Private Health Insurance and Injury Compensation

Understand the impacts of private health insurance on injury compensation and workers compensation.

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 the impacts of compensable injuries on their private health insurance policies, the effects on any potential claims,

and the legal basis for them.

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 because no
cost or coverage discriminates against a person. 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 including 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)

  • Suffering by a person from a chronic disease, illness or other 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 specific restrictions are dependent 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, most funds are entitled 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 executing 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 person’s inherent right to decide if they want to obtain compensation
is modified 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.

2. 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 that
allow benefits to be paid, but only at their discretion.

Specific Fund Examples

In one case, the fund would pay benefits if there was sufficient medical evidence that the 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 the 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 that 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.


Conclusion

Despite the health funds discriminating against individuals because of an 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.


If you would like more information, contact Splatt Lawyers now. We’ll assess your case
with no obligations attached, and even come to your place! 1800 954 153.

Get Started Now- It's Free

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