Private Health Insurance Statement

Functional Requirements

2013-14Financial Year

Introduction

The Fairer Private Health Insurance measure, introduced in the 2012-13 year, ensures that those with a greater capacity to pay make a larger contribution towards the cost of their private health insurance and also ensures that Government support for private health insurance remains fair and sustainable in the future.The Government did this by introducing a tiered income test for both the Private Health Insurance Rebate (PHIR) and the Medicare levy surcharge.

The information outlined in this specification is meant to be used as a guide for health funds to assist with the production of private health insurance statements, which must be provided to relevant fund members. The format of some of this information may vary between health funds; however, the uniformity of content in statements is our objective. The important issue to consider is that the statements must satisfy the requirements as listed in the Private Health Insurance (Incentives) Rules 2012 (No. 2) and regulation 61-220.02of the Income Tax Assessment Regulations 1997.

To assist health funds in this process, a pro-forma statement has been designed which can be used as a template. If followed, the template will ensure compliance with the regulations.

Changes to Private Health Insurance Rebate

The Government has moved to further reform private health insurance by introducing twoadditional measures to further restrict Private Health Insurance Rebate (PHIR) costs. These are:

  1. removing the PHIR on lifetime health cover loading amounts imposed in relation to periods of cover post 30 June 2013; and
  2. indexing the rebate percentages applicableto private health insurance.
  1. Removing the rebate on lifetime health cover loading (including any applicable LHC discounts):

Lifetime Health Cover (LHC) Loadingis a Government initiative designed to encourage people to take out hospital insurance earlier in life and to maintain their cover. If a person does not have hospital cover with an Australian registered health fund on the 1st of July following their 31st birthday, and then takes out hospital cover, a 2 per cent loading (cumulative) is added to the cost of the private health insurance premium up to a maximum of 70 per cent. Those born before 1 July 1934 are exempt from the penalty. People who have paid a LHC loading on their private health insurance for 10 continuous years will be entitled to have the loading removed. Lifetime health cover loadings apply only to private patient hospital cover. They do not apply to general treatment cover (also known as ancillary or extras cover).

The Australian government rebate on private health insurance is no longer payable on the LHCLoading component of private health insurance premiums imposed in relation to periods of cover post 30 June 2013.

  1. Indexing the rebate percentages applicable to private health insurance:

The government has changed the way the private health insurance rebate is calculated. From 1April2014, all rebate percentages will be adjusted annually by a rebate adjustment factor.

The Private Health Insurance (Base Premium) Act 2013 (Base Premium Act) was passed through Parliament on 29 June 2013. The purpose of theBase Premium Actwas to cap the premium amount on which the rebate for each private health insurance policy could be calculated. In summary, the premium that was charged for a policy as at 1 April 2013 would be set as the ‘base premium’ and any annual rise to that base premium would be set on each subsequent 1 April, to the lesser of what the premium would be if the existing base premium increased in line with:

  • the Consumer Price Index (CPI); or
  • the actual percentage change imposed by the private health insurer.

In December 2013 the Government reviewed this measure, noting concerns raised by industry, and introduced a bill to simplify implementation and reduce the regulatory burden associated with the Base Premium Act.

The simplified approachachieves the same overall effect as that intended through the operation of the Base Premium Actby retaining the proportional relationship between the rebate and the premium paid. Rather than index the premium amounts subject to rebate, the simplified approach will adjust, on 1 April each year, all rebate percentages for each income tier by the difference between the Consumer Price Index and the industry weighted average increase in premiums.

Legislative Changes

ThePrivate Health Insurance Legislative Amendment Act2014received Royal Assent on 9April2014. Its purpose is to repeal the Base Premium Act and amendthe rebate percentages contained in section22-15 of the Private Health Insurance Act 2007. The rebate percentages for age and income will be indexed on 1 April each year by a Rebate Adjustment Factor (RAF) representing the difference between the Consumer Price Index and the industry weighted average increase in premiums. The RAF will be determined by the Department of Health in accordance with the Private Health Insurance (Incentives) Rules.

Private Health Insurance Statements

A statement must be issued in the approved formon or before 15 July of each year, to each person who:

  • is a Private Health Insurance Incentive Beneficiary[1] (PHIIB), in relation to a premium or amount received by anAustralian registered health fundin the previous financial year for insurance under a complying health insurance policy[2]; and/or
  • is an adult insured for at least 1 day in the previous financial year under a policy that provides an appropriate level of private patient hospital cover[3]

Note–See ‘Further information’ for circumstances under whichamended statements must be issued.

