A few weeks ago, I raised a question about whether provisions of private health insurance policies, which allow unilateral variations to the policy, may constitute unfair contract terms irrespective of whether an insurer satisfies the requirements of the Private Health Insurance Act 2007 (Cth) and the voluntary Private Health Insurance Code of Conduct.

As it turns out, there was possibly a more fundamental question. What if a private health insurer does not notify a detrimental change to the benefits payable under their policies at all? I am - of course - talking about the recent proceedings brought by the ACCC against Medibank for an alleged breach of the Australian Consumer Law.

The allegations against Medibank are concisely made and, if proven, quite damning.

The ACCC alleges that in 2014, Medibank decided to terminate or let expire its agreements with diagnostic service providers (known in the industry as Medical Purchaser-Provider Agreements or MPPAs). Where an MPPA is in place, an insurer will pay to the diagnostic service provider an amount above the Medicare Benefits Schedule (MBS) fee, typically eliminating any “gap” payment which would otherwise be payable by the insured person. If there is no MPPA, an insurer will only pay the statutory minimum benefit (25% of the MBS fee). The other 75% of the MBS fee is payable by Medicare. The net result is that unless the diagnostic service providers voluntarily reduce their fees to precisely 100% of the MBS Fee, the insured person will pay a gap.

Private health insurers go “out of contract” with health care providers from time-to-time (often in the throes of contentious contract renewal negotiations). Where this case departs from the ordinary is that the ACCC alleges that Medibank adopted a deliberate strategy of keeping communications 'contained' and 'reactive' (that is, only communicating with members when they made enquiries or submitted complaints). The ACCC say that this conduct was not only misleading and deceptive within the meaning of the Australian Consumer Law but also, by reason of the special vulnerability of those most effected by the change, unconscionable.

Medibank refute the ACCC’s claim.

Leaving to one side for a moment the specific facts of this case, it is quite easy to see how a similar situation might come about. The Private Health Insurance Act 2007 (Cth) contemplates private health insurers making unilateral changes to their products. The key requirement is that an insurer must ensure that each adult insured under a policy in the affected product is informed about the proposed change a “reasonable time” before the change takes effect if the proposed change is, or might be, detrimental to the interests of an insured person. However, that obligation applies to a change to the insurer’s rules. An insurer going out of contract with a provider - whether a hospital or a diagnostic service provider - would not typically involve a change to the insurer’s rules.

The voluntary Private Health Insurance Code of Conduct provides additional guidance on communicating detrimental changes but that guidance is limited when it comes to addressing changes to contracting arrangements rather than changes to benefits (ie. rule changes). In its most recent Private Health Insurance Report, the ACCC commented:

The Private Health Insurance Code stipulates that consumers should be provided with 30 or 60 days written notice depending on the nature of the change. While the Code acknowledges that changes to fund/hospital contracting arrangements can affect a consumer, the Code does not include any requirement for notification in these circumstances.

Is that exculpatory? I doubt it. Complying with a specific legislative requirement or industry code does not mean compliance with the Australian Consumer Law.

Where to from here? Well, the Medibank case still has a long way to run and the indications are that it is the first in a series of cases in the industry. For now, perhaps the key learning is that drawing a distinction between a change in benefits because of a rule change and a change in benefits because of a change in underlying contracting arrangements is probably artificial when the outcome for the insured person is the essentially same.