Don’t bank on stable insurance premiums

8 minute read

Insurers are warning against moves to dismantle the safety net that keeps doctors’ insurance premiums down


Medical indemnity insurers are warning against any moves to dismantle the safety net that keeps doctors’ insurance premiums down and medical costs stable.

The federal government is consulting with medical defence organisations (MDOs) in a broad review of industry protections which has been years in the planning, but in December it blindsided the insurers with a pre-emptive cut to a scheme that lessens the sting of large-scale medical injury claims.

The High-Cost Claims Scheme, adopted in 2002 to help stabilise soaring premium costs, covers 50% of the cost of successful claims against health practitioners above $300,000.  Recently, it has been shelling out more than $30 million a year.

Without warning, the government revealed in its mid-year economic and fiscal outlook (MYEFO) that it would lift the eligibility threshold in July 2018 to $500,000 – a measure estimated to save taxpayers $36.1 million in the first two years after it takes effect, and considerably more over time.

The National Commission of Audit recommended in 2014 that the government wind back its subsidies for medical indemnity insurance, citing evidence that the mission to restore the MDOs’ financial health and bring down premium costs after the market failure of the early 2000s had been a success.

The rescue measures – including compulsory insurance for all registered medical practitioners and strict capital controls and supervision of insurers – worked well, but now the MDOs have established strong profit and net-assets positions, the government appears to be casting around for exit strategies.

An Office of National Assessments (ANAO) report last year gave some indication of the size of the government’s investment and the discomfort about its growing exposure to liabilities.

The report said total expenditure on subsidies under the Indemnity Insurance Fund – which covers five schemes for medical practitioners and two for midwives – came to “under $450 million” for the period between 2004-05 and 2014-15.

Specifically on the High-Cost Claims Scheme, it said the “policy intent” of the $300,000 threshold had been eroded since it was set in 2004.

If the threshold had been subjected to indexation, it would have stood at $439,000 in 2015, and more than a quarter of claims paid by the government would have been ineligible. Over the years, $33 million of the anticipated $190 million spending on the scheme could have been saved.

But the medical indemnity insurance industry says such savings could come at a very heavy price.

“What is at stake is the stability of our industry,” Ian Anderson, Chief  Executive Officer of MDA National, told The Medical Republic. “These schemes were put in place for a reason. Premiums have been very stable, increasing at the rate of inflation or below for some years, which is very good for health costs.

“But if we went through a period of change or volatility from a claims perspective, that would put pressure on the system and on our reserves.  It’s a relatively small industry, we don’t know what impact that would have.”

With the higher threshold, the four MDOs would not only need to wear a sudden increase of millions of dollars in claims costs, but also higher costs for reinsurance, he said.

“If it had happened via indexation, you wouldn’t notice a significant change in premiums from one year to the next as a result of that change. It would have been done incrementally over
15 years.”

As a result of the threshold increase, doctors’ premiums are expected to rise by 5% on average, affecting practitioners more heavily in fields with higher risk profiles, such as obstetrics and neurosurgery, but adding to cost burdens for all.

“We know GPs are under significant cost pressure, and obviously the conclusion is that any increase in doctors’ costs will be passed on to patients. This is effectively shifting costs from the government to the patient,” Mr Anderson said.

The AMA has asked the government to guarantee that any changes to the schemes will not result in the “unintended consequence” of doctors and patients wearing the cost.

“Doctors are already finding that they can no longer bulk bill because of the inadequacy of the MBS.  We cannot allow further costs to be pushed on to doctors and, by extension, patients,” the AMA said in its 2017-18 pre-budget submission.

“The AMA is therefore deeply concerned about changes made by the government in the MYEFO. These changes start to unpick parts of the Indemnity Insurance Fund and were made without consultation with the AMA or insurers.”

While the peak doctors’ group has asked the government to stay its hand at least until after the review is completed so the full impacts can be assessed, the industry wants the current supports to stay as they are, apart from some administrative streamlining.

Dr Andrew Miller, chair of the Medical Indemnity Industry Association of Australia, said the subsidies were needed to guard against future volatility.

“They have brought stability, kept premiums affordable for doctors, which has meant that patients have been able to access services,” he said.

