Australian Government, Australian Government Actuary

Appendix 6: High cost claims

The High Cost Claims Scheme

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 $300,00012) 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

Data collection

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 2017 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 2017 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 2017-18 to 2021-22 financial years which is expected to be recoverable under the HCCS.

Analysis of large claims

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 2017, 1,715 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 2017. This figure is around $1,437 million. Of this, around $450 million is estimated to be recoverable from the HCCS.

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 2017 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 claims was attributable to claims expected to cost above $2.0 million.

Table 21: Distribution of High Cost Claims Scheme-eligible claims

Almost half of total claim cost is in claim sizes between $0.5 million and $2 million. More than 30% is attributable to claims that are larger than $2 million.

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 the HCCS eligible claims included were notified between 1 January 2004 and 30 June 2017, with an applicable threshold of $0.3 million.

Figure 7: High Cost Claims Scheme claim reporting pattern

This chart compares the observed HCCS claim reporting pattern with the assumed claim reporting for all claims.  We assumed that 33 per cent of all claims are reported in the same year as the medical incident (i.e. development year 1). This can be compared with the 29 per cent of observed HCCS claims.  We assumed 82 per cent of claims will be reported in the first four development years. This can be compared with 74 per cent of observed HCCS claims.

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 average claim size assumption as well as the changes in the notification pattern assumption.

Table 22: Proportion of High Cost Cover Scheme recoverable

We assumed a 20 year maximum delay in reporting for all claims. Since claim sizes increase with the delay in reporting, and that larger claims attract higher HCCS recoverable, we assumed that the proportion of HCCS recoverable will steadily increase to 20% by duration 20.

12 As announced by the Government on 19 December 2017 in the Mid-Year Economic and Fiscal Outlook 2016-17, the High Cost Claim Threshold will increase from $300,000 to $500,000 from 1 July 2018.