3.1.1 For the purpose of preparing this report, certain data were collected from the MIIs and MDOs by Medicare Australia (formerly the Health Insurance Commission) during late 2006 and early 2007 including:
- details of practitioners who became eligible for membership of the Scheme during 2005-06;
- details of claims/incidents notified to MIIs and MDOs by 30 June 2006 which might be claims eligible for reimbursement under the Scheme;
- details of ROC support payments; 3
- actuarial estimates of that part of the cost of claims which were notified to MIIs and MDOs by 30 June 2006 which is expected to be reimbursed under the Scheme;
- actuarial estimates of that part of the future claims cost of medical incidents projected to be notified during the 2006-07 to 2009-10 financial years which is expected to be reimbursed under the Scheme; and
- actuarial estimates of that part of the future claims cost of medical incidents occurring during 2006-07 which is expected to be reimbursed under the Scheme.
3.1.2 This report also utilises other data and information including that previously provided to Medicare Australia for the purpose of section 34ZW of the Medical Indemnity Act.
3.2.1 The results in this report rely on information provided by MIIs and MDOs. This information is regarded as the most suitable information available for the current purpose.
3.2.2 Steps were taken to ensure, as far as practicable, that the information provided was prepared on a basis suitable for the purpose. Despite this, it is not possible to guarantee that the information provided is free from material error. The information was not independently audited. As was the case last year, there were some notable disparities in the data provided, some of which could not be readily explained. Moreover, there were some inconsistencies between data provided for this review and that provided for the previous review. All of this means that figures and estimates provided in this report need to be treated with some caution.
3.2.3 Historically, MDOs have not maintained data in a form which is directly amenable to ROC analysis. For example, it has not been possible to establish a comprehensive list of doctors who were eligible for the Scheme on 1 July 2004. This is not a criticism of the MDOs. It simply reflects that their business and information systems were not developed with a scheme like the Run-Off Cover Scheme in mind. However, in order to monitor the operation of the Scheme effectively, accurate and timely data is clearly important.
3.2.4 At the time of preparing this report, insurers were still developing their computer systems to facilitate accurate and timely notification to Medicare Australia of details of practitioners who become eligible for the Scheme. Accordingly, the estimates of the number of eligible practitioners provided in this report need to be treated with caution.
3.2.5 Certain information was sought from industry actuaries. Guidance was provided as to the nature of the data, calculations and information required. Discussions with industry actuaries were held to supplement the data provided.
3.2.6 As was the case last year, there was a range of assumptions used by industry actuaries. Although some significant assumptions differ by only a few percentage points between actuaries, substantially different estimates of Scheme costs are produced. This reflects the highly uncertain nature of estimates of the costs of the Scheme.
3.2.7 It is to be expected that many of the data issues encountered will diminish in time. This is likely to take a few years. Until data issues subside, Scheme projections will be subject not only to the considerable inherent uncertainty which surrounds medical indemnity insurance business, but also to additional uncertainty associated with the amount and quality of the available data.
3.2.8 In general, the results in this report blend estimates provided by industry actuaries with other actuarial estimates based on data provided by the MIIs and assumptions and models developed within this office.
3.3.1 Practitioners can become eligible for the Run-Off Cover Scheme by means of permanent retirement at age 65 years or older, cessation of practice for three years, death, permanent disability or maternity leave. In addition, practitioners who have worked under a subclass 422 (Medical Practitioner) or 457 (Business (Long Stay)) visa under the Migration Regulations 1994 become eligible for the Scheme when they have permanently ceased medical practice in Australia and ceased to reside in Australia.
3.3.2 Appendix 2 describes the test of eligibility for the Scheme and the process of issuing and notifying compulsory run-off cover to eligible practitioners. Eligible practitioners are entitled to receive notification of the terms and conditions of compulsory run-off cover from their MII. MIIs are also required to notify Medicare Australia of the details of the compulsory run-off cover provided, including the name of the practitioner and the date from which the cover took effect.
3.3.3 At the time of preparing this report, insurers were still developing their computer systems to facilitate accurate and timely notification to Medicare Australia of details of practitioners who become eligible for the Scheme. There are inherent lags in the system which mean that, at any time, it will be possible only to estimate the number of practitioners who are eligible for the Scheme. For example, there will often be a delay between the time that a practitioner becomes eligible for the Scheme and the time when the insurer becomes aware of this. It is also possible that there will be circumstances where an insurer is unsure of the eligibility status of a practitioner; for example, where a practitioner has not renewed their insurance for, say, three years. For all of these reasons, the estimates of the number of eligible practitioners provided in this report need to be treated with caution.
3.3.4 The estimated number of practitioners eligible for the Scheme in this report is based on data produced manually by the medical indemnity industry relating to:
- practitioners eligible at the commencement of the Scheme on 1 July 2004; and
- practitioners identified as having become eligible between 1 July 2004 and 30 June 2006.
3.3.5 Individual records of all practitioners identified as having become eligible for the Scheme between 1 July 2004 and 30 June 2006 were provided by all MIIs. In general, the numbers provided by the MIIs for practitioners eligible at 1 July 2004 are estimates.
