EXPLANATORY STATEMENT

 

Select Legislative Instrument 2008 No. 71

 

Medical Indemnity (Run-off Cover Support Payment) Act 2004

 

Medical Indemnity (Run-off Cover Support Payment) Regulations 2008

 

Section 8 of the Medical Indemnity (Run-off Cover Support Payment) Act 2004 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

 

The Australian Government has implemented a range of measures to make medical indemnity more affordable for doctors, and to make the medical indemnity industry more viable in the longer term. These measures are implemented principally through the Medical Indemnity Act 2002 (the MI Act) and supported with several taxing Acts and their attendant regulations.

 

Division 2B of Part 2 of the MI Act establishes the Run-Off Cover Indemnity Scheme, which covers the cost of medical indemnity claims against certain doctors (eligible persons) who have ceased private medical practice. Medical indemnity policies cover only claims arising from incidents reported while those policies are in force, so retired doctors, for example, would otherwise have to maintain and pay for insurance (“run-off cover”) for possible incidents which had not yet been reported when they retired. However under the scheme, medical defence organisations and medical indemnity insurers (insurers) provide run-off cover to such doctors, who do not pay a premium as the Commonwealth reimburses the cost of eligible claims and administrative costs associated with providing that cover.

 

The purpose of the Regulations is to make changes to the rate and payment arrangements for the Run-off Cover Support Payment, which is imposed on insurers under the Act to fund the ongoing costs of the run-off cover indemnity scheme. As most of the Medical Indemnity (Run-off Cover Support Payment) Regulations 2004 need to be changed, the Regulations repeal and replace the Medical Indemnity (Run-off Cover Support Payment) Regulations 2004 rather than amending them.

 

Subsection 5(1) of the Act provides that a financial year or other period of 12 months (that starts on or after 1 July 2004) specified in the regulations is a contribution year. Subsection 6(1) of the Act provides that the amount of the run-off cover support payment is calculated as a percentage (the applicable percentage) of a medical indemnity insurer’s premium income for the 12 month period ending on 31 May in the contribution year or such other period as is specified by regulations. Subsection 6(2) of the Act sets the applicable percentage as 15 per cent or such lower percentage as is specified in regulations for the contribution year.

 

When the run-off cover support scheme commenced in 2004, all medical indemnity insurers were operating on a financial-year basis except Australasian Medical Insurance Limited (AMIL), which was operating on a calendar-year basis. Consequently AMIL commenced paying run-off cover support payment 6 months after other insurers but at a higher rate. The Medical Indemnity (Run-off Cover Support Payment) Regulations 2004 set rates of 9.5625 per cent for four years from 1 January 2005 for AMIL, and 8.5 per cent for four years from

1 July 2004 for all other insurers. AMIL is now known as Avant Mutual Group Limited (Avant).

 

Following advice from the Australian Government Actuary, the Government has decided to reduce the applicable percentage to 5 per cent for all insurers, applying to contribution years starting from 1 July 2008. The Regulations give effect to this decision and make transitional provisions to accommodate the change of contribution year for Avant.

 

The Department has advised medical indemnity insurers, the Australian Medical Association and Medicare Australia that a lowering of the ROCS Support Payment has been recommended by the Australian Government Actuary, and consulted with these organisations on the timing and administrative arrangements to implement the change.

 

Details of the Regulations are set out in the Attachment.

 

The Act specifies no conditions that need to be met before the power to make the Regulations may be exercised.

 

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.

 

The Regulations commence on 1 July 2008.

 

 

ATTACHMENT

 

DETAILS OF THE MEDICAL INDEMNITY (RUN-OFF COVER SUPPORT PAYMENT) REGULATIONS 2008

 

Regulation 1 – Name of Regulations

 

This regulation provides that the title of the Regulations are the Medical Indemnity (Run-off Cover Support Payment) Regulations 2008.

 

Regulation 2 – Commencement

 

This regulation provides that the Regulations commence on 1 July 2008.

 

Regulation 3 – Repeal

 

This regulation provides that the Medical Indemnity (Run-off Cover Support Payment) Regulations 2004 (the 2004 Regulations) be repealed.

 

Regulation 4 – Transitional

 

This regulation ensures that, despite the repeal of the 2004 Regulations, the amount of the run-off cover support payment imposed upon Avant (Avant Mutual Group Limited) for the contribution year beginning on 1 January 2008 and ending on 31 December 2008 will be calculated as 9.5625 per cent of Avant’s premium income for the period beginning 1 December 2007 and ending 31 May 2008. This ensures that the tax on premium income received during this period will be equivalent to that which would have been paid under the 2004 Regulations.

 

This transitional provision is required because bringing Avant’s payment arrangements into line with those of the other insurers means Avant will have a contribution year commencing on 1 July 2008. Under the 2004 Regulations Avant has a contribution year commencing on 1 January 2008. If the taxation arrangements for the latter year under those regulations were retained, Avant’s premium income for the latter half of 2008 will be taxed twice; if they were removed, their premium income for the first half of 2008 will not be taxed at all. To avoid both of those situations, it is necessary to reinstate the arrangements under the 2004 Regulations for the contribution year commencing 1 January 2008, but restrict their operation to a six-month period.

 

This was determined after consultation with insurers to be the simplest and most equitable way of bringing arrangements into line without excessive delays or imposing additional administrative burdens on insurers.

 

Regulation 5 – Definitions

 

Regulation 5 provides that for the purpose of the Regulations, Act means the Medical Indemnity (Run-off Cover Support Payment) Act 2004 and Avant means Avant Mutual Group Limited.

 

 

Regulation 6 – Amount of run-off cover support payment

 

This regulation specifies the applicable percentage in paragraph 6(2)(b) of the Act to be 5 per cent for a contribution year beginning on or after 1 July 2008. This applies to all insurers liable for the run-off cover scheme payment, including Avant.

 

Regulation 7 – Amount by which premium income is reduced

 

This regulation is made under paragraph 7(2)(c) of the Act, and is identical to regulation 7 of the 2004 Regulations; it clarifies the amount by which premium income relating to medical indemnity cover will be reduced. It makes clear to insurers that they need to exclude the net refund on premiums from their assessment of their premium income for the purposes of subsection 7(1) of the Act for a contribution year.

 

The amount by which the premium income is reduced is the amount of refund payable by the medical indemnity insurer to a medical practitioner in respect of an overpayment relating to the medical indemnity cover (whether or not the overpayment was made during the period for which the insurer’s premium income is being calculated).

 

The 2004 Regulations provide that the run-off cover support payment is paid as a percentage of premium income from a specific contribution year. Each doctor provides an estimate of his or her medical income to their insurer when taking out or renewing medical indemnity cover. However, if the doctor’s estimated income is significantly different to his or her actual income, the premium will be retrospectively adjusted by the insurer. Given this practice of retrospectively adjusting premiums, a corresponding mechanism was developed to accommodate these changes to the amount which constitutes an insurer’s premium income for the purposes of the run-off cover scheme support payment.