2002-2003-2004

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

MEDICAL INDEMNITY LEGISLATION AMENDMENT (RUN-OFF COVER INDEMNITY AND OTHER MEASURES) BILL 2004

MEDICAL INDEMNITY (RUN-OFF COVER SUPPORT PAYMENT) BILL 2004

REVISED EXPLANATORY MEMORANDUM

THIS MEMORANDUM TAKES ACCOUNT OF 
AMENDMENTS MADE BY THE HOUSE OF REPRESENTATIVES TO THE BILL AS INTRODUCED

(Circulated by authority of the Minister for Health and Ageing, 
the Honourable Tony Abbott MP)

MEDICAL INDEMNITY LEGISLATION AMENDMENT (RUN-OFF COVER INDEMNITY AND OTHER MEASURES) BILL 2004

AND

MEDICAL INDEMNITY (RUN-OFF COVER SUPPORT PAYMENT) BILL 2004

OUTLINE

These Bills give effect to the balance of the Government’s medical indemnity package, announced on 17 December 2003 by the Minister for Health and Ageing and the Minister for Revenue and Assistant Treasurer. 

These Bills follow the Medical Indemnity Amendment Act 2004 and Medical Indemnity (IBNR Indemnity) Contribution Amendment Act 2004, assented to on 23 March 2004.  This earlier legislative package replaced the Incurred But Not Reported (IBNR) Claims Contribution with the United Medical Protection (UMP) support payment and put in place a framework for the Premium Support Scheme (PSS). 

In summary, the present package of Bills introduce a run-off cover indemnity scheme (run-off cover scheme) to address the concerns of medical practitioners (practitioners) that they have access to affordable medical indemnity insurance cover for claims that are made against them after they retire or are otherwise not participating in the private medical workforce.  The cost of the scheme will be funded by a levy on medical indemnity insurers (insurers).  

These Bills also repeal the Medical Indemnity (Enhanced UMP Indemnity) Contribution Act 2002. 

The Medical Indemnity Legislation Amendment (Run-off Cover Indemnity and Other Measures) Bill (the Indemnity and Other Measures Bill) creates the run-off cover indemnity scheme, under which the Commonwealth will reimburse medical defence organisations (MDOs) and insurers for eligible run-off cover claims for eligible practitioners.  It also provides for a run-off cover claims and administration protocol, under which the Commonwealth may pay claims handling fees and administration fees to MDOs and insurers.

It also provides that, in the event that a termination date is set for the run-off cover scheme, and if the responsible Minister does not table a determination that alternative run-off cover arrangements are in place for retiring doctors, then the Government will pay affected doctors the amount of their total run-off credit including interest.

It provides for the Commonwealth to recover the costs of the run-off cover scheme.

The Indemnity and Other Measures Bill adds the run-off cover support payment as a type of medical indemnity payment.  (The UMP support payment is the other type of medical indemnity payment.)  

It outlines who pays the run-off cover support payment, which is imposed by the Medical Indemnity (Run-off cover Support Payment) Bill 2004.

The Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 will be amended to require medical indemnity insurers to provide free indemnity cover to practitioners who are eligible for the run-off cover scheme.  

The Indemnity and Other Measures Bill also enables regulations to be made which require insurers to provide run-off cover to all doctors (who are not eligible under the run-off cover scheme) who require run-off cover at cost for at least three years.

The Medical Indemnity Act 2002 will be amended to allow a claims protocol to be determined to cover the payment of MDO and insurer expenses arising from INBR indemnity scheme claims.

The Medical Indemnity (Enhanced UMP Indemnity) Contribution Act 2002 will be repealed. The Act was intended to recover from UMP members amounts which may have been paid by the Commonwealth under a Deed with United Medical Protection (UMP) and UMP’s provisional liquidator.  As no payments were made and UMP has resumed normal trading, the Act is redundant.

The Indemnity and Other Measures Bill makes minor amendments to the scope of the PSS and to payment days for insurers to remit to the Health Insurance Commission (HIC) any UMP support payments paid by persons to the insurers. It clarifies the operation of the High Cost Claims Scheme (HCCS).

It also brings a Lloyds underwriters under the operation of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 and makes minor amendments to the Federal Court injunction process.

MEDICAL INDEMNITY (RUN-OFF COVER SUPPORT PAYMENT) BILL 2004

This is a new Bill, which imposes the run-off cover support payment as a tax on insurers by reference to their gross medical indemnity premium income.  

FINANCIAL IMPACT

Under the run-off cover scheme eligible medical indemnity claims will be paid out by the Australian Government and the cost of this scheme will be funded by a levy on medical indemnity insurers.  Preliminary actuarial analysis suggests that the total cost of claims for the cohort of doctors entering the scheme each year will be of the order of $15 million to $20 million.  

REGULATION IMPACT STATEMENT  

A comprehensive Regulation Impact Statement (RIS) on the Government’s recent decisions on medical indemnity was included in the Explanatory Memorandum for the Medical Indemnity Amendment Bill 2004 and the Medical Indemnity (IBNR Indemnity) Contribution Amendment Bill 2004.  This RIS reflected the Government's response to the recommendations of the Medical Indemnity Policy Review Panel which reported to the Prime Minister on 10 December 2003.  The RIS detailed, amongst other aspects of the Government's medical indemnity package, the Government's proposal to introduce a Run-off Reinsurance Vehicle (RRV).

The RRV will now be known as the Run-off Cover Scheme, as this title reflects more accurately the structure of the scheme.  

The objective of the Run-off Cover Scheme is to ensure that selected groups of doctors have effectively free medical indemnity cover when they leave the medical workforce.  The scheme will commence on 1 July 2004.  

The Medical Indemnity Legislation Amendment (Run-off Cover Indemnity and Other Measures) Bill 2004 amends the Medical Indemnity Act 2002 to set out the eligibility criteria for the Run-off Cover Scheme and the payment arrangements for associated claims.  

