the Council refuses the application based on a criterion specified in the Rules is not expected to affect the insurer in its business, noting that if the insurer chose to demutualise rather than transfer policies to a for profit insurer, the same issues would arise.
Consultation
PHIAC's concern is to ensure that it is able to consider the interests of policy holders where an insurer may choose to transfer a not-for-profit insurer's business to a for-profit insurer, including a for profit subsidiary or other such insurer in which it has an interest, rather than to utilise the demutualisation provision in the Act. In the case of a demutualisation under the Act, any financial benefits would flow to the policy holders, but if the change from policy holders being insured by a not-for-profit insurer to for-profit insurer is conducted through a merger or sale using the transfer provision, then the policy holders' interests at present are not an issue required to be considered.
The Rules propose to deal with this issue, by making this a matter the Council may take into account, and is required urgently to allow the Council to consider the proposed distribution of any financial benefits and policy holders' interests by ensuring they are in place prior to any applications being received. The Council is therefore concerned to have the Rules for this consumer protection measure in place urgently.
ATTACHMENT
DETAILS OF THE PRIVATE HEALTH INSURANCE (HEALTH BENEFITS FUND ADMINISTRATION) RULES 2008 (No. 1)
PART 1 PRELIMINARY
1. Name of Rules
Rule 1 provides that the title of the Rules is the Private Health Insurance (Health Benefits Fund Administration) Amendment Rules 2008 (No. 1).
2. Commencement
These Rules commence on the date after they are registered.
The Rules do not have retrospective application.
3. Amendment
Rule 3 identifies that this is an amendment to the Private Health Insurance (Health Benefits Fund Administration) Rules 2007.
4. Schedule - Amendments
[1] Item 1 of the schedule provides that the note in Rule 3 is amended by adding in alphabetical order the definition of a for-profit insurer.
[2] Item 2 of the schedule inserts Rule 10A which provides additional definitions for this Part. It defines financial benefit, market value and not-for-profit insurer.
[3] Item 3 of the schedule inserts subrules 11(5), 11(6) and 11(7).
Subrule 11(5) requires that in any proposed transfer of policies details of the financial benefit must be stated, whether or not the person to benefit is a party to the arrangement.
Subrule 11(6) requires that if the proposed transfer of policies is from a not-for-profit insurer to a for profit insurer and the not for profit insurer has any interest in the transferee insurer, then the application for approval of that transfer must provide an independent valuation from an appropriately qualified person certifying the market value involved in the sale of the not-for-profit insurer's health insurance business.
Subrule 11(7) provides that 'health insurance business' means the assets and liabilities proposed to be transferred.
[4] Item 4 of the schedule inserts rule 13A. This rule provides additional criteria for approving or refusing a merger or acquisition.
Subrule 13A(1) states that for the purposes of subsection 146-5 (5) there are additional criteria for refusing to approve applications and they are specified in this rule.
Subrule 13A(2) states that if the application involves the transfer of the health benefits fund of a not-for-profit insurer to a for profit insurer and if there is financial benefit to any person, then criteria for refusal by the Council would be if there is a financial benefit:
(a) to a person who is not a policy holder of, or other person insured through, the transferor’s health benefits fund; or
(b) being distributed inequitably between policy holders of, or another person insured through, the transferor’s health benefits fund; or
(c) there is no distribution of any financial benefits to policyholders.
Subrule 13A(3) states that criteria for refusal of an arrangement referred to in subrule 11(6) - being where a not-for-profit insurer is transferring its policies to a for profit insurer in which it has interest, the criteria for refusal are if:
(a) the transferee insurer has not paid the market value for the insurance business, or
(b) if subrule 13A(2) also applies to the transfer, the financial benefit in respect of the transfer does not represent the market value for the transferor’s health insurance business. This will apply where there is some financial benefit but it does represent the market value that would be expected for the sale of the insurer's business.
Subrule 13A(4) states that the Council may have regard to the statement referred to in subrule 11(6) and any other information it thinks fit in considering the market value of an insurer.
Subrule 13A(5) states that if the Council requests the applicant to amend the arrangement that is the subject of the application, it is a criterion for refusal if the applicants fail to amend that arrangement within the time specified by the Council in writing.