Australia: Major changes to medical indemnity support schemes - Implications for medical indemnity insurers, doctors and allied health professionals

Last Updated: 7 October 2019
Article by Michael Bracken

In brief - On 18 September the Federal Government introduced the Medical and Midwife Indemnity Legislation Amendment Bill 2019 (Bill)

Medical indemnity reform legislation

In October 2002, prompted by the provisional liquidation of United Medical Protection which was Australia's largest medical indemnity provider, the Federal Government introduced a medical indemnity reform package which established a number of support schemes to subsidise the medical indemnity market in an effort to prevent market failure and to stabilise the medical industry by providing government funding support for claims, costs and premium subsidies underpinning medical indemnity insurance.

Collectively, the medical indemnity reform legislation established five related support schemes for medical and allied health practitioners (and 2 schemes for midwives) which comprise the Indemnity Insurance Fund (IIF).

The Bill is designed to streamline the various medical indemnity support schemes for medical practitioners by removing the existing contract requirements for the Premium Support Scheme (PSS) which will cease on 1 July 2020 and repealing the redundant competitive advantage and UMP Support payments. The proposed amendments will also require all medical indemnity insurers to provide universal cover to medical practitioners.

In addition, the Bill introduces a separate allied health practitioner high cost claims scheme and simplifies eligibility and claim requirements for the Midwife Professional Indemnity Scheme (MPIS) and for eligible practising health practitioners.

Effect of the Medical and Midwife Indemnity Legislation Amendment Bill

The practical effect of the proposed legislative amendments is to:

  • remove the existing contract requirements for the Premium Support Scheme (PSS)
  • require all medical indemnity insurers to provide universal cover to medical practitioners
  • clarify eligibility for the Run-off Cover Schemes (ROCS) and permit access for medical practitioners and eligible midwives retiring before the age of 65
  • enable exceptional cost claims to be made under a separate scheme for medical practitioners
  • maintain support for high cost claims and exceptional claims made against allied health professionals (developed in conjunction with the allied health and pharmacy sector)
  • support high cost claims and exceptional cost claims made against private sector employee midwives not covered under the MPIS
  • initiate an actuarial assessment and report to the Federal Government on the stability and affordability of Australia's medical indemnity market.

Important Considerations for Medical Indemnity Providers and Medical Practitioners

The Bill amends the:

  • Medical Indemnity Act 2002
  • Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 (MI(PS&PS) Act)
  • Midwife Professional Indemnity (Commonwealth Contribution) Scheme Act 2010.

Generally, the proposed legislation will apply the PSS and universal cover obligations across the market and all insurers accessing the medical indemnity schemes will be subject to the same requirements, including the obligation to provide indemnity cover to any doctor who requires insurance.

The Bill repeals the Medical Indemnity (Competitive Advantage Payment) Act 2005 and the Medical Indemnity (UMP Support Payment) Act 2002.

Medical Indemnity (Competitive Advantage Payment) Act 2005

Under this Act an annual tax is imposed on a Medical Defence Organisation (MDO) participating in the IBNR (incurred but not reported) Indemnity Scheme in order to neutralise any competitive advantage the MDO has as a result in participating in that Scheme.

Avant Mutual Group Limited (Avant) and its predecessor UMP was the only MDO subject to the competitive advantage payment.

The Act is therefore considered redundant as Avant entered into a Deed of Agreement with the Commonwealth, which led to UMP no longer being required to pay this payment.

Medical Indemnity (UMP Support Payment) Act 2002

A UMP Support Payment is a payment made by a MDO to the Commonwealth to recoup some of the associated costs of the IBNR Indemnity Scheme.

As UMP (now Avant) is the only MDO participating in the IBNR Indemnity Scheme, the UMP Support Payment was only payable by that MDO.

The Act is therefore considered redundant.

Premium Subsidy Scheme

Currently medical practitioners can only access PSS subsidy if their medical indemnity insurer has entered into a contract with the Commonwealth. The Bill will remove the existing contract requirements for the PSS such that all eligible medical practitioners can access the PSS.

Run-off Cover

Under the current regime, when a medical practitioner immediately becomes eligible for the ROCS and there is valid run off cover in place as a result of the requirement imposed on an insurer under section 23 of the MI(PS&PS) Act, to make a compulsory statutory offer of run-off cover, no premium or other consideration is payable for the medical indemnity cover.