The Medical Indemnity (Run-off Cover Support Payment) Bill 2004 imposes the Run-off Cover Support Payment to enable the Government to recoup over time its outlays under the Run-off Cover Scheme.  On 17 December 2003, the Government announced that the RRV (now the Run-off Cover Scheme) would be funded through a charge on medical indemnity insurers (MIIs) and passed on to doctors through premiums.  

MEDICAL INDEMNITY LEGISLATION AMENDMENT (RUN-OFF COVER INDEMNITY AND OTHER MEASURES) BILL 2004

NOTES ON CLAUSES

Clause 1  This item sets out the short title for the Bill.

Clause 2  This clause provides the commencement of each schedule and item in this Act. 

Clause 3  This clause provides that each Act that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms.

Schedule 1—Run-off cover indemnity scheme

This Schedule creates the run-off cover indemnity scheme, under which the Commonwealth will reimburse medical defence organisations (MDOs) and insurers for eligible run-off cover claims for eligible practitioners.  It also provides for a run-off cover claims and administration protocol, under which the Commonwealth may pay claims handling fees and administration fees to MDOs and insurers.

This Schedule also provides that, in the event that a termination date is set for the run-off cover scheme, and if the responsible Minister does not table a determination that alternative run-off cover arrangements are in place for retiring doctors, then the Government will pay affected doctors the amount of their total run-off credit including interest.

Amendments to the Medical Indemnity Act 2002

Item 1 This item adds to the objects of the Act in section 3 a new object to meet the amounts payable in relation to run-off claims notified on or after 1 July 2004 against medical practitioners who are no longer in private medical practice.

Item 2 This item inserts in section 4 a definition of affected medical practitioner by reference to section 34ZQ.

Item 3  This item inserts in section 4 a cross-reference to the definition of 
eligible run-off claim in new section 34ZB.

Item 4  This item defines a run-off cover indemnity as a new type of indemnity scheme payment in section 4.  This means all provisions referring to an indemnity scheme payment will now include the run-off cover indemnity scheme. 

Item 5 This item expands the definition of late payment penalty in section 4 to include penalties incurred under new section 34ZM for amounts due to the Commonwealth under new section 34ZJ. 

The amount overpaid becomes a debt due to the Commonwealth that the insurer or MDO has to pay back to the Health Insurance Commission if they receive too much run-off cover indemnity (because they received an amount from a third party that would have reduced the amount of indemnity).

Item 6  This item adds a note to the definition of medical practitioner in subsection 4(1) that new subsection 4(6) extends the definition for the purpose of the run-off cover scheme in Division 2B or 4 of Part 2 to include persons who used to be medical practitioners.  

Item 7  This item inserts in section 4 a definition of run-off cover claims and administration protocol by reference to new section 34ZN.

Item 8 This item inserts in section 4 a definition of run-off cover credit by reference to subsection 34ZS(2).

Item 9  This item inserts in section 4 a definition of run-off cover indemnity by reference to new Division 2B of Part 2.

Item 10 This item inserts in section 4 a definition of total run-off cover credit by reference to new section 34ZS.

Item 11  This item inserts a new subsection 4(6) extending the definition of medical practitioner for the run-off cover indemnity scheme in Division 2B and a medical indemnity premium subsidy scheme formulated under Division 4 of Part 2 to include a person who has been a medical practitioner. 

Item 12  This item inserts into section 7 a new subsection (2A) to provide the circumstances in which a person has incident-occurring based cover with an MDO for the purposes of the run-off cover indemnity scheme.

Item 13 This item amends section 19 so that an IBNR indemnity is not payable for a claim if a run-off cover indemnity is also payable for that claim. 

Item 14  This item amends section 34D by providing that, when working out whether the amounts paid by the insurer reach the practitioner’s contract limit so that an exceptional claims indemnity is payable to the insurer, the amount paid by the insurer is not to be reduced by the amount of a run-off indemnity.

Item 15 This item adds a new subsection 1A to section 34E to include claims relating to incidents arising from public patient treatment in the Exceptional Claims Scheme for practitioners eligible for the run-off cover scheme who had claims made cover with an MDO.  The incident must have occurred before 1 July 2003 (the date at which discretionary claims-made cover ceased).  The MDO must make an arrangement with an insurer to provide run-off cover under the proposed subsection 26A(4) of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003.

Item 16  This item amends subsection 34S(2) by providing that a payment of run-off cover indemnity is not counted as an amount that would have reduced the amount of an exceptional claims indemnity payable (had it been taken into account).

Item 17  This item amends subsection 34T(5) and has the same effect as Item 11, but while the above item applies for amounts paid before an exceptional claims indemnity is paid, this item applies for amounts paid after an exceptional claims indemnity is paid.

Item 18  This item inserts new Division 2B into Part 2 of the Act to create the new run-off cover indemnity scheme.  The sections in the new Division are as follows:

34ZA  Guide to the run-off cover indemnity provisions
This guide outlines that this Division provides for a run-off cover indemnity to be paid for an eligible run-off claim, and a Run-off cover Claims and Administration Protocol to be determined for other matters relating to eligible run-off claims. 

It notes that the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 requires medical indemnity insurers to provide run-off cover for medical practitioners eligible for the run-off cover scheme.

34ZB  Eligible run‑off claims
Subsection (1) provides criteria that must be met for a claim to be an eligible run-off claim.  These include: 
-	a claim made against a person while they are eligible;
-	it relates to incident/s that occurred in the course of, or in connection with, the person’s practice as a medical practitioner;
-	at the time of the incident, a person must have had a contract of insurance or an arrangement with an MDO; and
-	the person has medical indemnity cover  that indemnifies the person in relation to the claim, being either cover:
-	that is required to be provided to them under Division 2A of Part 3 of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003; or 
-	incident-occurring based cover with an MDO.

