A.6.1 The HCCS is part of the broader package of Australian Government measures announced on 23 October 2002 that were designed to address problems with the medical indemnity insurance industry.
A.6.2 The HCCS is governed by Division 2 of Part 2 of the Medical Indemnity Act 2002. Under the HCCS, MIIs and MDOs are reimbursed for part of the costs of large claims notified to them on or after 1 January 2003.
A.6.3 The HCCS meets 50 per cent of the excess above the threshold (currently $300,00013) of the cost of individual large claims, before the operation of the Scheme.
A.6.4 The HCCS threshold and the percentage used to calculate the amount of indemnity can be changed by way of regulation. The HCCS threshold has been changed by way of regulation as follows:
- $2 million for claims notified between 1 January 2003 and 21 October 2003;
- $0.5 million for claims notified between 22 October 2003 and 31 December 2003;
- $0.3 million for claims notified between 1 January 2004 and 30 June 2018; and
- $0.5 million for claims notified from 1 July 2018.
A.6.5 For example, for a claim which costs $1 million notified on 1 April 2012, the HCCS will pick up:
50 per cent × ($1,000,000 — $300,000) = $350,000
A.6.6 The Department of Human Services collects data in relation to the HCCS, in addition to the Scheme data described in section 3. They provide some insight into the likely profile of large medical indemnity claims.
A.6.7 Data collected in relation to the HCCS include:
- details of claims/incidents notified to MIIs and MDOs by 30 June 2016 which might lead to recoveries under the HCCS;
- actuarial estimates of that part of the cost of claims relating to incidents which occurred before 30 June 2016 and are expected to be recoverable under the HCCS; and
- an estimate of that part of the future claims cost of medical incidents notified during the 2016-17 to 2021-22 financial years which is expected to be recoverable under the HCCS.
A.6.8 A small proportion of medical indemnity claims are larger than $300,000. These high-cost claims have a noticeable influence on the total cost of medical indemnity each year.
A.6.9 According to the data collected, as at 30 June 2016, 1,625 claims/incidents had been notified to MIIs and MDOs which were expected to be covered by the HCCS. They all have a case estimate attached to them.
A.6.10 The cost estimates available for HCCS claims/incidents represent total case estimates, including amounts already paid as at 30 June 2016. This figure is around $1,382 million. Of this, around $898 million had already been paid by insurers as at 30 June 2016, and around $484 million remained outstanding.
A.6.11 The HCCS data provides a reasonable but imprecise measure of the likely profile of large medical indemnity claims.
A.6.12 The distribution of estimated costs of HCCS-eligible claims notified between 1 January 2004 and 30 June 2016 is shown in Table 21. The distribution is presented in terms of the proportion of total estimated claim cost attributable to each claim size band. For example, about 70 per cent of the total estimated cost of HCCS-eligible obstetrician claims was attributable to claims expected to cost above $2.0 million, while the equivalent figure for non-obstetrician claims was only 25 per cent. It shows that obstetricians are more likely to have larger claims.
Table 21: Distribution of High Cost Claims Scheme-eligible claims
Relevance of High Cost Claims Scheme data to the Run-Off Cover Scheme
A.6.13 The HCCS data illustrates the pattern of delay between a relevant negligent medical incident and the date that a large claim/incident is notified to the MII or MDO. The claim reporting pattern (based on claim numbers) observed in relation to HCCS claims is compared in Figure 7 to the general medical indemnity claim reporting patterns assumed for the purpose of undertaking the Scheme cost analysis. Note that eligible claims are included which were notified between 1 January 2004 and 30 June 2016, with an applicable threshold of $0.3 million.
Figure 7: High Cost Claims Scheme claim reporting pattern
A.6.14 Claims which take longer to report tend to be bigger on average. In addition, the longer the delay involved in notifying a claim, the more likely the claim will be notified at a time when the practitioner is eligible for the Run-Off Cover Scheme.
A.6.15 Thus, the small proportion of large claims made against retired practitioners will have a marked impact on the total cost of the Scheme.
A.6.16 The proportion of HCCS recoverable for ROC claims will increase with the delay in reporting, and the assumed proportions are listed in Table 22. These have been updated since last review to reflect the change in the HCCS threshold as well as the changes in the notification pattern assumption.
Table 22: Proportion of High Cost Cover Scheme recoverable
13 Subject to the passage of the Medical Indemnity (High Cost Claim Threshold) Amendment Regulations 2017 in Parliament, the High Cost Claim Threshold will increase from $300,000 to $500,000 from 1 July 2018 (announced by the Government in the Mid-Year Economic and Fiscal Outlook 2016-17 on 19 December 2016).