3.3.6 Table 1 below divides eligible Run-Off Cover Scheme members into those eligible at the commencement of the Scheme on 1 July 2004, and those identified as having become eligible for membership since. The numbers specified are the sum of the numbers of eligible practitioners for each of the MIIs.
Table 1: Run-Off Cover Scheme eligible practitioners
|Practitioners eligible for the Scheme as at 1 July 2004||2,112|
|Practitioners who became eligible for the Scheme during the 2004-05 financial year||976|
|Practitioners who became eligible for the Scheme during the 2005-06 financial year||1,095|
|Total number of practitioners who had become eligible for the Scheme by 30 June 2006||4,183|
3.3.7 Based on data provided by the medical indemnity industry, over 4,000 practitioners had become eligible for cover under the Scheme by 30 June 2006 (we have not attempted to estimate the number who have ceased to be eligible). Over 2,000 of these were estimated to have been eligible for the Scheme at its commencement. This latter estimate is subject to considerable uncertainty, and may not represent the entire group of eligible practitioners at that date. According to the data provided by the industry, 976 practitioners have been identified as having become eligible for cover under the Scheme during 2004-05, and 1,095 during 2005-06.
3.3.8 Figure 2 below illustrates the break-up of the 2004-05 and 2005-06 new entrants by reason of eligibility.
Figure 2: Run-Off Cover Scheme new entrants by reason of eligibility
3.3.9 According to the data provided, 32 per cent of new entrants during 2005-06 were age retirements, 25 per cent were practitioners on maternity leave, 13 per cent were practitioners who died or became permanently disabled and 8 per cent were practitioners who became eligible for the Scheme three years after ceasing private practice. The remaining 22 per cent were overseas trained doctors who had permanently ceased practice under a 422 or 457 visa, labelled as ‘other’ in Figure 2 above.
3.3.10 As was the case last year, the number of age retirement new entrants reported by MIIs is lower than we would have expected. This may be due to some under-reporting. Alternatively, the concept of retirement might be less clear-cut for a private medical practitioner than for a member of the general workforce. For example, medical practitioners may move in and out of private practice as they approach ‘permanent’ retirement. This issue will need to be monitored in future years, and also in the administration of the Scheme. It should be noted that, for this investigation, we have not adjusted our assumed rates of retirement despite the apparently low retirement experience. As noted above, insurer systems for accurate and timely notification to Medicare Australia of Run-Off Cover Scheme eligibility are still being developed. Accordingly, we have decided to wait to see the results of more systematic notification processes before making adjustments. It is worth noting that estimates of the costs of the Scheme are very sensitive to the assumed retirement pattern.
3.3.11 The number of maternity leave new entrants is also lower than we would have expected. This may be due to under-reporting or may reflect relatively low fertility rates among practitioners or that relatively few practitioners tend to take maternity leave. Cost estimates are relatively insensitive to the maternity leave assumption.
3.3.12 The number of new entrants during 2005-06 who were practitioners who became eligible for the Scheme three years after ceasing private practice (resignation) is also lower than we would have expected. This number should be treated with caution for a number of reasons. Firstly, it is very possible that an insurer might not know whether a doctor has been out of private medical practice for three years. Secondly, the rate of reported resignations varied significantly amongst the insurers, and between 2004-05 and 2005-06.
3.3.13 These calculations exclude certain eligibility records related to practitioners whose eligibility status is unknown. However, a number of these records may represent practitioners who are eligible for the Scheme.
3.4.1 MIIs and MDOs are entitled to reimbursement from the Australian Government for the costs of claims which:
- are first notified to the MII or MDO on or after 1 July 2004;
- relate to a practitioner who is eligible under the Scheme at the date of notification (see Section 3.3); and
- meet the other requirements for ‘payable claims’ (see Appendix 3).
3.4.2 MIIs provided details of individual medical incidents which they have identified as potentially being eligible for the Scheme. The data provided was not wholly consistent with that provided for last year’s report. Moreover, there were some apparent internal inconsistencies within the data. It is quite possible that other medical incidents have been notified to MIIs since 1 July 2004 which were not included in the data but which will be eligible for the Scheme. It is also possible that some of the incidents notified will not be eligible for the Scheme. Accordingly, these numbers should be treated with caution.
3.4.3 As at 30 June 2006, 114 medical incidents had been notified to MIIs and MDOs relating to eligible medical practitioners since the commencement of the Scheme. Some of these incidents are formal medical indemnity claims and others might convert into formal medical indemnity claims which may then become payable under the Scheme. 39 incidents relate to the 2004-05 new entrants to the Scheme and 24 incidents relate to the 2005-06 new entrants. The other 51 incidents relate to those practitioners who were eligible at the commencement of the Scheme on 1 July 2004.4
3.4.4 The number of medical incidents notified to MIIs and MDOs which could potentially give rise to a future ROC indemnity payment is lower than perhaps might have been expected. There are a number of possible reasons for this:
- The medical indemnity insurance industry experienced high levels of claim activity prior to the commencement of the Run-Off Cover Scheme. High levels of claim activity prior to the commencement of the Scheme may have included claims that were ‘brought forward’ (that is, made earlier than they otherwise would have been), resulting in a lower than normal level of general claim activity during 2004-05 and 2005-06.
