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Private Health Insurance Administration Council - Annual Report 2015

 
 

About the Private Health Insurance Administration Council
 
The Private Health Insurance Administration Council (PHIAC) was the independent prudential regulator of the private health insurance industry (the PHI industry) in Australia during the 201415 year. PHIAC was established in 1989 and continued to exist under section 264-1 of the Private Health Insurance Act 2007 (PHI Act) as a statutory authority reporting to the Minister for Health, the Hon Peter Dutton MP (to December 2014) and the Hon. Sussan Ley MP (the Minister) until 30 June 2015. During this time, PHIAC was also subject to guidance from the Minister for Finance, the Hon Mathias Cormann.
 
PHIAC's prudential supervision functions, and its assets and liabilities were transferred to the Australian Prudential Regulation Authority (APRA) with effect from 1 July 2015.
 
PHIAC was responsible for monitoring the prudential performance of private health insurers. PHIAC administered entry and exit from the industry, conducted oversight on a range of industry transactions, and calculated and distributed the Risk Equalisation Trust Fund (RETF). PHIAC's supervisory approach was forward looking and risk based, recognising that the board and the management of each insurer are primarily responsible for the soundness of their operations.
 
PHIAC also provided specialist advice to the Parliament through the Minister for Health, Senate Estimates Committee meetings, individual requests about the operations of the industry and the annual health insurance premium applications.
 
Private health insurance is a key element in the Australian health system and PHIAC played an important role in protecting the interests of consumers by seeking to ensure that the industry operated soundly. This important role will continue through APRA from 1 July 2015.
 
Through the PHI Act, PHIAC was required to take all reasonable steps to strike an appropriate balance between three objectives:
  • fostering an efficient and competitive health insurance industry;
  • protecting the interests of consumers; and
  • ensuring the prudential safety of individual insurers.
PHIAC applied the highest standards in meeting those objectives in all areas of its work.
 
These standards were applied to PHIAC's interactions with the Parliament, the private health insurance industry and consumers, as it sought to demonstrate the core values of the Australian Public Service of impartiality, transparency, commitment to service, respect and integrity.
 
 

Letter of Transmittal
 
Letter of transmittal
 
Click on the above image to view the letter of transmittal in a larger size.
 
 

Glossary
 
Abbreviation Full Title
ABS Australian Bureau of Statistics
ACCC Australian Competition and Consumer Commission
AIHW Australian Institute of Health and Welfare
ANAO Australian National Audit Office
APRA Australian Prudential Regulation Authority
ARCC The Audit, Risk and Compliance Committee of the Council
ASIC Australian Securities and Investments Commission
Capital Standards, the The Capital Adequacy and Solvency Standards—as established in Divisions 140 and 143 of the PHI Act
Council, the The decision-making body of PHIAC
DoH Department of Health (formally the Department of Health and Ageing)
EMC Executive Management Committee
EPBC Act Environment Protection and Biodiversity Conservation Act 1999
FMA Act Financial Management and Accountability Act 1997
FOI Act Freedom of Information Act 1982
Fund The health benefits fund or funds conducted by an insurer registered under the PHI Act
Industry, the The private health insurance industry
Insurer A private health insurer registered under the PHI Act
IAIS International Association of Insurance Supervisors
IPO Initial Public Offering
IPS Information Publication Scheme
MoU Memorandum of Understanding
MPL Medibank Private Ltd
OBPR Office of Best Practice Regulation
PGPA Act Public Governance, Performance and Accountability Act 2013
PGPA Rule Public Governance, Performance and Accountability Rule 2014
PHI Private health insurance
PHIPS Act Private Health Insurance (Prudential Supervision) Act 2015
PHIAC Private Health Insurance Administration Council
PHIO Private Health Insurance Ombudsman
Prudential Standards Industry standards made under Division 163 of the PHI Act
RETF Risk Equalisation Trust Fund
RIS Regulatory Impact Statement
SOP Standard Operating Procedure
WHS Act Workplace Health and Safety Act 2011
 
Symbols Description
- nil or rounded to zero
% per cent
 
 
Chapter 1: PHIAC's performance in 2014-15

In the year under review, PHIAC's activities were conducted in accordance with the legislative and administrative requirements of the Private Health Insurance Act 2007 (the PHI Act), the Australian Government 2014-15 Health Portfolio Budget Statements and PHIAC's Corporate Plan 2014-16.
 
