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General PHIAC Circulars

Private Health Insurance Administration Council
Reporting Requirement

Contents:

Commencement
2

Interpretation
2

Records of the Registered Health Benefits Organisation
3

Specific Requirements
3

Contribution Income
3

Commissions, Discounts and Refunds from Contribution Income
3

Contributions In Arrears & Contributions In Advance
3

Diversified Activities
4

Claims Paid
4

Unpresented and Outstanding Claims Provisions
4

Reinsurance Account Transactions
5

Basis of Valuation of Assets
5

Valuation of Land and Buildings
5

Audit Report
6


STATEMENT OF REQUIREMENTS FOR REPORTING TO PHIAC BY REGISTERED HEALTH BENEFITS ORGANISATIONS

These requirements are issued by PHIAC under the provisions of Section 82M of the National Health Act. An endeavour has been made to mirror the requirements under Corporations Law but minor differences will occur in a number of areas.

Commencement

These requirements apply for all reports to PHIAC for periods commencing on or after 1 July 2001. Failure to comply with these requirements constitutes a breach of a condition of registration.

Interpretation

In these rules:

a)

"AASB" accompanied by a number, means the relevant accounting standard made by the Australian Accounting Standards Board for the purposes of the Law which is designated by that number, as in force from time to time;

b)

"accounting standards" has the meaning given by section 9 of the Law;

c)

"Act" means the National Health Act 1953 as in force from time to time;

d)

"financial statements" has the meaning of section 9 of the Law;

e)

"Law" means the Corporations Law as in force from time to time;

f)

"net market value" means the amount that could be expected to be received from the disposal of an asset in an orderly market after deducting the costs expected to be incurred in realising the proceeds of such a disposal;


Other words and phrases used in these requirements shall have the meaning given to them by the Law, the accounting standards and the Act.

For the purposes of PHIAC reporting, where there is an inconsistency between these requirements and the Law or the accounting standards, these requirements shall have precedence.


Records of the Registered Health Benefits Organisation

For the purposes of section 82 of the Act, Registered Health Benefits Organisations must comply with:

a)

an obligation to keep records in accordance with section 74C of the Act and section 286 of the Law; and

b)

except where they are expressed not to apply in these requirements, the accounting standards.


Specific Requirements

Contribution Income

Contribution Income reported for the period should reflect the income earned for that period. Income earned includes the following components:-

a)

Net cash received in the period (including refunds of contributions)

b)

plus contributions in advance at the start of the period

c)

less contributions in advance at the end of the period

d)

plus contributions in arrears at the end of the period,

e)

less contributions in arrears at the start of the period.

Organisations must advise PHIAC if there is any change to its practices of determining cash received.


Commissions, Discounts and Refunds from Contribution Income

Commissions payable to groups or agents must not be deducted from the contribution income figure but must be recorded separately as a management expense.

Discounts on contributions paid in advance must be deducted from the gross contribution income figure. The effect is that income is treated as the net amount received from the contributor.

Where refunds are made these must be netted against contribution income.


Contributions In Arrears & Contributions In Advance

Contributions in Arrears must be based on a collection ratio established from past experience.

Organisations must be able to validate the estimates for contributions in arrears as at the end of a given period. This validation must be made available to PHIAC on request at the organisation's premises.

Provision for Contributions in Advance must reflect the amounts actually received prior to balance date for insurance cover in periods after balance date.


Diversified Activities

Expenses directly related to diversified activities must be charged against the diversified income and only the net result reported in the notes accompanying the health fund accounts forwarded to PHIAC.

Where diversified activities of the registered health benefits organisation are conducted through subsidiary companies the consolidated financial statements must accompany the financial statements for health funds lodged annually with PHIAC.

Claims Paid

Claims experience should be recorded on a gross claims paid basis, that is, quantifying the actual claims paid during the accounting period.

Unpresented and Outstanding Claims Provisions

The total provision must be identified in financial statements as the "Provision for Unpresented and Outstanding Claims".