Under the MI(PS&PS) Act and related Regulations, an insurer must offer run-off cover to a medical practitioner who retires when they are under 65, on the same terms and conditions as their last cover (other than terms as to price).

After three years of not engaging in private medical practice, the practitioner becomes eligible for ROCS and is no longer charged for run-off cover.

That is, in the interim three year period, insurers can charge a nominal amount for run-off cover offered to medical practitioners who permanently retire from private medical practice under the age of 65

The Bill amends the ROCS eligibility requirements to provide that practitioners who have retired permanently from private medical practice (regardless of their age) are eligible for ROCS, without requiring them to wait 3 years.

The Bill 'switches off' the requirement that no premium or other consideration is payable for the medical indemnity cover when there is valid run off cover in place for a medical practitioner who permanently retires from private medical practice under the age of 65 for the remaining period of the cover only, that is, until that current insurance contract expires.

Consequently, on expiry of the medical practitioner's insurance contract, an insurer will not be able to charge a premium for the run-off cover despite a medical practitioner retiring before the age of 65.

In addition, the Bill includes consequential changes to the Medical Indemnity Act 2002 which repeal the definition of, and references to, medical indemnity payment and refer to the one remaining medical indemnity payment being, the 'run-off cover support payment'.

The current definition of 'medical indemnity payment' collectively refers to three types of payments payable under the Medical Indemnity Act 2002: UMP support payment, run-off cover support payment and competitive advantage payment.

The Bill endeavors to create a level playing field for medical indemnity insurers and requires all medical indemnity insurers to provide universal cover to doctors

The PSS is currently administered via contracts with four medical indemnity insurers which include an obligation for those insurers to provide universal cover arrangements in specific jurisdictions. That is, only insurers that have entered into a PSS contract are bound by universal cover requirements

Universal cover guarantees that every medical practitioner in private practice can access indemnity insurance as it requires an insurer to make an offer of insurance cover to any privately practising medical practitioner whose primary place of practice is the state or territory in which that insurer is prescribed as the 'insurer of last resort'.

The effect of the amendment under the Bill extends the obligation to provide universal cover for medical practitioners to all medical indemnity insurers, that is, if a medical indemnity insurer insurer provides medical indemnity insurance they must provide universal cover to any privately practising medical practitioner who seeks it from the insurer

It is anticipated that, consistent with the recommendations of the First Principles Review of the Medical Indemnity Insurance Fund issued in April 2018, that further changes will be introduced to enable insurers to better price the risk (through a loading where the insured's individual claims history and individual circumstances warrant the imposition of a loading), such that other medical practitioners are not cross-subsidising the highest risk practitioners to the same extent as they are currently. The risk loading being mooted at the moment is up to a cap of 200% of the standard premium price

A separate allied health practitioner high cost claims scheme will be introduced

The allied health schemes will mirror the existing high cost claims and the exceptional claims schemes.

A current gap in the medical indemnity schemes exclude privately employed practising midwives. The Bill will provide access to professional indemnity insurance by privately employed practising midwives and ensure claims against these midwives will be covered under the allied health schemes on the same basis as other medical and allied health practitioners.

Further consultation with stakeholders

The Federal Government has indicated that it will be consulting further with key stakeholders including practitioner groups and medical indemnity insurers in October 2019 regarding the development of the legislative instruments associated with the Bill.

It is apparent that the proposed amendments in the Bill give effect to a gradual reduction in the level of Commonwealth support for the medical indemnity industry given that structural reforms have strengthened the sector and reduced the uncertainty surrounding medical indemnity viability and evidence that medical indemnity insurers have in recent years consistently exceeded minimum regulatory capital requirements.

It is anticipated that monitoring of the support schemes will continue and that the Federal Government is likely to further consider scaling back support to reduce the cost.

However stakeholders have emphasised that any changes to the support schemes that drive up the cost of premiums will risk increasing out-of-pocket costs for patients and must be assessed against the underlying benchmarks of availability and affordability of medical indemnity insurance for medical and allied health practitioners and the financial stability of the industry.

Michael Bracken

Insurance and reinsurance

Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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