In the event that the scheme is terminated, a person already eligible for the scheme would continue to have their claims covered by the terminated scheme until they cease to be eligible.  A person who would have become eligible after the termination date (if the scheme had not been terminated) would not become eligible. 

Subsection (2) provides for who will be covered by the scheme.  Some practitioners will be eligible for the scheme permanently (until their estate is wound up) and others will be eligible temporarily – they are taken to have left the scheme when they no longer meet the eligibility criteria (for example they return to private medical practice).

In general terms, the following practitioners will be covered by the scheme:
-	retirees over 65;
-	practitioners who have not engaged in private medical practice for 3 years;
-	practitioners on maternity leave;
-	practitioners who no longer practice because of permanent disability;
-	administrators of a deceased practitioner’s estate; and
-	practitioners included by the regulations.

Classes of persons may be excluded by regulation.

As persons generally must have ceased private medical practice to become eligible, this means that the incident must have occurred before the person becomes eligible for the scheme.  The regulations have the capacity to include practitioners who continue in some form of private medical practice, and the Government intends to make regulations covering gratuitous practice.  Claims arising from this practice would not be covered by the run-off cover scheme, so a practitioner would need to take out a contract of insurance to cover claims notified while the practitioner is still practising.  If the practitioner does so and then ceases gratuitous practice, the run-off cover indemnity scheme would then cover subsequent claims notified arising from that gratuitous practice. 

Subsections (3) and (4) provide that the regulations may set a termination date for the run-off cover indemnity scheme by regulation. Such regulations do not come into effect until 12 months after they are gazetted.

Subsection (5) provides a definition of private medical practice.   Regulations may specify types of practice included in the definition.

Subdivision B—Run-off cover indemnities
34ZC  Circumstances in which run-off cover indemnities are payable
This section provides that a run-off cover indemnity is payable to an MDO or insurer for an eligible claim if: 
(a)	the claim relates to an incident that occurred in the course of or in connection with a person’s practice as a medical practitioner; and
(b)	for MDOs – the MDO would pay under an arrangement in the ordinary course of business while the person is eligible; and 
(c)	for insurers – the insurer would pay under contract while the person is eligible; and
(d)	the MDO or insurer was first notified of the claim, or of facts that might give rise to the claim on or after 1 July 2004; and
(e)	the MDO or insurer applies to the HIC for the run-off cover indemnity in accordance with section 36.

The reference in paragraph 34ZC(c) to a contract of insurance would include medical indemnity cover that is issued in accordance with new section 26A of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 to be added by Schedule 3 of this Bill. 

34ZD  MDOs and insurers that are externally‑administered bodies corporate
This section is intended to allow payments under the run-off cover scheme to be made to MDOs or insurers in external administration, consistent with the approach taken for other indemnity schemes.

It also provides that run-off cover indemnity payments made to MDOs or insurers in external administration are paid on trust for the benefit of the person that the MDO or insurer is liable to pay.

34ZE  Aggregating amounts paid or payable by an MDO and insurer
A run-off cover indemnity may be payable under an indemnity arrangement with an MDO or an insurance contract with an insurer. In some cases, an MDO and a related insurer may both be liable to pay some amounts in relation to one claim.  

This section will effectively allow the insurer to elect that the amounts payable to it in relation to such a claim are instead payable to the MDO.

34ZF  Clarification of circumstances in which run-off cover indemnities are payable
This section provides for run-off cover indemnity to be payable even if the claim is covered by reinsurance or the incident occurred outside Australia.

This is intended to cover Australian medical practitioners who have provided medical services outside Australia for which they were indemnified by an Australian MDO or insurer.  
	
34ZG  Exceptions
This item provides that a run-off cover indemnity is not payable to an MDO or insurer if the payment is an insurer‑to‑insurer payment or the payment is a payment prescribed by the regulations for the purposes of this section.

Unlike other indemnity schemes in this Act, treatment of public hospital patients in public hospitals is not excluded, as this treatment was indemnified by MDOs in some cases and the liability has not been assumed by State or Territory Governments.

34ZH  Amount of run-off cover indemnities
The effect of this section is that where a high cost claim indemnity and a run-off cover indemnity are both payable, the high cost claim indemnity is payable first (such amounts are fully funded by the Australian Government), then any residual amount is paid as a run-off cover indemnity.

Subdivision C—Payments that would have reduced the amount of run-off cover indemnity

Sections 34ZI and 34ZJ provide for amounts which reduce the amount that an insurer or MDO would pay for a claim to be taken into account to:
•	reduce the amount of run-off cover indemnity paid to the MDO or insurer if the amount is made before the run-off indemnity is paid, or
•	make the amount an overpayment that the MDO or insurer must pay back to the Commonwealth if the amount is paid after the run-off cover indemnity has already been paid to the MDO or insurer.  

Section 34ZK provides for a new obligation to notify the HIC that an amount specified in the above two sections has been paid. Failure to notify is an offence.

Section 34ZL provides for the HIC to notify the MDO or insurer of the amount of debt due and the due date.

Section 34ZM provides for a late payment penalty if this amount is paid back late.  The HIC may remit the whole or a part of an amount of late payment penalty if the HIC considers that there are good reasons for doing so.  Such a decision is reviewable by the Administrative Appeals Tribunal.

Subdivision D—The Run-off cover Claims and Administration Protocol

34ZN  Minister may determine a protocol dealing with various matters
This section provides for the Minister to determine a Run-off cover Claims and Administration Protocol which sets out the terms and conditions for paying claims handling and legal, administrative or other costs incurred by MDOs and insurers in respect of eligible run-off claims and paying costs incurred by insurers in respect of complying with (principally this means offering or providing contracts of insurance) Division 2A of Part 3 of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003.  Such a determination would be a disallowable instrument.

The protocol is intended to apply primarily to costs that insurers will be required to incur by granting medical indemnity cover under new section 26A of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003.  It is generally not expected that MDOs will be eligible for such payments, as MDOs voluntarily assumed those costs when they entered into discretionary arrangements.  However, section 34ZN will allow the protocol to provide for payments to be made to MDOs where appropriate.

