Still confused about recent reforms to benefit limitation periods? You’re not alone. But this is important. To be confident that you are compliant you need to review all existing products and fund rules where they include waiting periods or other benefit limitation periods, and this is why:
The private health insurance industry is currently undergoing a series of significant legal reforms, intended to make private health insurance more affordable and more transparent for consumers.
One of the key reforms has focussed on benefit limitation periods for psychiatric care which have been imposed in some policies when an insured person is changing or upgrading their policy. As many policies only pay minimum or restricted benefits for psychiatric hospital treatment, benefit limitation periods were seen to be problematic for consumers who had not properly understood their limited entitlements and had been exposed to significant out of pocket costs.
The Commonwealth Department of Health (Department) has also recently communicated its view that a number of other benefit limitation periods imposed by private health insurers do not comply with the Private Health Insurance Act 2007 (Cth) (PHI Act), and that it intends to address this.
Given the longstanding common industry position (and the apparent widespread nature of such non-compliance), the Government has included provisions in the Private Health Insurance Legislation Amendment Bill 2018 (PHI Amendment Bill) that are designed to alleviate potential impacts upon consumers, insurers and the Government due to the relevant products not being complying health insurance products (CHIP). If passed, these provisions will have the effect that, where a policy is non-compliant because of its benefit limitation period(s), it will be deemed compliant for the purpose of Commonwealth laws (with some exceptions) from 1 April 2007 to 31 March 2018. The deemed compliance will also extend to 30 June 2018, except where the policy includes non-compliant benefit limitation periods in respect of psychiatric treatment.
Private health insurers should take note of the Department’s position and review all products that contain waiting periods or benefit limitation periods (urgently, in the case of psychiatric treatment limitations) to ensure they strictly comply with the law. Private health insurers should also be mindful of the Department’s position when developing new products or introducing any changes.
Hang on, what are benefit limitation periods?
The term ‘benefit limitation period’ is not itself defined in the PHI Act, which has caused some confusion within the industry. The PHI Amendment Bill defines this term (for the purposes of Schedule 4) to have ‘the meaning generally accepted within the health insurance industry.’
Drawing on section 78-1(3) of the current PHI Act, and the definition contained at rule 9(3) of the Private Health Insurance (Complying Product) Rules 2015 (Cth) (CHIP Rules), one view is that ‘benefit limitation period’ could describe any period imposed on an insured person during which the amount of a benefit in relation to any particular treatment is less than the amount the person would be eligible for during any other period (BLP).
This concept appears distinct from, but operates alongside, the concept of a ‘waiting period,’ which is defined under the PHI Act as any period during which a person who becomes insured under a policy is not entitled to a particular benefit under a policy (or to any portion of that particular benefit).
To clarify, a BLP is likely to be a limited period during which an insured person receives a lesser benefit for particular treatment (for example, restricted benefits only for psychiatric treatment for a 12 month period), whereas a ‘waiting period’ usually refers to a limited period in which an insured person receives no benefit for particular treatment (for example, if they have taken up a new policy, and were not previously insured under another policy). Although, in our experience, there are many variations of waiting periods and BLPs (including in relation to excesses and co-payments) and the terms may be used interchangeably.
When are BLPs allowed?
The PHI Act and CHIP rules govern when ‘waiting periods’ can be imposed in relation to benefits for hospital or hospital-substitute treatment. It’s important to note that the permissible ‘waiting periods’ for psychiatric treatment have recently been reformed (having taken effect on 1 April 2018).
As for BLPs, the PHI Act expressly provides that, aside from permissible ‘waiting periods,’ no other BLP may be imposed on a person who ‘transfers’ to a policy in respect of hospital treatments or hospital-substitute treatments under a CHIP. A person who ‘transfers’ is a person who was insured under any other CHIP within seven days of becoming insured under their new policy (or within a longer period, if allowed by their new insurer).
With the exception of persons who hold (or have recently held) a ‘gold card,’ there is no equivalent provision in the PHI Act that expressly deals with BLP’s in respect of non-transferring persons (i.e. newly insured persons). It is therefore unclear as to whether such BLPs are allowable under the current PHI Act. A technical reading of the current PHI Act would suggest they are, although recent communications from the Department may indicate it either holds a different view or is proposing to impose further restrictions on BLPs.
We understand that the Department has formed the view that a number of policies, as made available by private health insurers, include BLPs that do not comply with the PHI Act.
Given the lack of clarity around this term, it is difficult to confirm at this stage the precise nature of such non-compliance. It is possible that any BLP which is not a permissible ‘waiting period’ is perceived to be non-compliant. Alternatively, this could just be in relation to BLPs which are applied to persons who either ‘transfer’ to a policy or hold (or have recently held) a ‘gold card.’
Further, recent statements by the Department have indicated that it intends to remove all BLPs from private health insurance products from 1 July 2018. While this doesn’t appear to be reflected in current legislative reforms before Parliament, it is possible there may be further changes to be proposed.
Still with us? Here’s what private health insurers should be doing
If you are a registered private health insurer, given the seriousness of non-complying products, we recommend you review your products and fund rules to identify where they include ‘waiting periods’ or other BLPs and confirm they are compliant with law. We have assisted a number of health insurers to use our framework to identify and address areas of potential non-compliance.
If you would like further information or have any questions, please contact us.
This is for general information only and formal legal advice should be sought on matters of interest arising from this article.