The total provision consists of four parts:

a)

Provision for Unpresented Claims is to represent claims for hospitalisation and other services rendered prior to the balance date but not presented to the organisation by that date.

b)

Provision for Outstanding Claims represents the cost of claims that have been received or are in dispute at the balance date.

c)

Reinsurance asset/liability associated with the unpresented and outstanding claims is an additional liability for the payment to or from the Reinsurance Trust Fund which will arise in respect of those claims. A best estimate in relation to this amount must be made and included in the provision

d)

Administration allowance - the payment of claims incurs an administration cost and thus an allowance for that cost must be included in the total provision.


The total cost of these claims must be incorporated in the claims expenditure for the period of receipt with the corresponding liability listed under the total "Provision for Unpresented and Outstanding Claims" in the balance sheet.

In assessing the provision it is important that regard be had for the following standards/factors:

  1. the integrity of the data base is essential to the accuracy of the financial systems. Payment data should be reconciled to the General Ledger on a monthly basis to ensure that the correct payment information is used in the calculation of the provision.
  2. the claims experience should be evaluated over time by relating the month of payment to the month of service. The accuracy of the calculation is improved if the claims analysis is undertaken on a table basis with particular emphasis being placed on the most recent claims experience.
  3. the volatility of the claims experience is affected by seasonal factors and these factors should be evaluated and built into the provision calculation. The calculations will also be affected by the number of days in the month and thus those variations should be balanced out in order to provide consistency and accuracy in the provision calculation.
  4. local factors including processing backlogs, changes to hospital claiming patterns, changes in fund membership should be taken into account.


Reinsurance Account Transactions

Section 73BB of the National Health Act requires that a registered organisation establish and maintain a Reinsurance Account in respect of each fund operated. The amounts debited to the Reinsurance Account during the quarter must agree with the totals reported in PHIAC 1 returns.

At the end of each quarter, organisations must estimate the amount payable to or from the Health Benefits Reinsurance Trust Fund in respect of that period. The net figure should be taken into account when preparing the operating statement for the period and the estimated Trust Fund payment should be brought into the balance sheet as a liability or an asset, as the case may be.


Basis of Valuation of Assets

All assets must be measured on the basis of net market value.


Valuation of Land and Buildings

Land and buildings be valued on a net market value basis. In addition the following reporting requirements must be applied:-

The initial valuation and a new "full" valuation at least every three years should be carried out by an independent qualified valuer.

An individual external valuer should not undertake more than three consecutive "full" valuations of a particular property.

A distinction is made between "full" market valuations and "kerb-side" valuations. For the purposes of PHIAC reporting, kerb-side valuations are equivalent to Directors' valuations, but increasing values may be reflected in the accounts of the organisation.

Directors' valuations may be made within the three years' period provided that the directors' valuation amount does not exceed the value attributed by the independent valuer at the time of the last independent valuation.

To ensure a consistent approach is taken to property valuations across the industry, the following Valuation Requirements should be applied:-

In valuing space occupied by the organisations in a building owned by the company or a controlled entity of the organisations, the following principles should be adopted:-

  • a "notional" lease is in place for the owner occupied area;
  • at the time of valuation, the assumed passing rent to be used should be the average of face marke rents for the last five years;
  • it should also be assumed that 20% of the area of owner occupied space is to be renewed at current face market rental at the time of each valuation;
  • market incentives should be allowed for in each of the above;
  • space which the organisation does not have genuine intentions to occupy should be treated as vacant space

The valuer should have responsibility for determining the current face market rental values as well as the appropriate term of the lease; the latter should have regard to the nature and quality of the building as well as to the likely future requirements of the organisation with particular justification necessary if the term assumed is greater than ten years.

 

Audit Report

The annual financial reports to PHIAC for the health fund(s) operated by an organisation must be accompanied by a report from the organisation's external auditor.

 

 

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