- It is possible that not all Scheme eligible claims have been identified. MIIs are likely to pursue Scheme recoveries diligently at a late stage in the claim process. Thus at this early stage (first twenty four months) some claims which will actually turn out to be eligible ROC claims may not yet have been identified as such. Similarly, MIIs might have adopted a cautious approach to identifying as eligible claims which were not clearly eligible at the time that the data was provided.
- It is possible that doctors approaching retirement might cut down on their practice hours and possibly engage in less ‘risky’ practice (for example, less surgery). This would be expected to lead to a lower level of claim activity among retired Scheme members.
- The assumed claim reporting pattern might be too heavily weighted to the ‘tail’. That is, claims might generally be reported earlier than assumed.
- The assumed decrement rates (rates of retirement, maternity leave, disability etc) might be too high.
- Only a small number of claims is expected in any one year. Random variation in the actual number of claims from year to year could be substantial.
3.5.1 ROC indemnity payments are the payments made by the Australian Government to MDOs and MIIs as reimbursement of the costs of eligible claims.
3.5.2 No ROC indemnity payments had been made by 30 June 2006. This is not altogether surprising because of the length of time involved in the claim process. ROC indemnity payments will generally be made close to or after the time when an MDO/MII has finalised a claim.
3.5.3 The Scheme also provides for payments in respect of administration and internal claims handling costs under the ROC Claims and Administration Protocol (section 34ZN of the Medical Indemnity Act).
3.5.4 During 2005-06, Medicare Australia made payments totaling $4.654 million to MIIs in respect of administration costs, covering both initial implementation and subsequent administration.
3.5.5 The Commonwealth’s own administration costs are Budget-funded and so are not considered in this report.
3.6.1 ROC support payments are paid to Medicare Australia in the form of an annual lump sum imposed as a tax on each MII from 1 July 2004 under the MI ROCSPA.
3.6.2 The amount of ROC support payments is calculated using a method set out in the MI ROCSPA. Appendix 1 describes the calculation in detail. Very briefly, it is based on:
Applicable rate × (premium income less taxes and charges) ÷ (1 + applicable rate).
3.6.3 For most MIIs the applicable rate is currently 8.5 per cent. In order to provide equivalence on a present value basis, a slightly higher percentage applies to one insurer, AMIL, whose policy year is a calendar year and which remits its ROC support payment six months after the other MIIs.
3.6.4 Table 2 below summarises the ROC support payments received during the 2005-06 financial year.
Table 2: ROC support payments
|ROC support payments ($’m)|
|Paid 31 December 2005||AMIL||9.634|
|Paid 30 June 2006||MIPSi||3.733|
(a) Numbers do not add exactly due to rounding.
3.6.5 In order to provide full transparency for practitioners, MIIs are required to attribute ROC support payments to individual policyholders. Each premium notice specifies the amount that has been included in the policyholder’s invoice to meet the MII’s ROC support payment obligations. All amounts are reported to Medicare Australia, which maintains a record of each practitioner’s total run-off cover credit. Interest is applied to this balance annually at the short-term bond rate in accordance with section 34ZS of the Medical Indemnity Act.
3.6.6 Part 2, Division 2B, Subdivision E of the Medical Indemnity Act provides for certain payments, should the Scheme ever be wound up without alternative arrangements being put in place. Thus, doctors who were still practising at the time of the wind-up of the Scheme would be entitled to have an amount not exceeding their total run-off cover credit paid to their nominated medical indemnity provider. Practitioners who were eligible for the Scheme at the time of its wind-up would not be entitled to any refund but would continue to be covered for any future claims that might emerge.
3.6.7 Figure 3 below summarises the contribution to ROC support payments by age of practitioner. The shape of the graph is similar to that produced in last year’s report. The proportion of ROC support payments is greater than the proportion of practitioners for doctors in their 40s up to their mid to late 60s. This reflects the low level of premiums for interns, trainees and hospital indemnified doctors aged in their 20s and 30s. The proportion of ROC support payments tends to diminish at higher ages. This provides some support for the suggestion that doctors tend to wind down their practice hours and possibly perform fewer risky medical procedures (for example, surgery) as they approach retirement, resulting in lower premiums.
Figure 3: Contribution to ROC support payments by age
3.6.8 Figure 4 below summarises the contribution to ROC support payments by area of specialisation.
3.6.9 Medical indemnity insurance premiums tend to be risk-based. Thus, practitioners operating in risky areas of specialisation are likely to incur the highest premiums and, accordingly, the highest ROC support payment liabilities. The largest ROC support payments are for obstetricians, gynaecologists, neurosurgeons, cosmetic/plastic/reconstructive surgeons, orthopaedic surgeons and general surgeons. Medical practitioners not otherwise classified (including interns, trainees and hospital indemnified doctors) have the smallest ROC support payments.
Figure 4: Contribution to ROC support payments by specialisation
3 A database of ROC support payments is maintained by Medicare Australia.
4 Differs from the corresponding number reported last year of 59.