34ZO  The HIC may request information
This section provides for the HIC to request information relevant to determining the entitlement and amount of a payment under the Run-off cover Claims Protocol to an MDO or insurer.  It identifies those from whom the HIC may request information and provides how the HIC must make a request and the time period for complying. 

Subdivision E – Miscellaneous

34ZP Commonwealth’s obligations on termination of the run-off cover indemnity scheme
This section provides for the Commonwealth to pay an amount in respect of each affected practitioner if a termination date is set for the run-off cover indemnity scheme and if the Minister does not make a determination setting out alternative arrangements.  

34ZQ  Affected medical practitioners
This section provides that an affected practitioner is one for whom premiums for medical indemnity cover have been paid for at least 12 months before the termination date and who is not eligible for the Run-off cover indemnity scheme under subsection 34ZB(2) before termination.  

34ZR Payments in relation to affected medical practitioners
This section provides that a payment by the Commonwealth in relation to an affected practitioner must be paid to a person nominated by the practitioner (and that person must be providing medical indemnity cover for the practitioner), that the payment must be for all or part of a premium for that cover, and must be paid within 12 months of termination.  The payment must not exceed the practitioner’s total run-off cover credit. 

34ZS Total run-off cover contribution
This section provides for working out an affected practitioner’s total run-off cover credit from the first financial year in which the insurer provided cover under a contract after 30 June 2004 by multiplying the practitioner’s run-off cover credit by the interest rate adjustment for each financial year.

For example if a practitioner’s contribution for the financial year is $1,000 and the interest rate adjustment is 5%, the calculation is $1,000 x 1.05 = $1,050.

This calculation is done each year (so the interest compounds) and added up in the year of termination. 

The interest rate is a rate specified by regulation or the Commonwealth Government short-term bond rate for each June quarter immediately preceding the end of each financial year.

34ZT Medical indemnity insurers must provide information attributing run-off cover payments
This section provides that an insurer must, in relation to each run-off cover payment they make, notify the HIC of each medical practitioner to whom the payment is attributable for each financial year. 

34ZU  HIC must be notified of a person ceasing to be covered by the run-off cover indemnity scheme
This section requires the MDO or insurer to notify the HIC if a person ceases to be eligible for the run-off cover indemnity scheme and immediately before they ceased the MDO or insurer was providing medical indemnity insurance (within the meaning of the Medical Indemnity (Prudential Supervision and Product Standards) Act to the person.  For example, an insurer would become aware that the person has returned to private practice when the person takes out a new medical indemnity insurance contract for that practice.  

34ZV Invoices for medical indemnity cover
This section provides that if an insurer gives a person an invoice for medical indemnity cover for which the insurer is liable to pay run-off cover support payment, the insurer must ensure the invoice states the total premium payable and the proportion and amount of the premium that  represents a run-off cover support payment.

34ZW  Reports on the run‑off cover indemnity scheme
This section requires the Minister to: 
-	cause a report to be prepared of the operation of this Division within 6 months after the end of the financial year; and
-	cause a copy of the report to be tabled in each House of the Parliament within 15 sitting days of that House after its receipt by the Minister.

This report includes:
-	the number of persons who were eligible for run-off cover indemnity at the end of the financial year, 
-	the amounts paid for run-off cover indemnity and under the Run‑off Cover Claims Protocol by the Commonwealth during the financial year; 
-	the total of all the amounts of run-off cover support payments remitted to the Commonwealth during the financial year; and
-	estimates by the Actuary of the Commonwealth’s future liabilities.
 
34ZX  Modifications and exclusions
This section provides for regulations to modify the application of the Division in respect of claims, indemnity arrangements, contracts of insurance, liabilities covered by more than one contract of insurance, or specified classes of liabilities or payments. It also allows regulations to prescribe modifications regarding liabilities under an order of a court requiring an amount to be paid pending the outcome of an appeal.

It does not allow the regulations to modify a provision that creates an offence, or that imposes an obligation which, if contravened, constitutes an offence.

The power for these regulations to be made is required to allow the scheme to reflect the rapidly changing market for medical indemnity insurance.
The regulations will allow the scheme to respond to the industry's provision of new types of insurance products to cover new types of claims, and to respond to contracts and claims that are affected in an unintentional manner by the legislation.

Item 19  This item protects the rights of insurers with a transitional provision that if item 18 commences before the Act receives Royal Assent:
•	the requirement that an insurer offers medical indemnity cover under the Medical Indemnity (Prudential Supervision and Product Standards) Act 2002 and the requirement that a practitioner must have this cover to have an eligible run-off claim in subparagraph 34ZB(1)(e)(i) are taken to have commenced at the same time; and
•	the HIC must not make a request under s34ZO of the Medical Indemnity Act 2002 before this Act receives Royal Assent; and
•	paragraph 34ZU(2)(c) of that Act applies as if a person is not required to give notice under s34ZU earlier than 28 days after this Act receives Royal Assent.

Items  20 - 24 These items add references to the run-off cover indemnity scheme to provisions in Division 3 of Part 2 of the Act.  The Division outlines how people can apply for indemnities, when they will be paid, what information has to be provided to the HIC about indemnity matters, what records must be kept.

Items 25 - 27  These items extend record keeping obligations under section 39 to the run-off cover claims and administration protocol and the run-off cover indemnity scheme. 

Items 28 - 29  These items extend recovery powers for debts due to the Commonwealth under section 41 and garnishee powers under section 42 to overpayments of a run-off cover indemnity.

Item 30 This item adds a new section 44B which enables the HIC to notify an affected practitioner of their run-off cover credit or the amount of interest calculation under subsection 34ZS(1) for a financial year, or the practitioner’s total run-off cover credit.     

