2019 health insurance reforms: Second tier administrative reforms

Second tier administrative reforms will reduce both insurers' and hospitals' workload.

As health insurance premiums continue to rise, the Australian government is rolling out a series of wide-ranging reforms aimed at making private health insurance less complicated and more affordable.

This also includes making things easier for insurers and doctors, not just policyholders. For example, many of the changes, like the second tier administrative reforms, aim to simplify current administration procedures, cut out unnecessary costs and increase transparency.

The government says this change will improve the administrative efficiency of the second tier process without compromising the protection it provides the private health insurance (PHI) holder.

What's changing in second tier administration?

Second-tier default benefits provide patients treated in an eligible hospital that don't have a negotiated agreement with the patient's insurer access to higher benefits than those that would otherwise be payable.

As of 1 January 2019, the government made a number of administrative improvements to the second tier default benefit arrangements in order to reduce the amount of admin private hospitals and health insurers previously faced. Part of this involved categorising all declared private hospitals into the following categories:

a. Private hospitals that provide psychiatric care for a minimum of half their patients.

b. Private hospitals that provide rehabilitation care for a minimum of half of the episodes of hospital treatment.

c. Private hospitals that have up to and including 50 licensed beds and don't fall into categories (a), (b) or (g).

d. Private hospitals with up to and including 100 licensed beds and don't fall into categories (a), (b) or (g).

e. Private hospitals that don't have an accident and emergency unit but have up to or more than 100 beds.

f. Private hospitals with more than 100 licensed beds and an accident and emergency unit.

g. Private hospitals that provide hospital treatment for no more than 24 hours.


The new categories are designed to help insurers calculate second tier defaults faster and more efficiently.

Private hospitals will also be able to apply directly to the Department of Health for recognition that they are eligible for second tier default benefits. This will replace the existing industry-based second tier advisory committee.

The length of a private hospital's second tier eligibility approval will also be increased to align with the hospital's independent hospital accreditation cycle.

The Department of Health will also work with the Australian Commission on Safety and Quality in Health Care, the Australian Institute of Health and Welfare and the private health insurance and private hospital sectors to continue to update second tier administrative arrangements.

How the changes to second tier health impact you?

Private hospitals and health insurers will be the main beneficiaries of this reform, which eliminates a lot of time-consuming admin.

Private hospitals choosing to apply for second tier eligibility will pay an application fee to cover the cost of assessing their application. The new improvements will save private health insurers and hospitals money and may contribute to lower premiums.

However, implementing and managing the overall improvements to the second tier administrative arrangements will have a small impact on the taxpayer. In order to help private health insurers and private hospitals, the government will need to fork out around half a million dollars over four years.

Will it impact your wallet?

There's no guarantee that the administrative changes will actually help you, as a customer, to put more money in your wallet. That being said, the second tier reforms will save insurers and hospitals administrative costs, which should contribute to lower premiums in the long run.

Why is it changing?

The government's primary agenda is to make PHI simpler and easier to use, not just for patients but for doctors and insurance providers as well.

Until recently, there was a huge amount of administrative burden involved in second tier processes. The change was part of an effort by the government to streamline PHI services and reduce unnecessary spending and effort, while ensuring the customer continues to be protected.

The change also makes it easier for private hospitals. The new categories provide them with greater certainty, knowing that hospitals are grouped consistently for the purpose of calculating and paying second tier benefits.

When will these changes take place?

The changes came into place at the beginning of 2019. With a whole host of changes set to come in to effect later this year, it's important that private hospitals and health insurance providers were alleviated from the heavy admin involved in second tier processes. That way, they're better equipped to cope with the upcoming changes.

What else is changing across private healthcare in Australia?

There are several changes coming this year including:

  • Product tiers. A new simplified tiered health insurance system has been rolled out, making it easier to compare hospital policies.
  • Discounts for 18- to 29-year-olds. Insurers can now offer discounts to people under 30.
  • Better access to mental health services. Those in need of mental health services can now skip their waiting periods when they upgrade their policies.

Picture: Unsplash

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