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

SUPPLEMENTARY EXPLANATORY MEMORANDUM

Amendments to be moved on behalf of the Government

(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

SUPPLEMENTARY EXPLANATORY MEMORANDUM

OUTLINE

This set of amendments addresses a technical deficiency in the operation of the High Cost Claims Scheme set out in Division 2 of Part 2 of the Medical Indemnity Act 2002 (the Act).

The intention of the High Cost Claims Scheme is to reduce the need for medical indemnity insurers to purchase reinsurance cover for claims over a threshold ($2 million or whatever is specified in regulations) by providing for the Government to meet a proportion (50% or whatever is specified in regulations) of payments in respect of these claims.  Regulations have been made reducing the threshold to $300,000 from 1 January 2004.

It has now emerged that the annual reinsurance contracts between insurers and reinsurers provide for the reinsurers to meet a proportion of payments in respect of claims that ultimately emerge from incidents notified to the insurer during a year, regardless of whether a claim has been made against a doctor.  However, section 30 of the Act provides that a high cost claim indemnity is payable in respect of a payment arising from a claim notified to the insurers.

It is thus possible for the parameters of the Scheme to be altered by regulation during the period between the incident being notified to the insurer (thus activating a reinsurance contract) and a claim being made against a doctor (thus activating the High Cost Claims Scheme).  If this happened an insurer could be left with an unexpected liability which would not be covered by either reinsurance or the High Cost Claims Scheme.

The proposed amendments address this problem by changing the Scheme to link payability to when an incident is notified to the insurer.

FINANCIAL IMPACT STATEMENT

These amendments will not have any financial impact.

NOTES ON ITEMS

Item 1

This item adds the commencement of item 1A in Schedule 6 of the Bill (proposed to be added by item 2) to the commencement table in clause 2 of the Bill as number 13A, with a commencement date of 1 January 2003 which was the date of commencement of the High Cost Claims Scheme.

Item 2

This item amends Schedule 6 of the Bill by adding item 1A which amends paragraph 30(1)(d) of the Medical Indemnity Act 2002.  Section 30 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.