The focus for this chapter is the performance of PHIAC in relation to the achievement of its objectives in 2014-15.
 
Main functions of PHIAC
 
During 2014-15, the core functions and responsibilities of PHIAC were to:
  • regulate the prudential state of the PHI industry; » administer the Risk Equalisation Trust Fund (RETF);
  • review and approve PHI industry transactions;
  • provide information and statistics to the public and the PHI industry; and
  • close the agency and transition its functions, assets and liabilities to the Australian Prudential Regulation Authority (APRA) and the Department of Health (DoH) by 1 July 2015.
Corporate objectives
 
In order to continue to achieve the corporate objectives established by PHIAC in 2014, the organisation focussed on the following key work projects and initiatives from the Corporate Plan listed below.
 
Set Standards - PHIAC strongly believed that appropriate standards played a key role in promoting and maintaining good practices within the PHI industry. Accordingly, PHIAC continued its work monitoring compliance with the prudential standards to ensure that health funds conducted their affairs in accordance with best prudential practice, particularly in the areas of capital adequacy and solvency.
 
Engagement with the PHI Sector - PHIAC provided information and thought leadership to the industry and policy makers on issues of key interest. PHIAC continued to actively engage the sector, to ensure that trends, issues, and conduct relevant to the supervision of the industry were identified; that policies and standards had appropriate input from all stakeholders and that industry participants were aware of their compliance obligations.
 
Consumer Protection and Pricing of PHI Products - PHIAC reviewed and provided advice to Government on premium increases with appropriate consideration of consumer interests, industry competition and prudential safety.
 
Overseeing Insurer Operations and Compliance - PHIAC continued its program of reviewing the operations of health insurers to ensure that they were compliant with legislation and were soundly run.
 
Working Transparently - PHIAC continued its work in ensuring its policies and standard operating procedures were up to date and reflected better practice in the administration of the PHI Act.
 
Preparedness and Responsiveness - PHIAC ensured that it is as ready as it can be to deal with any crisis or emerging issue in the PHI industry. In particular, PHIAC continued to absorb the lessons of previous regulatory incidents and crisis simulations to ensure that it is capable and prepared for such eventualities.
 
Transactional Activity - PHIAC recognised that the industry is likely to continue to restructure through mergers and acquisitions. PHIAC provided information to the PHI industry which assisted those funds that were considering such moves to better appreciate their regulatory obligations. PHIAC managed a range of transactions in the period and completed them within regulatory timeframes and in close consultation with the relevant parties.
 
Support the Minister and the Department of Health (DoH) in their management of PHI - PHIAC supported the Minister and DoH in their management of private health insurance as part of the broader Australian health system.
 
Organisational Governance - PHIAC implemented changes to governance and financial accountability laws for Commonwealth statutory authorities to ensure that it remained fully compliant with both the law and government policies.
 
Performance highlights for the 2014-15 period included:
  • post implementation review of insurers' compliance with the new Capital Standards;
  • ongoing executive and operational engagement with individual insurers;
  • effective administration of the RETF;
  • further automation of insurer reporting;
  • enhanced data validation processes;
  • streamlining of report production;
  • pricing round and actuarial modelling of individual insurers;
  • a range of PHI industry transactions; and
  • strong business and project management in facilitating and supporting the integration of PHIAC with APRA.
PHIAC developed a business plan to operationalise the key priorities in the corporate plan and reported on the progress to each meeting of the Council.
 
Health Portfolio Budget Statements
 
In 2014-15 PHIAC reported to the Parliament on its operations and the operations of the private health insurance industry through the Health Minister.
 
The 2014-15 Health Portfolio Budget Statements - Private Health Insurance Administration Council Agency Resources and Planned Performance - provided the major public accountability framework against which PHIAC's performance was measured.
 
PHIAC's outcome and program structure was set out in Portfolio Budget Statements 2014-15 Budget Related Paper No. 1.10 — Health Portfolio. It consisted of one outcome and one program, each of which was consistent with the functions and objectives of PHIAC as set out in Division 264 of the PHI Act, namely:
 
Outcome 1—Prudential safety and competitiveness of the private health insurance industry in the interests of consumers, including through efficient industry regulation.
 
Program 1.1—Private health insurance prudential regulation and risk equalisation trust management.
 
In 2014-15, PHIAC achieved all performance targets described in the Portfolio Budget Statements, as detailed in Table 1.
 