‘Dependent only’ policies

Some health funds currently have ‘dependent only’policies where a ‘responsible person’ is not known. A ‘responsible person’ is an adult[4]to whom the fund refers matters concerning the policy, including the provision of a statement.It is expected thathealth funds will have‘responsible person’details for dependent onlypolicies. If a fund does not hold ‘responsible person’ details, the only alternative will be to issue statements to:

  • the dependent child(in the case of a policy with one dependent child); or
  • the eldest dependent child(in the case of a policy that covers more than one dependent child and where the cover provided is the same for each child – the younger child/ren should not be named as ‘other adult beneficiaries’). A covering letter should be issued with these statements detailing the policy is a ‘dependent only’ policy and identifying the other dependent child/ren covered and the number of days they were covered for; or
  • each dependent child in the case of a policy that covers more than one dependent child and where the cover provided is not the same for each child.

Australian Government rebate on private health insurance

Income testing

From 1 July 2012, the private health insurance rebate has been income tested. If an individualis insured undera complying health insurance policy, the amount of private health insurance rebate they are entitled to receive, if any, will depend on when premiums are received by their health fund and their level of income.

The ATO will assess the amount of private health insurance rebate an individual is entitled to receive when they lodge their tax return. This assessment will result in a tax offset or a liability or a neutral position (that is, neither an offset nor liability).

Income thresholds for 2013-14

The private health insurance rebate is income tested against the income thresholds in the table below. (See Department of Health circular PHI 22/14.)

Base tier
(no change) / Tier 1 / Tier 2 / Tier 3
Singles / $88,000 or less / $88,001-102,000 / $102,001-136,000 / $136,001 or more
Families* / $176,000 or less / $176,001-204,000 / $204,001-272,000 / $272,001 or more
Private health insurance rebate percentages applicable in relation to payments received by a fund between1July2013 and 31March2014 inclusive:
Under 65 years / 30% / 20% / 10% / 0%
65-69 years / 35% / 25% / 15% / 0%
70 years or over / 40% / 30% / 20% / 0%
Private health insurance rebate percentages applicable in relation to payments received by a fund between1April2014 and 30 June2014 inclusive:
Under 65 years / 29.040% / 19.360% / 9.680% / 0%
65-69 years / 33.880% / 24.200% / 14.520% / 0%
70 years or over / 38.720% / 29.040% / 19.360% / 0%

*The family income threshold is increased by $1,500 for each Medicare levy surcharge

dependent child after the first child.

*The income tiersand rebate percentagesare generally indexed annually.

Eligibility for rebate

Subject to income testing, an individual is entitled to a rebate in the financial year if:

  • a premium, or an amount in respect of a premium, was paid during the financial year under a complying health insurance policy; and
  • in relation to the premium or amount received, the individual is a PHIIB; and
  • each individual insured under the policy is eligible for benefits under the Medicare system.

When is a premium paid to a health fund?

A premium payment occurs when the health fund receives the amount. The time of actual receipt of the amount by the fund is the relevant time, not the date the payment was made to the fund or when the fund allocates the amount to the member’s account.

Payment Type / Premiums Paid
Cash / When the cash is received by the health fund
Electronic transfer of funds / When the funds are credited to the health fund’s account
Money order or bank cheque / When the money order or cheque is received by the health fund, unless the money order or cheque is dishonoured.

Where a payment is made to a legal agent of the health fund, for example where the fund has an agreement for Australia Post to receive payments on their behalf, the payment of premium occurs when the agent receives the premium payment.

When is a premium considered to be paid when a person has an arrangement with their employer to pay the private health insurance premiums?

A premium payment occurs when the health fund receives the amount. For example, if an employer withholds from an employee an amount for a private health insurance premium, the amount is considered paid to the fund when they receive the payment from the employer (which may be a different time from when the employer withholds the amount from the employee).

Dependent children

Dependent children cannot claim the rebate for a policy.

A child is a dependent under the Private Health Insurance Act 2007 if all of the following apply:

  • the child was under the age of 18 years or a full-time student under the age of 25 years
  • the child is covered by the policy and the health fund that issued the policy accepts the child as a dependent child for the purposes of the policy
  • the child did not have a spouse – married or de-facto.

Mandatory statement inputs

The following inputs are required on the private health insurance statement (see sample statement at the end of the document) for the financial year 1 July 2013 to 30 June 2014.

  • Health fund name and address
  • Name and address of statement recipient
  • Health insurer ID
  • Membership Number
  • Your premiums eligible for Australian Government rebate
  • Your Australian Government rebate received
  • Benefit code
  • Other adult beneficiaries for the policy (where applicable)
  • Number of days this policy provides complying private hospital cover
  • Paragraph (c) of rule 8 of the Private Health Insurance (Incentives) Rules 2012 (No. 2) states that:

"the insurer must use the phrase ‘Australian Government Rebate on private health insurance’ or the Rebate logo in:

...(ii) annual statements …"

The logo is reproduced as follows:

Please note that subrule 10(2) of the Private Health Insurance (Incentives) Rules 2012 (No. 2)stipulates that any reproduction of the logo should be as follows:

“(a)the portions other than the shaded areas of the umbrella must be black and white, as shown in subrule (1); and

(b)the shaded areas of the umbrella must be:

(i) in the case of monochrome reproduction—60% black; and

(ii) in anyin other case— red (PMS 032).”
Input fields for the private health insurance statement

Health Insurer ID

A three letter identifier unique to each fund. For ID confirmation, Health Funds should contact the Department of Human Services (Medicare).

