Increasing numbers of people are obtaining hospital and ancillary coverage from private health insurers. Because of the additional financial pressures in the current economic climate, the health funds ensure that they account for every dollar. This article will look at compensable injuries’ impacts on their private health insurance policies, the effects on any potential claims and the legal basis for same.
The Private Health System in Australia
Before looking at the impact, it would be prudent to consider the system generally. Australia’s private health insurance system is designed to provide such insurance on the basis that no person is discriminated against by coverage or cost. The Private Health Insurance Act 2007 (‘PHIA’) is the operative legislation and, in sections 55-5, establishes the ‘community rating’ principle in accepting or assessing eligibility for a complying health insurance product. The ‘community rating’ principle prevents the inclusion of a ‘risk rating’ in the premium/policy determination by establishing a list of factors an insurer is precluded from using as the basis for rejecting, restricting, or charging additional amounts for a complying product. There are eight listed factors, of which three relate directly to personal injury claims:
Section 55-5 (2)
- The suffering by a person from a chronic disease, illness or other medical condition or disease, illness or medical condition of a particular kind.
- Any other characteristic of a person (including but not just matters such as occupation or leisure pursuits) that is likely to result in an increased need for “hospital treatment” or “general treatment”; and
- The frequency with which a person needs hospital treatment or general treatment.
In addition to the provisions of the PHIA, each health fund has a set of ‘fund rules’ which establish the fund, its policies, and procedures. These ‘fund rules’ must be approved by the Private Health Insurance Administration Council (‘PHIAC’) and follow the PHIA and other relevant legislation.
Impact of Compensable Injuries on Private Health Insurance Policies
There are two main and very significant impacts that compensable injuries have on private health insurance policies. The main effect is properly splitting the compensable injury to separate its differing outcomes. The restrictions depend on each fund; however, most funds have similar overall rules.
- Disentitlement for Benefits Required Due to the Compensable Injury (pre-settlement)
Where there is a possibility that a person can seek compensation for an injury or illness, whether, through a legal claim for negligence or workers’ compensation, the significant majority of funds are entitled under their fund rules to stop payment of benefits for these expenses. To assist the funds in identifying these claims, they require the member to inform them as soon as possible that they have had a compensable injury.
The more significant health funds have built-in provisions whereby they can approve benefits without requiring an undertaking. However, this is entirely at their discretion. Other funds will only consider paying benefits on the execution of an agreement the injured person will seek compensation for their injuries.
Specific Fund Examples
One fund will reinstate entitlements to benefits where there is an agreement that they won’t seek compensation for their injuries.
In the case of another fund, if it seems that the compensation may be minimal, they are entitled under their Rules to reduce benefits so as not to exceed the possible compensation amount.
As a result, the injured persons’ inherent right to decide if they want to obtain compensation is subrogated by the health insurer to fit their preferred option.
The Requirement to Refund the Private Health Insurer for Benefits Paid
Where the health funds have paid benefits, many of the funds require that the benefits paid are reimbursed from the settlement sum. This is a generally non-contentious area; however, it can cause issues when the insurer advises an amount owing but is incorrect.
- Disentitlement for Benefits Required Due to the Compensable Injury (post-settlement)
The most significant effect of the fund rules is that with the vast majority of funds, a person with compensable injuries will not be entitled to receive benefits from the health fund after the compensation claim has been settled. The more significant funds have set up rules which allow benefits to be paid but only at their discretion.
Specific Fund Examples
In one case, the fund would pay benefits if there is ‘sufficient medical evidence’ that future provision of medical treatment was not reasonably anticipated at the time of settlement. The same fund may also pay benefits where the injured person provides evidence that an amount for future medical expenses was awarded, and it is provided that the allowance has been exhausted through funding of medical treatment.
Another fund provides that future benefits will not be paid when a compensation amount expressly excludes an allowance for past and future medical expenses.
The smaller funds, however, don’t provide any exclusions or opportunities to obtain treatment in the future. Furthermore, it is likely that even if you change health funds, the same exclusion will apply. This begs the question, how does this fit with the community rating principle?
The Legal Basis for Denying Treatment for Compensable Injuries
Based on the wording of the PHIA and, in particular, the community rating principle and improper discrimination definition, it is difficult to see the basis for the funds’ attitude on this issue. As noted above, PHIAC reviews and approves the fund rules of each private health fund, so it stands to reason there must be a legal basis for this treatment.
Looking at the legislation, the only potential exclusions come from sections 121-20 and 121-25 however, these sections operate to exclude insurances such as income protection, compulsory third-party motor vehicle and workers’ compensation insurance from being covered by the definition of health insurance business. Therefore, there does not appear to be any exclusion or other basis that would prevent a person from being covered for such an injury. Similarly, there does not seem to be any case law allowing funds to breach the community rating principle.
The Private Health Insurance Ombudsman was contacted to provide some reasoning behind the position of the various health funds. The initial response referred to the above sections, excluding specific claims. The supplementary response was that those payments were outside the objective of the PHIA and the community rating principle. The PHIO representative framed the point as ‘Why should the community pay for that?’ Despite requests for a specific reference to where that was written, none was provided.
In short, there is no apparent legal basis for the funds withholding benefits where a similar injury that isn’t compensable would be entitled to benefits.
Despite the health funds discriminating against individuals because of a personal injury or illness, there is seemingly little basis for the PHIA to allow this discrimination to occur. However, until this is challenged or the law is changed, it is best to assume that the health insurers will not provide any benefits post-settlement.
Today’s blog was written by Richard Elson (Solicitor).
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