Table 1: PHIAC's Deliverables in 2014-15 against Program 1.1 of the Health Portfolio Budget Statements
 
Closure of the entity, including windup and transfer of its functions, assets and liabilities to the Australian Prudential Regulation Authority and the Department of Health (DoH) by 1 July 2015
Deliverables 2014-15 Reference Point or Target 2014-15 Result
PHIAC programs and activities are transferred to the Australian Prudential Regulation Authority and the Department of Health Information and support is provided to the Australian Prudential Regulation Authority and the Department of Health to assist in the smooth transfer of programmes and activities ACHIEVED
PHIAC provided comprehensive information and support to APRA and Department of Health that resulted in the smooth transfer of programs and activities on 1 July 2015
PHIAC assets and liabilities are identified and transferred to the Australian Prudential Regulation Authority and the Department of Health Due diligence completed to identify all assets and liabilities ACHIEVED
The independent due diligence review confirmed all assets and liabilities were diligently identified
 
PHIAC assets and liabilities are identified and transferred to the Australian Prudential Regulation Authority and the Department of Health Support provided to transfer assets and liabilities to the Australian Prudential Regulation Authority and the Department of Health ACHIEVED
The independent due diligence review confirmed comprehensive planning and support was applied to the transfer of assets and liabilities
 
Prudential safety, industry competitiveness and consumer confidence
Deliverables 2014-15 Reference Point or Target 2014-15 Result
Private health insurance funds are assessed against Capital Adequacy and Solvency Standards to ensure their solvency Insurers are assessed at least quarterly as part of the examination of mandatory returns, and reports on matters of concern are prepared by management as required and considered by the Council in the discharge of its prudential oversight ACHIEVED
All health benefits funds (funds) operated by insurers were assessed quarterly against the Capital Standards.
 
PHIAC also continued to project each fund's capital strength and solvency over a 12 to 18 month period to provide greater certainty to the Parliament and consumers about the long term competitiveness and sustainability of the industry.
Percentage of funds continuing to be solvent and compliant with the Capital Adequacy Standard 100% 100%
Number of targeted reviews of insurers carried out 9 25
 
Prudential standards for the private health insurance industry
Deliverables 2014-15 Reference Point or Target 2014-15 Result
Prudential standards reflecting best regulatory practice are developed and implemented Relevant policies are prepared and submitted for industry consultation and feedback ACHIEVED
PHIAC worked with APRA and the industry to effectively transition the existing prudential standards by 30 June 2015
Percentage of insurers compliant with PHIAC obligations and zero financial loss for policy holders 100% 100%
 
Effectively manage the Risk Equalisation Trust Fund
Deliverables 2014-15 Reference Point or Target 2014-15 Result
Complete all trust fund transactions correctly and in accordance with legislation Transactions certified as accurate by the Australian National Audit Office (ANAO) ACHIEVED
All Risk Equalisation Trust Fund transactions were completed correctly in line with information provided by industry and certified as accurate by the Australian National Audit Office.
Percentage of quarterly payments calculated correctly and made on time 100% 100%
 
Financial performance
 
PHIAC's core regulatory activities were funded in 2014-15 by the PHI industry through an administration levy. The rate of the levy was set annually by the Minister for Health and could only be varied by an application to the Minister.
 
In 2015-16 the levy on the PHI industry for prudential supervisory activities was formalised under the Private Health Insurance Supervisory Levy Imposition Act 2015.
 
PHIAC's total operating expenditure in 2014-15 was $7.05 million, compared with a budget of $6.93 million. During the year, PHIAC earned $168,760 in interest.
 
Following consultations with APRA, DoH and the Departments of Treasury and Finance, approval was given for PHIAC's cash balance at 30 June 2015 to be transferred to APRA ($3.794 million) to facilitate the ongoing supervision of the PHI industry in early 2015-16.
 
PHIAC also managed the Risk Equalisation Trust Fund (RETF) on behalf of the PHI industry. During 2014-15, $441 million was processed through this account. PHIAC earned $48,205 in interest on the RETF account and there were no late payment penalties. The interest earned on the RETF was returned to the PHI industry under the RETF arrangements. No monies from the RETF were utilised by PHIAC.
 
Transfer to APRA
 
Following changes to the Private Health Insurance Act 2007 (PHI Act) in 2014-15, on 30 June 2015 PHIAC closed its operations and on 1 July 2015 its prudential supervision functions, assets and liabilities were transferred to APRA. This was part of the Government's Smaller Government Reform initiative announced in the 2014 Federal Budget.
 