“We do not support the removal or the winding back of the schemes. The medical indemnity market has been historically volatile, and the schemes provide important supports, both now and should the market deteriorate in the future.”

Also under scrutiny is the Premium Support Scheme, which pays a subsidy to insurers for doctors whose premiums exceed 7.5% of their gross income and for all doctors in areas marked as RRMA 3-7 under the old classification scheme for rural and remote districts.

The ANAO report noted that with a shift to the new Modified Monash Model for classifying remoteness “some premium support scheme participants may no longer be classified as rural”. But participation has already been declining, apparently reflecting flat premium rates.

In 2009-10, 2439 medical practitioners took part in the premium support scheme, accounting for $17.2 million in payments. But only 1177 were enrolled in 2015-16, and since 2012 the assistance has dropped from 80 cents in the dollar to 60 cents, with a further cut planned to 55 cents.

In 2013-14, recipients included 177 GP obstetricians on average gross incomes of $383,000 whose premiums cost $15,000 a year, and 531 procedural GPs on incomes of $309,000 who paid $8,000 for their indemnity insurance.

Significantly, the premiums for procedural GPs in that year were between 2 and 4% of their income. For the 293 obstetricians on the scheme, premium costs came to $56,000 a year on average, 8% of income.  Both figures compare well to the international norm of 10% of doctors’ income.

In the crisis of 2002, when United Medical Protection, a forerunner of Avant, went into provisional liquidation, Australian doctors’ premiums skyrocketed by 50% in a single year.  Growth in professional indemnity costs in the 10 years to 2005 exceeded 200%. Among measures to shore up the industry, the government also set up the Run-Off Cover Scheme to provide cover for doctors who have retired from private practice, those on maternity leave and the deceased.  It pays the cost of claims and is repaid over time by the medical indemnity insurers using funds from a loading on working doctors’ premiums.

In its “first principles” review, the government will look at the array of support schemes to assess if they are still relevant and represent good value for money for taxpayers.

The review is an opportunity for the government to renew its appreciation of how smoothly the Australian system is working.

Dan Tess, general manager of medical indemnity at market leader Avant, said the review would be an opportunity for the government to “renew its appreciation” of how smoothly the Australian system was working.

With premiums low and capital ratios comfortably higher than required, the medical indemnity sector here was the envy of the world, he said.

“I don’t think the government would want to weaken that position,” he said.

The threat of a roll-back comes as MDOs are under cost pressures from another quarter as doctors find themselves increasingly in need of legal assistance.

AHPRA reports that notifications against health practitioners leapt by nearly 20% in the year to last June. Of the total 10,082 cases, 53% involved medical practitioners.

Not surprisingly, Avant reported a 15% rise in calls for medico-legal services in the year.  MDA National, the number two insurer, concurs, saying the increased demand for legal advice and defence is its stand-out cost driver these days.

“While the claims environment is terms of patients seeking redress against a doctor is quite stable at the moment, we are seeing significant growth in doctors under investigation by their regulators,” Mr Anderson said.

“Obviously we have to wear the costs.  It has nothing to do with the merit of the claims.”

Interestingly, the Health Department counselled the government to go softly on proposed scale-backs of medical indemnity insurance subsidies in 2015 and 2016.

Before the 2016-17 budget, it advised government to hold off, pending the outcome of decisions on a no-fault scheme for catastrophic medical injuries under consideration by Treasury.

A draft discussion paper prepared by Treasury officials said the commonwealth would save a lot of money by diverting funds from medical indemnity insurance to a proposed a National Injury Insurance Scheme (NIIS) administered by the states.

“A commonwealth government contribution to the medical treatment component of the NIIS, equal to the amounts expected to be paid in coming years under the HCCS and PSS, has the potential to cover a significant part of the costs of care for people covered under an NIIS,” it said.

The envisaged medical injury stream under a NIIS would cover people left with spinal cord injury, brain injury, multiple amputations, burns and blindness as a result of medical treatment.

The NIIS is being considered as an alternative to the current fault-based compensation system which is plagued with delays and high legal costs.

Logically it would be a partner in a fully realised National Disability Insurance Scheme.

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