Ed Husic (Chifley, Australian Labor Party, Shadow Parliamentary Secretary to the Shadow Treasurer) Share this | Link to this | Hansard source

I rise to speak on the Private Health Insurance (Prudential Supervision) Bill 2015 and related bills. What these bills attempt to do is move to the Australian Prudential Regulation Authority the prudential regulation functions that currently exist under the Private Health Insurance Administration Council. This is supposed to take place in just under a month's time, on 1 July 2015, and it will also abolish the PHIAC from that time. According to the government, this move has come about because, in its words, it wants to form smaller government. The government is trying to merge a number of different bodies and ensure there is no duplication. It believes that, in time, this will benefit industry through lower costs and this will ensure there is a degree of stability and proper regulation for the private health insurance industry. I learned about this while sitting as deputy chair of the House of Representatives Standing Committee on Economics, where APRA outlined to us in March that it was preparing for this as well. I want to come back to this at a later point.

When you take into account the government's justification, there is no mention whatsoever about whether this move, which, on the face of it, sounds fairly straightforward—taking the functions from one body, collapsing that body and putting the functions into an existing regulator—will have some sort of flow-on benefit to the just over 13 million Australians who are now covered by private health insurance. You would also imagine that there would be some sort of prediction about whether this move would lower premiums and lift the quality of services. Is this move anything other than a simple abolition of one regulatory body and just flicking all the responsibilities to someone else? Bear in mind that the current regulator in this space does two things year, will the time went beyond two hours obviously it will; it is dedicated to both sides of the equation, as the shadow minister indicated early today—that is, it looks at both the health insurers and the health fund members. But what we are definitely concerned about, and what we believe is likely to happen, is that this is just an initial part of a longer term journey away from any type of robust, genuinely strong oversight of health fund premiums—as recommended in the Harper review and previously endorsed by Peter Dutton, the former minister for health, who is now the immigration minister.

This bill does not operate in isolation. It must also be remembered that the Abbott government is moving to abolish the Private Health Insurance Ombudsman—and, again, they are relying upon the reasoning that this will lead to smaller government. Often these things do build up over time. Regulators emerge because the public has an expectation that things will work in a particular way, that their concerns will be addressed and that, if it is believed that there are channels or avenues of government that are not providing or are not fit for service, you will see these types of regulatory bodies emerge. It would be no surprise that this was what happened with the PHIAC. The PHIAC emerged in response to a community demand to see that the interests of health insurers were balanced with the interests of the clients of those health insurers. That also needs to be taken into account.

Once the regulator is gone and the ombudsman is gone, you can imagine that there will be a lot of power vested in the minister. You can also then imagine that the minister would later complain that there is too much on their plate to be able to take up these roles that were previously done by a regulator and the quality of oversight will suffer as a result. That is something that should concern a lot of people not only in this place but also outside. For instance, there is no longer a big government owned health insurer competing alongside privately owned funds. There is a great degree of concentration within this market. For instance, people may not necessarily be aware that the bulk of the market is made up of only a handful of companies that are providing these types of services. In fact there are just five health insurers who hold 83 per cent of the market, so it is relatively concentrated. While there might be some change between those funds from time to time you will not necessarily see people having a lot of choice in the insurers that they have or that they seek to use.

It is also worth noting that the regulator had to cover 34 health insurers offering 40,000 different products taken up by 6.4 million policies covering just over 13 million people. So there are some big players and there is a multitude of smaller players. There are a lot of products in place, so this is not some easy task. APRA, who is not a dedicated regulator in this space, is going to have to oversight all of this. This of itself will be a challenge.