The transition was effected through the combined efforts of a number of agencies including PHIAC, APRA, and the Commonwealth Departments of Health, the Treasury and Finance.
 
A project management approach was applied to the transition with detailed project plans developed, project managers identified and appropriate project governance structures and processes applied.
 
In April 2015 the Ministers for Health and Finance approved the Council covering the costs of transition by operating at a loss in 201415, rather than imposing a supplementary levy on the PHI industry. This approval enabled the Council to fund all transition-related expenses ($1.08 million) from the Council Reserve.
 
Confirmation was also received in April 2015 that the PHI industry would receive a short term financial benefit from the transition by not being levied for the final quarter of the 2014-15 financial year ($1.554 million). This was achieved by the Minister for Health amending the Private Health Insurance (Council Administration Levy) Rules 2007.
 
During the transition year 2014-15, PHIAC maintained a strong and visible presence in the industry to ensure that insurers remained efficiently run and prudentially sound.
 
A dedicated and professional transition team at PHIAC, DoH and APRA worked closely with the Department of the Treasury to develop the primary transitioning legislation. The team at PHIAC also worked with APRA to transfer the existing rules governing the operation of the levies and the prudential standards.
 
The high level of professionalism and collaboration between PHIAC and APRA will ensure that the diligent regulation and supervision of the health insurance industry will be maintained under APRA, with key staff transferring from PHIAC to APRA.
 
As a result of this transfer this is the final Annual Report as PHIAC.
 
 
Chapter 2: PHIAC's activities in 2014-15

PHIAC's vision for 'Protecting consumers of private health insurance by ensuring an industry which is competitive, efficient and financially sound' was delivered through five key goals:
  1. Ensuring that PHIAC's supervision of the PHI industry promotes its efficiency and prudential soundness;
  2. Safeguarding both public and consumer interests through supervision of the PHI industry;
  3. Being a trusted and valued adviser to Ministers, Government and Parliament;
  4. Being a collector, repository and publisher of useful information about the PHI industry and the setting in which it operates; and
  5. Performing our role efficiently, ethically and lawfully reflecting at all times the values of the Australian Public Service.
The focus for this chapter is on the activities undertaken by PHIAC including monitoring of the PHI industry, prudential standards, information and statistics, risk management, and how these activities continued to support the vision and goals in 2014-15.
 
Monitoring insurer risk
 
PHIAC proactively monitors the industry through a rolling program of PHI industry visits, office based reviews, statistical analysis and actuarial reviews. The aim of this ongoing analysis and dialogue is to ensure that PHIAC identifies early, actual or potential non-compliance in the operations of an insurer or the industry.
 
Fund review program
 
During 2014-15, PHIAC conducted 25 onsite fund reviews focused on assessing the efficacy of an insurer's operations across a wide range of areas including strategy, governance, board oversight, capital reporting, capital management, pricing and information systems. The reviews highlighted an improved level of commercial and actuarial capacity in the industry.
 
PHIAC's fund review program also provided a means of assessing the PHI industry's ongoing compliance with PHIAC's new Capital Adequacy and Solvency Standards, parts of which came into effect on 1 July 2014. These reviews indicated that overall the industry was compliant with the requirements of the standards. It was also clear that the implementation of the standards had improved the capital management practices of the PHI industry as a whole.
 
Compliance checks
 
As part of PHIAC's prudential oversight activities, PHIAC regularly monitored and performed regular analysis of all insurers through:
  • quarterly and annual insurer returns detailing financial and membership position;
  • submissions related to annual premium increase applications;
  • annual financial condition reports;
  • regular interaction with insurers; and
  • whistleblower information.
Through these processes PHIAC identified that a number of insurers were non-compliant with the reporting requirements of the Disclosure Standard and/or the Governance Standard during the year.
 
On each occasion PHIAC was able to work collaboratively with the insurer to resolve the issues.
 
However, in the more serious instances, discussions were elevated to an insurer's board resulting in assurance being given to PHIAC that compliance systems would be upgraded. This ensured breaches were rectified and that the risk of further breaches was minimised. The breaches did not impact policyholders.
 
Actuarial monitoring
 
As part of its regulatory oversight, PHIAC's actuarial team monitored and reported on financial risks. Quarterly reviews of each insurer's capital position and forecasts enabled PHIAC to consider emerging risks unique to each health fund. PHIAC's analysis provided forward estimates on the range of profit and capital outcomes for each insurer and assessed their ability to meet minimum capital requirements over the subsequent 12 to 18 months.
 