Item 31  This item provides for an offence under section 45 if a person fails to give information requested by the HIC concerning the run-off cover claims protocol.

Items 32 - 33  These items amend section 46 to provide for an offence if a person fails to notify the HIC under section 34ZK if a run-off cover indemnity has been paid to an MDO or insurer and another amount has been paid or under section 34ZU that a person ceases to be eligible for the run-off cover indemnity scheme.  Strict liability does not apply, as the MDO or insurer must be aware of the other amount.

Item  34 This item provides that medical indemnity insurers failing to include required information in invoices is an offence of strict liability.   This is consistent with Commonwealth criminal law policy as the offence is not punishable by imprisonment and incurs relatively low penalty units.  The Commonwealth’s capacity to punish such an offence is likely to be an effective deterrent.   

Item 35  This item amends section 48 to provide for the Consolidated Revenue Fund to be appropriated for run-off cover indemnities and amounts payable under the run-off cover claims protocol.

Amendments to the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003

Item 36  This item amends section 20 so that rights to a run-off cover indemnity under the Medical Indemnity Act 2002 are to be disregarded when working out the maximum amount payable by an insurer under a contract of insurance, for the purposes of the minimum cover provisions of the Act.

Schedule 2—Run-off cover support payments

This schedule provides for the Commonwealth to recover the costs of the run-off cover scheme.

This schedule adds the run-off cover support payment as a type of  medical indemnity payment.  (The UMP support payment is the other type of medical indemnity payment.)  

This schedule outlines who pays the run-off cover support payment, which is imposed by the Medical Indemnity (Run-off cover Support Payment) Bill 2004.

Amendments to the Health Insurance Act 1973

Item 1  This item replaces the reference in subsection 130(25) to the Medical Indemnity (Enhanced UMP Indemnity) Contribution Act 2002 with a reference to the Medical Indemnity (Run-off cover Support Payment) Act 2004 in the definition of medical indemnity legislation for the purposes of the secrecy provisions in the Act.

Amendments to the Health Insurance Commission Act 1973

Item 2  This item replaces the reference in paragraph 42(2)(b), which relates to the Health Insurance Commission annual report, to the Medical Indemnity (Enhanced UMP Indemnity) Contribution Act 2002 with a reference to the Medical Indemnity (Run-off cover Support Payment) Act 2004. This reflects that the former Act is repealed by Schedule 5 of this Bill

Amendments to the Medical Indemnity Act 2002

Item 3  This item replaces a reference in section 3 (the objects provision) to the enhanced UMP indemnity contribution (as the relevant Act is being repealed) with a reference to the run-off cover support payment.

Item 4 This item replaces a reference to the enhanced UMP indemnity contribution in the definition of contribution year with a reference to the run-off cover support payment. 

Item 5 This item removes the enhanced UMP indemnity contribution from the definition of imposition day. 

Items 6 and 7  These items amend the definition in section 4 of a medical indemnity payment and medical indemnity payment legislation by replacing the references to the enhanced UMP indemnity contribution and associated Act with a reference to a run-off cover support payment and associated Act.

Item 8  This item repeals Division 2 of Part 3 which relates to the enhanced UMP indemnity contribution and replaces it with a new Division 2 of Part 3 to provide for the run-off cover support payment.

Division 2—Run-off cover support payment
Subdivision A—Introduction

57  Guide to the run-off cover support payment provisions
This section provides a guide to the run-off cover support payment provisions. 
It outlines that the support payment is imposed on medical indemnity insurers through the Medical Indemnity (Run-off cover Support Payment) Act 2004. 

Subdivision B—Who pays run-off cover support payment

58  Who is liable to pay the run-off cover support payment
This section provides that a medical indemnity insurer is liable to pay to the HIC a proportion (prescribed by regulation) of their medical indemnity insurance premium income for a financial year, and the person is not exempt under section 59.

59  Exemptions
This section provides for the regulations to prescribe exemptions from the payment, either generally or for a particular contribution year.

Item 9 This item repeals a reference to the enhanced UMP indemnity contribution in the guide to Division 3 of Part 3 (which covers administration of the medical indemnity contributions) and replaces it with a reference to run-off cover support payments.

Item 10  This item repeals a reference to the enhanced UMP indemnity contribution in section 61 and provides for a payment day for the run-off cover support payment as:
•	30 June in the contribution year or  
•	such other day as is specified in the regulations, either generally for all people or for the class of people that includes a person.

The Government intends to make regulations to specify a different payment day for Australasian Medical Insurance Limited, to reflect that it operates on a calendar year basis.  As payment day is the day by which insurers must notify the HIC of the practitioners in respect of whom they have paid a run-off cover support payment, the regulation amends the content of an offence.  This is necessary to enable flexibility for regulations to reflect the rapidly changing nature of medical indemnity insurance.   Such regulations are subject to Parliamentary scrutiny.

Items 11 - 12  These items amend section 62 to remove the possibility of a person deferring a run-off cover support payment.  The Act still enables individual practitioners who are liable for the UMP support payment to defer their payment for one contribution year. 

Item 13  This item deletes a reference to the enhanced UMP contribution in subsection 62(4). 

Item 14  This item amends section 62 to refer only to UMP support payments, so that if a person who has been granted a deferral of a UMP support payment becomes permanently exempt, either by way of death or of reaching a prescribed age, the deferred amount is immediately payable.  

Item 15  This is a transitional provision saving deferrals already granted during 2003-04 before passage of this Bill.

Amendments to the National Health Act 1953

Item 16  This item replaces the reference to the Medical Indemnity (Enhanced UMP Indemnity) Contribution Act 2002 with a reference to the Medical Indemnity (Run-off cover Support Payment) Act 2004 in the secrecy provision of the Act (subsection 135A(24)).

Schedule 3—Provision of run-off cover and other medical indemnity cover

This schedule amends the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 to require medical indemnity insurers to provide free indemnity cover to practitioners who are eligible for the run-off cover scheme.  