The House of Representatives Economics Committee now have the opportunity to quiz APRA twice a year. We did so in March and we expect to do so later in the year. APRA are also responsible for a range of different areas by looking at what authorised deposit institutions or lenders are doing. For example, big things on their agenda at the moment include trying to determine how to deal with what the Treasury secretary described this week as a 'housing bubble' in this country as well as the rapid growth of investor loans, which are causing great concern as they reflect the rapid growth in prices and activity, particularly in some of the biggest housing markets in the country in Sydney and Melbourne. APRA also looks into the management of the superannuation pool of savings in this country which is close to $2 trillion. It is massive and is amongst the world's largest pools of savings, and APRA is responsible for that. Now APRA will be responsible for regulating 40,000 different products and 6.4 million policies for just over 13 million people. It is a big job.

When I heard that this was to happen, in March I quizzed the APRA chairman, Wayne Byres, and his associates who were present at the hearing, as to how they were planning for this. APRA have responded on notice that they have set up a project team to manage this transition of the prudential responsibilities, and they are also planning to take on board the associated staff within APRA. We were advised that the project team is primarily resourced, apparently,—and this is contained in a report into APRA by the House of Representatives Economic Committees that was tabled this week—by APRA and PHIAC staff with some involvement from the Department of Health, and, on an as-needs basis, external suppliers as well.

APRA has noted that the key milestones in relation to the updated regulatory framework include a degree of industry consultation for the private health insurance industry reporting of prudential standards. This was supposed to have occurred by the end of March. There were written submissions that were being called for to the industry consultation, supposedly received by 19 May. I am just taking this on board, and it may have slipped and it may not, and it is neither here nor there if it is a short period of time, but there is that work underway. APRA's paper responding to the industry submissions together with the final requirements are supposed to be released before 1 July, which is a big task in itself given the tight time frame.

In APRA's response to questioning by the House of Representatives Economics Committee about this whole transition, they outlined the extent and method of industry consultation to support the transition, claiming that both APRA and the PHIAC are actively working with the departments of Health and Treasury. I understand some health officials are here today, and I appreciate that they are probably working very diligently to make sure this transition is as seamless as possible. They would also appreciate the desire by us to have the appropriate levels of oversight to ensure that it is a relatively seamless process.

There is an important aspect, according to APRA, of executing the transition and that is the engagement with relevant stakeholders, the focus to ensure that the industry understands APRA's approach as a regulator and that there should be a continuity of supervision, which you would imagine would be a reasonable expectation. Since the legislative change has been announced we were advised that APRA has spoken to major industry conferences, and met with industry bodies and various participants. Formal meetings with boards of the individual private health insurers have commenced, many of which were undertaken prior to 1 July. What is absent in that response is that it was very hard to find how much had been set aside in terms of resourcing. The exact detail of how this would be managed was not there. I do not think this is an overly critical response, but I think it is important to note that there were not too many numbers backing up the statement that was provided to us for the purpose of inclusion in our report.

This is a big change. This is going to put some fairly significant strains on APRA. The theory of merging regulators, of getting rid of one and picking up functions and putting them into the other, sounds on paper like a straightforward thing, but it has the potential, certainly from our perspective, to cause major headaches in something this big. From our point of view we would need to see more detail. I do not think the detail that has been provided by APRA, as has been submitted to one House committee, goes far enough. Certainly we are being asked in this legislation to support something without the support of additional, or what I would call robust, detail. We would certainly need that.

When you look at the matter, you can take into account the words of the current CEO of the PHIAC in what he billed as his likely valedictory address in Canberra just last month to the Health Insurance Restricted and Regional Membership Association of Australia. He said:

… the Australian version of PHI is a highly idiosyncratic beast with curiosities such as community rating, risk equalisation, taxation surcharges, rebates and membership incentives all interacting to form a cauldron of regulatory and commercial complexity.

…   …   …

PHI is a mystery for many Australians—they really don’t have the capacity or time to deeply understand the product yet they know the day will likely come when they will depend on it. And of course, very often that day is a day full of other stresses as well—illness, injury, psychiatric disturbance, the list goes on.

This is part of the reason that the opposition has concerns about these bills and why we cannot simply waive them through. It requires deeper scrutiny, and we are seeking to have this referred to another committee for that further scrutiny.