EXPLANATORY STATEMENT
Issued by the Authority of the Minister for Health
Private Health Insurance (Risk Equalisation Levy) Act 2003
Private Health Insurance (Risk Equalisation Levy) Rules 2017
Authority
Section 10A of the Private Health Insurance (Risk Equalisation Levy) Act 2003 (the Act) provides that the Minister may make Private Health Insurance (Risk Equalisation Levy) Rules (the Rules) providing for matters required or permitted by the Act, or necessary or convenient in order to carry out or give effect to the Act.
Purpose
The purpose of the private health insurance risk equalisation levy is to transfer and share risk across private health insurers so that insurers with an older and less healthy demographic membership are not disadvantaged. The risk equalisation levy enables private health insurers to charge the same premium to everyone, regardless of their individual risk (community rating).
Paragraph 6(1)(a) of the Act provides that risk equalisation levy is imposed on each private health insurer on each day specified in the Rules as a levy day for a financial year. The purpose of these Rules is to specify the levy days for a financial year. The levy days are the 21st day of the second month of each quarter in a financial year.
Section 6(2) of the Act provides that the Rules must not specify more than 4 levy days in a financial year.
The creation of the Private Health Insurance (Risk Equalisation Levy) Rules 2017 replaces the Private Health Insurance (Risk Equalisation Levy) Rules 2007 which sunset on 1 April 2017.
The Act does not specify any conditions that need to be met before the power to make the Rules may be exercised.
Details
Details of the Rules are set out in the Attachment.
Consultation
These Rules are made as a result of the sunsetting of the previous Rules on 1 April 2017.
The assessment that the instrument is operating effectively and efficiently was informed by a consultation process which involved subject matter experts in the Private Health Insurance Branch, Legal Services Branch, and the Best Practice Regulation Branch over the period
2 March 2017 to 14 April 2017. The Department also consulted with Special Counsel at the Australian Prudential Regulation Authority from 2 March 2017 to 23 March 2017.
The assessment supported the remaking of the previous Rules in the same form.
These Rules commence on 20 May 2017.
These Rules are a legislative instrument for the purposes of the Legislation Act 2003.
ATTACHMENT
Details of the Private Health Insurance (Risk Equalisation Levy) Rules 2017
Section 1 - Name of Rules
Section 1 of the Rules provides that the title of the Rules is the Private Health Insurance (Risk Equalisation Levy) Rules 2017.
Section 2 - Commencement
Section 2 of the Rules provides that it commences on 20 May 2017.
Section 3 - Authority
Section 3 of the Rules provides that it is made under Section 10A of the Private Health Insurance (Risk Equalisation Levy) Act 2003.
Section 4 - Schedule
Section 4 of the Rules provides that any instrument specified in a Schedule to the Rules is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule has effect according to its terms.
Section 5 - Definitions
Section 5 of the Rules provides that the Act means the Private Health Insurance (Risk Equalisation Levy) Act 2003.
Section 6 - Risk equalisation levy day
Section 6 of the Rules provides that the risk equalisation levy days are the 21st day of the second month of each quarter in a financial year.
Overview
The Private Health Insurance (Risk Equalisation Levy) Act 2003 was enacted to address the issue of risk imbalance among private health insurers, ensuring that premiums could be set at a community rating, irrespective of individual risk factors. This Act facilitates a system where insurers with older and less healthy members do not face disproportionate financial burdens. The Act was introduced by the Australian Parliament with the policy objective of promoting fairness and stability in the private health insurance market. The Private Health Insurance (Risk Equalisation Levy) Rules 2017, made under section 10A of the Act, were introduced to replace the previous 2007 rules, specifying the levy days to ensure a smooth transition and continuity in the application of the risk equalisation levy. These rules were developed following consultations with relevant experts and authorities, confirming the effectiveness and efficiency of the previous arrangements, thus maintaining the intended legislative framework.
Scope and Application
The Private Health Insurance (Risk Equalisation Levy) Act 2003 applies to all private health insurers operating within Australia, with the intent of establishing a uniform premium rate regardless of individual risk factors. This legislative framework is designed to ensure that insurers with memberships skewed towards older or less healthy demographics do not face disproportionate financial burdens. The Act mandates the imposition of a risk equalisation levy on each insurer, specified by the Private Health Insurance (Risk Equalisation Levy) Rules 2017, which identifies the levy days as the 21st day of the second month of each quarter in a financial year. This structure ensures that no more than four levy days are specified in any financial year. The Rules, made under section 10A of the Act, replaced the previous set that expired on 1 April 2017 and were developed following consultations with various expert branches and regulatory authorities to ensure their effectiveness and efficiency.
Key Provisions
The Private Health Insurance (Risk Equalisation Levy) Rules 2017 (the Rules) establish the levy days for the financial year under the Private Health Insurance (Risk Equalisation Levy) Act 2003 (the Act). According to Section 6(1)(a) of the Act, the risk equalisation levy is imposed on each private health insurer on each day specified in the Rules as a levy day for a financial year. The purpose of these Rules is to specify the levy days for a financial year, and Section 6(2) of the Act provides that the Rules must not specify more than 4 levy days in a financial year. These levy days are set to be the 21st day of the second month of each quarter in the financial year.
The Rules impose obligations on private health insurers to pay the risk equalisation levy on the specified levy days. These levy days are determined by the Rules and serve as the basis for the levy calculation. Insurers must ensure they are aware of the levy days and prepare to make the necessary payments on those specified dates. The levy is designed to enable private health insurers to charge the same premium to everyone, regardless of their individual risk, thereby promoting fairness and community rating in the private health insurance market.
There are no specific offences, penalties, or civil or criminal consequences outlined in the text for breach of the Rules. However, it is implicit that non-compliance with the levy payment obligations could lead to enforcement actions by the relevant authorities. The Act and the Rules focus on the administration and calculation of the levy, ensuring that risk is shared across insurers and that premiums remain equitable. Insurers are expected to adhere to the specified levy days to maintain the integrity of the risk equalisation process.