It also enables regulations to be made which require insurers to provide run-off cover to all doctors (who are not eligible under the run-off cover scheme) who require run-off cover at cost for at least three years.

Amendments to the Medical Indemnity (Prudential Supervision and Product Standards Act 2003 

Item 1  This item adds a definition to section 4 of MDO and provides that it has the same meaning as in the Medical Indemnity Act 2002.

Item 2  This item adds a definition to section 4 of medical indemnity insurer and provides that it has the same meaning as in the Medical Indemnity Act 2002.

Item 3  This item inserts a new section 7A which sets out matters that must be considered in determining whether premiums payable by an insured under a contract of insurance are reasonable.   The section deals with the same general issues that were covered in subsection 24(3) which is repealed by item 6. 

The requirement for reasonable premiums applies to retroactive cover offered under section 22 (see amended paragraph 24(2)(f)).  

The matters to be taken into account in setting a reasonable premium are amended so that:
-	the claims handling and administrative expenses are no longer restricted to the cover being offered; and
-	the expenses the insurer can reasonably be expected to incur in capital raising and prudential compliance are no longer restricted to being reasonably attributable to the cover being offered.  

The following matters are added:
-	the amount that represents provisioning for future liabilities for medical indemnity cover that may be required to be offered under section 23 for a premium that does not reflect the cost of providing that medical indemnity cover; 
-	the receipt, or probable receipt, of Commonwealth assistance in relation to provision of the medical indemnity cover; and
-	enables matters to be included by regulation (the capacity for APRA to issue guidelines will be removed).

Item 4  This item amends section 22(1A) to apply strict liability to the offence of failing to make a complying offer, to the extent that it relates to whether the premium is reasonable.

Item 5  This item replaces the present requirement in paragraph 24(2)(f) for retroactive and run-off cover to have a reasonable premium, with a requirement that:
-	for an offer of retroactive cover under section 22—the premium payable must be reasonable within the meaning of new section 7A (paragraph 24(2)(f)); and
-	for an offer of run-off cover under section 23—the premium payable must not exceed the amount specified in, or worked out in accordance with, the regulations (paragraph 24(2)(fa)).

Item 6  This item replaces subsection 24(3) to provide that regulations made for the purposes of paragraph 24(2)(fa) may specify different amounts, or different ways of working out amounts, in relation to different classes of practitioners or different classes of insurance contracts.  Regulations may set a nil amount.

Item 7  This item repeals section 25 as it is no longer considered necessary for the Australian Prudential Regulation Authority to issue guidelines about reasonable premiums.

Item 8  This item amends section 26 to add the Minister administering the Medical Indemnity Act 2002 as a party who can take action in the Federal Court to seek an injunction compelling an insurer who has failed to make an offer of retroactive or run-off cover under sections 22 or 23.

Item 9 This item adds a new Division 2A to Part 3 of the Act.

Division 2A—Provision of run-off cover to certain medical practitioners

26A  Provision of run-off cover to certain medical practitioners
Section 26A requires medical indemnity insurers to offer run-off cover for the purposes of the run-off cover scheme to medical practitioners in particular circumstances.

Subsection (1) provides that it is an offence for a medical indemnity insurer not to provide run-off cover to a practitioner if:
-	that practitioner is eligible for the run-off cover indemnity scheme; and
-	the insurer or another insurer has provided the practitioner with medical indemnity insurance; 
-	the insurer is the last medical indemnity insurer to have provided medical indemnity cover to that practitioner for incidents occurring during that medical practice period (or the medical indemnity insurers has taken over that last medical indemnity insurer); 
-	the insurer does not provide insurance that satisfies the requirements in subsection (4); and
-	the insurer does not provide medical indemnity cover before any termination of the run-off cover scheme under the Medical Indemnity Act 2002.

For example, where there are regulations in effect to include gratuitous practice under paragraph 34ZB(2)(f) of the Medical Indemnity Legislation Amendment (Run-Off Cover Indemnity And Other Measures) Bill 2004 and a medical indemnity insurer has provided gratuitous cover to a medical practitioner, and that practitioner ceases the gratuitous practice, the medical indemnity insurer must provide run-off cover to that person for that gratuitous practice.

Subsection (2) provides that the cover may be provided to the practitioner or someone else, for example in the case of a deceased estate that is not yet wound up, the cover may be offered to the legal representative of the estate, and that the cover need not be provided while the person was eligible for the run-off cover indemnity scheme.

Subsection (3) outlines the circumstances in which one medical indemnity insurer is said to have taken over another. Essentially, it covers any situation where one insurer assumes financial responsibility for claims formerly covered by another insurer.

Subsections (4)-(6) provide that the run-off cover must:
-	cover incidents that occurred while the practitioner had either
-	medical indemnity cover provided by an insurer; or 
-	claims made medical indemnity cover provided by an MDO 
while the practitioner was registered or licensed;
-	cover the same nature and range of incidents as covered by the practitioner’s last contract of medical indemnity cover; 
-	provide a contract limit at least equal to the relevant threshold for the Exceptional Claims Scheme in section 34F of the Medical Indemnity Act 2002;
-	be provided on the terms and conditions as determined by disallowable instrument by the Minister administering the Medical Indemnity Act 2002;
-	be provided until the person ceases to be eligible; and
-	be at no cost to the practitioner.

Subsection (7) provides that the practitioner does not need to apply for the cover. 

Subsection (8) provides that the insurer does not have to provide new medical indemnity cover in the event that winding up of the insurer has started.

Subsection (9) defines various terms including eligible practitioner and private medical practice by reference to subsection 34ZB of the Medical Indemnity Act 2002 and medical practice period as:
-	a period in which practitioner was not eligible for the run-off cover scheme; and 
-	the period during which a practitioner was an eligible practitioner engaged in private practice, was providing medical services free of charge. 