Membership Number

The membership number which identifies the policy.

Your premiums eligible for Australian Government rebate

The amount to report in the ‘Your premiums eligible for Australian Government rebate’ field, in relation to a particular premium period, can be worked out byapplying the following formula:

(A – DA) + (B – DB) / N

Where:

A = Base product premium rate in relation to any period of cover prior to 1July2013

i.e. including any LHC that is added onbut beforeany Australian Government

Rebate and before any discounts aretaken off.

DA = discount dollar amount applicable to Base product premium rate (A)

B= Base product premium rate in relation to any period of cover post 30 June2013.

i.e. Beforeany LHC is added on and before any Australian Government Rebate

and before any discounts aretaken off.

DB = discount dollar amount applicable to Base product premium rate (B)

N=the number of PHIIB’s relevant to the premium paid date.

Refer to the Private Health Insurance Companion Guide for an example of how to calculate a PHIIB’s ‘Your premiums eligible for Australian Government rebate’ amount in a case where payment is made to cover a period pre and post 1July2013, and where LHC and discounts are also involved.

NB. A separate row of share amount information must be detailed on a statement in relation to each premium period. A premium period is defined by:

  • the identity of the adults covered at the time a premium or amount is received; and
  • whether insurance is provided under a complying health insurance policy (per section 63-10 of the Private Health Insurance Act 2007); and
  • the applicable benefit code.

A premium period ends if there is a change in:

  • the adults covered at the time a premium or amount is received; and/or
  • the nature of the health insurance policy, ie. if it changes from complying to non-complying or vice versa; and/or
  • the benefit code applicable.

Your Australian Government rebate received

In respect of the PHIIB the statement is being sent to, their share of the dollar amount of premium reduction, paid by Department of Human Services (Medicare) directly to the health fund,associated with the premiums paid in the relevant premium period during thefinancial year 1July2013 to 30June2014.

The effective date of an Australian Government rebate received amount will always be the received date of the source payment that triggered the rebate claim.

Benefit code

The benefit code indicates which (maximum) age based rebate percentage is applicable in relation to an associatedpremium amountandwhen in the financial year the premium amount was paid.

  • In relation to premium amounts receivedprior to 1 April 2014in the financial year, if the premium amount, eligible for Australian Government rebate, received by the fund is greater than zero, one of the following codes must be reported:
  • 30(the entitling person is under 65 years)
  • 35(the entitling person is 65 years or older but under 70 years)
  • 40(the entitling person is 70 years or older)
  • In relation to premium amounts received on or after 1 April in the financial year, if the premium amount, eligible for Australian Government rebate, received by the fund is greater than zero, one of the following codes must be reported:
  • 31(the entitling person is under 65 years)
  • 36(the entitling person is 65 years or older but under 70 years)
  • 41(the entitling person is 70 years or older)
  • To avoid confusion, in any case where:
  • no payments have been made in the 2013-14 financial year; but
  • the statement recipient was covered at some point in the 2013-14 financial year because payment was made in a different financial year;

a fund can report any valid Benefit code other than ‘00’ (includes situations where, but for no payments being made, there would have been a change in benefit code during the period of cover).

In the case of a cancelled policy reported in an amendment data file, if the associated premium amount is zero, zero fill the Benefit code field.

If during a premium period there is a change to a PHIIB’s benefit code and/or the PHIIB’s policy role, the PHIIB’s:

  • Premiums paid in the financial year,
  • Australian Government rebate received amount(s), and
  • Premiums eligible for Australian Government rebate

must be apportioned accordingly and reported in separate Individual statement data records.

Other adult beneficiaries for the policy

If there was a single PHIIB only in relation to the relevant premium period, no ‘Other adult beneficiaries for the policy’ will be detailed.

If there was more than one PHIIB in relation to the relevant premium period, the names of the relevant PHIIB/s that the statement is NOT being sent to will be the name/s detailed as the ‘Other adult beneficiaries for the policy’.

If the policy is a ‘dependent only’ policy, the statement will normally be sent to a ‘responsible person’. If there is more than one ‘responsible person’ for a policy, treat each person as a PHIIB and send each a statement wherein the name/s of the other person/s are stated in the ‘Other adult beneficiaries’ column on the statement.

Number of days this policy provides an appropriate level of private patient hospital cover

The number of days during the relevant financial year the individual,to whom the statement is being sent, was insured under a policy that provides complying private health insurance cover (per Section 3 of the Medicare Levy Act 1986).

If the statement is being sent to a ‘responsible person’ because the relevant policy is a ‘dependent only’ policy, the number of days will be 0. A covering letter should be issued with the statement detailing, for each dependent covered, the number of days during the relevant financial year complying private health insurance cover (per Section 3 of the MedicareLevyAct1986) was provided.