The Government intends to make regulations under subsection 34ZB(2) of the Medical Indemnity Act 2002 providing that practitioners who continue to practice on a gratuitous basis will be eligible for the run-off cover scheme in relation to their previous private medical practice.  Combined with the provisions in this section, this will allow doctors purchasing indemnity for post-retirement gratuitous service provision to cease that practice and be provided access to the run-off cover scheme for their period of gratuitous service provision.

26B  Medical practitioners provided with medical indemnity cover by MDOs, but not adequate run-off cover
This new section covers the situation where a MDO offered a practitioner claims-made cover on a discretionary basis.  

If the MDO was the last MDO or insurer to have provided cover to a practitioner (or has taken over that last MDO) the MDO commits an offence if it does not have an arrangement with an insurer obliging the insurer to provide medical indemnity cover that satisfies the requirements of subsection 26A(4).

Paragraph 26B(1)(g) provides that an offence has not been committed under subsection (1) if a termination date has been set for the run-off cover indemnity scheme under subsection 34ZB(3) of the Medical Indemnity Act 2002.

26C  Provision of run-off in accordance with arrangements with MDOs
This section provides that an insurer obliged to provide cover under an arrangement with a MDO under section 26B commits an offence if they do not do so.  The section imposes the same requirements on insurers as section 26A.

26D  Notification and record-keeping
Subsections (1) - (3) provide that the insurer commits an offence if it does not give notice to the person of the nature and range of incidents it covers under 26A(1) and 26C(1) and the terms and conditions on which it is provided and notice to the HIC of details of the cover that has been provided.  

Subsection (2) provides specifically that the insurer must give written notice to the HIC of the name of the practitioner who is covered, the date from which the cover took effect and other matters as determined by the Minister administering the Medical Indemnity Act 2002.

Subsection (4) creates an offence if the insurer does not keep relevant records.
	
26E  Run-off cover taken to be provided under contract of insurance
This section provides that the run-off cover provided under sections 26A or 26C is taken, for all purposes (other than the purposes specified in the regulations), to be a contract of insurance between the insurer and the person to whom the medical indemnity cover is provided.

This is so even though the insurer does not receive any premium for providing the medical indemnity cover; and regardless of whether the person accepts the offer of cover.

This provision will mean that the cover issued under section 26A should be treated in the same way as other contracts of insurance. For instance, legislation and general law principles about insurance will apply to the cover.

26F Federal Court may order insurer to provide run-off cover
This section provides for the Federal Court to grant an injunction requiring an insurer to provide insurance if they fail to provide it under sections 26A or 26C or requiring an MDO to enter into an arrangement with an insurer if it fails to do so under section 26B.  A practitioner, ASIC or the Minister responsible for the Medical Indemnity Act 2002 may apply to the Federal Court.
26G  Pecuniary penalties for offences against this Division
Subsection (1) provides that subsection 48B(3) of the Crimes Act 1914 applies to any offence against a provision of this Division committed by a body corporate, as though an offence against that provision could be committed by a natural person.
Subsection (2) provides that this section does not affect the meaning of any other offence against this Act.

Schedule 4—IBNR Claims Protocol

This Schedule amends the Medical Indemnity Act 2002 to allow a claims protocol to be determined to cover the payment of MDO and insurer expenses arising from INBR indemnity scheme claims.

Amendments to the Medical Indemnity Act 2002

Items 1 and 2  These items amend section 4 to make it clear than amounts payable under the IBNR Claims Protocol are not covered by the definition of IBNR indemnity, and to insert a definition of IBNR Claims Protocol as a protocol determined by the Minister under new section 27A.

Items 3 and 4  These items amend section 10 (the guide to Division 1 of Part 2 of the Act) to insert appropriate reference to the IBNR Claims Protocol.

Item 5  This item adds new Subdivision F at the end of Division 1 of Part 2 of the Act.

Subdivision F—The IBNR Claims Protocol

27A Minister may determine a protocol dealing with various matters
This section provides for the determination by the Minister (by disallowable instrument) of an IBNR Claims Protocol that can deal with making payments to MDOs and insurers of claim handling fees, and making payments on account of legal, administrative or other costs incurred by MDOs and insurers (whether on their own behalf or otherwise), in respect of claims relating to incidents covered by the IBNR indemnity scheme.

27B  The HIC may request information
Section 27B provides that the HIC may request a person to provide information relevant to determining whether an MDO or insurer is entitled to a payment under the IBNR Claims Protocol or the amount that is payable to an MDO or insurer under the IBNR Claims Protocol.  

Items 6 and 7  These items add the IBNR Claims Protocol to the record keeping requirements in section 39.

Item 8  This amends the offence provision (section 45) concerning a failure to provide information to the HIC relevant to the IBNR Claims Protocol under section 27B.

Item 9  This item amends section 48 to provide for payment under the IBNR Claims Protocol to be paid out of the Special Appropriation.

Schedule 5—Repeal of the enhanced UMP indemnity contribution

This schedule repeals the Medical Indemnity (Enhanced UMP Indemnity) Contribution Act 2002. The Act was intended to recover from UMP members amounts which may have been paid by the Commonwealth under a Deed with United Medical Protection (UMP) and UMP’s provisional liquidator.  As no payments were made and UMP has resumed normal trading, the Act is redundant.

Item 1  This item repeals the Medical Indemnity (Enhanced UMP Indemnity) Contribution Act 2002. The Act was intended to recover the cost to the Commonwealth of any amounts it may have paid out under a Deed with United Medical Protection and the provisional liquidator.  As no payments were made under the Deed and UMP is no longer in provisional liquidation, there is no longer any need for the Act.

Schedule 6 - Other matters

This schedule makes minor amendments to the scope of the PSS and to payment days for insurers to remit to the Health Insurance Commission (HIC) any UMP support payments paid by persons to the insurers.

It also brings Lloyds underwriters under the operation of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 and makes minor amendments to the Federal Court injunction process.

Item 1 This item amends the definition of medical indemnity insurer in section 4 to include a Lloyd’s underwriter.  It takes effect from the commencement of the Medical Indemnity Amendment Act 2004 when this definition was first implemented.  This is not deterimental to any person.

Item 1A This item amends paragraph 30(1)(d) of the Medical Indemnity Act 2002, which identifies the circumstances in which a high cost claim indemnity is payable.  The amendment to this section enables the Commonwealth to make payments under the Scheme in relation to incidents that are notified after 1 January 2003 and before any termination date set in accordance with subparagraph 30(1)(d)(ii), in addition to claims that are notified during that period.

Item 2 This item provides for regulations to prescribe incidents that do not occur in Australia to be eligible for the Exceptional Claims Scheme.  The Government intends to make regulations to include incidents incurred by Australian doctors providing treatment overseas while accompanying Australian sporting or cultural groups overseas or undertaking aid work overseas.  This item takes effect from the commencement of the Exceptional Claims Scheme in Schedule 2 to the Medical Indemnity Act 2003 as it provides a benefit to practitioners to be covered for such incidents.  This is not deterimental to any person.

Items 3 and 4  These items amend section 43 to provide that the Minister may formulate subsidy schemes which involving making payments to help medical practitioners meet the cost of making medical indemnity payments.  

Item 5  This item amends the provisions in subsection 66A(5) so that the insurer or MDO must remit UMP support payments received to the HIC: 
	(a)	on that payment day; or
	(b)	7 days after the day on which the amount is paid
whichever is later.

This means that amounts paid to insurers or MDOs in the 7 days leading up to payment day will no longer be required to be paid on payment day – they will now be required 7 days after payment day. 

Item 6 This item amends the provisions in paragraph 66A(7)(a) so that the insurer collecting UMP support payments can deposit the amount in an interest bearing account.

Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 

Items 7-9  These items amend subsections 4(1), 10(2) and 11(1) to define ‘Lloyds’ underwriters’ and allow them to offer and provide medical indemnity cover, with effect from the date of commencement of the Act on 1 July 2003.  No person will be detrimentally affected by the retrospective commencement of this provision.

A person commits an offence in offering or providing medical indemnity cover to a health care professional without being a general insurer.  ‘General insurer’ has the same meaning as in the Insurance Act 1973, which defines the term as a body corporate authorised by APRA under section 12 of that Act to carry on insurance business.

Lloyd’s underwriters are authorised under section 93 of the Insurance Act 1973 to undertake insurance business in Australia, but are not a general insurer as defined.  Because they are not authorised under section 12, they cannot currently offer medical indemnity cover under the Act.

Items 10-13  These items clarify the operation of section 26.  The Federal court is able to grant an injunction requiring an insurer to offer medical indemnity cover where the insurer has failed to make an offer as required by the Act.

Medical Indemnity (Prudential Supervision and Product Standards) Regulations 2003. 

Item 14 This item provides for the repeal of the provision in the Regulations which exempts Lloyds’ underwriters from the Act.  This Regulation will no longer be required as other items in this Schedule bring Lloyd’s underwriters into the general provisions of the Act. 

MEDICAL INDEMNITY (RUN-OFF COVER SUPPORT PAYMENT) BILL 2004

This Bill imposes a tax to recover the cost of the run-off cover indemnity scheme. The tax is called the run-off cover support payment.

In effect, the run-off cover indemnity scheme under the Medical Indemnity Act 2002 provides 100% reimbursement to medical indemnity insurers for the run-off cover they are required to grant under new section 26A of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003. It will also provide 100% reimbursement for certain incidents already covered by MDOs.  Under the run-off cover support payment the insurers will contribute to the costs of the scheme.

1 Short title
This clause provides a short title for the Bill.
  
2  Commencement
	This clause provides for commencement of the Bill on 1 July 2004.

3  Definitions
This clause defines a number of terms used in the Bill.

4  Imposition of run-off cover support payment
This clause imposes a tax on each medical indemnity insurer. 
5 Contribution years
This clause provides for each financial year or other period of 12 months specified in the regulations that starts on or after 1 July 2004 to be a contribution year.

Regulations may specify different periods for a particular medical indemnity insurer or class of insurer. 

The Government intends to make regulations to specify a different contribution year for Australasian Medical Insurance Limited to reflect that it operates on a calendar year basis.

6  Amount of run-off cover support payment
This clause provides for the amount of the run-off cover support payment imposed on an insurer for a contribution year as a percentage of the insurer’s premium income for the period of 12 months ending on 31 May in each contribution year or such other period as specified in regulations for a particular medical indemnity insurer or class of insurer.

The Government intends to make regulations to specify a different contribution year for Australasian Medical Insurance Limited to reflect that it operates on a calendar year basis.

The percentage is 15% or such lower percentage as is specified in the regulations (which may specify different percentages for a particular medical indemnity insurer or class or insurer.  

The Government intends to make regulations specifying a lower percentage of 8.5% for the first four contribution years commencing on or after 1 July 2004 and 9.5625% for the first four contribution years for AMIL because this insurer’s support payment will commence later to reflect their calendar year operation.  However, the operation of the scheme will be reviewed regularly and the rate may be changed earlier if required.

7  Premium income
This clause provides that premium income for a period is the sum of all premiums paid during the period to the insurer for medical indemnity cover provided for medical practitioners by contracts of insurance with the insurer; and includes any amounts paid by the Premium Support Scheme (PSS) under section 43(1) of the Medical Indemnity Act 2002.  It does not include any PSS payment in relation to payment of UMP support payment or Run off cover support payment.  

It includes amounts prescribed by regulation but excludes relevant amounts of GST, stamp duty and amounts specified in regulations where they relate to the make up of the premium.
  
This item uses definitions for the relevant terms that are the same as those used in relevant legislation.  

8  Regulations
	This clause provides for the Governor-General to make regulations.