Outcomes of PHIAC's analysis activities have assisted PHIAC to develop the 2014-15 fund review program and its premium analysis work. In the last 12 months, the actuarial team continued to maintain and refine PHIAC's analysis approach, and improved internal reporting capabilities.
 
Actuarial practice
 
PHIAC's actuarial team also engaged frequently with the actuarial profession through regular discussions with actuaries working in the PHI industry, and in particular, with the Appointed Actuaries of insurers.
 
Through part of the year PHIAC also had a representative on the Actuaries Institute Health Practice Committee.
 
Over the year a key area of actuarial discussion was insurer's progress with the implementation of the new Capital and Solvency Standards. Another important topic was insurers' forecast assumptions related to the Capital Standards and PHIAC's contribution to the assessment of annual health insurance premium applications.
 
The involvement of PHIAC's actuarial team, and in some instances insurer's actuaries, contributed to the scope and depth of fund reviews conducted over the year. This was reflected in the range of exception-based recommendations provided to insurers to support improvements in capital management practices.
 
Capital standards
 
The Capital Adequacy Standard required that insurers maintain sufficient capital within each health benefit fund to enable the ongoing conduct of the business of the fund. The standard required that each fund holds sufficient capital to give at least a 98 per cent certainty that it could maintain operations in the next 12 months. The Capital Adequacy and Solvency Standard also required that each insurer had in place and complied with a board-endorsed capital management policy and a liquidity management plan respectively.
 
The Solvency Standard required insurers to maintain assets of sufficient quality to allow them to meet all the liabilities of the fund as they became due. The focus of this standard was on liquidity and ensuring each fund holds sufficient cash to meet stressed cash needs.
 
PHIAC liaised extensively with the PHI industry, the Department of Treasury, DoH and APRA during the latter part of 2014-15 to ensure that during the remaking of these standards under subsection 92(1) of the Private Health Insurance (Prudential Supervision) Act 2015 (the PHIPS Act), there were no changes of substance to PHIAC's existing standards.
 
The Capital Standards can be referenced on the APRA website as:
  • Prudential Standard HPS 100: Solvency Standard; and
  • Prudential Standard HPS 110: Capital Adequacy.
Prudential Standard HPS 001: definitions also includes key terms referred to in the Capital Standards.
 
Prudential standards
 
The Prudential Standards imposed mandatory requirements on insurers to conduct their affairs in ways which ensure they maintain a sound financial position, reduce the risk of contagion in the industry and conduct their operations with integrity, prudence and professional skill.
 
Four Prudential Standards were in place in 2014-15:
  • Appointed Actuaries Standard (2007) articulated PHIAC's expectation of the roles, rights and responsibilities of the Appointed Actuary, an important advisory role mandated by Division 160 of the PHI Act.
  • Governance Standard (2009) outlined PHIAC's minimum expectations in relation to an insurer's governance practices by establishing regulatory requirements around board composition, independence, audit committee practices, board evaluation and renewal.
  • Disclosure Standard (2010) assisted PHIAC in its supervision of the industry by ensuring PHIAC was informed early about unusual events or significant changes for an insurer.
  • Outsourcing Standard (2012) was designed to control risk related to the outsourcing of material business activities to a third party, often to an entity beyond PHIAC regulatory reach.
PHIAC worked closely with the PHI industry, Department of Treasury, DoH and APRA during 2014-15 to ensure the smooth transition of these standards to APRA under subsection 92(1) of the Private Health Insurance (Prudential Supervision) Act 2015 (PHIPS Act).
 
The standards can be referenced on the APRA website as:
  • Prudential Standard HPS 231: Outsourcing;
  • Prudential Standard HPS 320: Actuarial and Related Matters;
  • Prudential Standard HPS 350: Disclosure to APRA; and
  • Prudential Standard HPS 510: Governance.
Reporting standards
 
During 2014-15 the reporting obligations of private health insurers to PHIAC were issued by APRA as a series of reporting standards to align with APRA's existing reporting format for other APRA regulated entities as described in the Financial Sector (Collection of Data) Act 2001.
 
PHIAC worked closely with APRA and the PHI industry during the year to ensure the new reporting standards broadly replicated PHIAC's reporting requirements and did not impose any additional regulatory burden on the industry.
 
The new PHI reporting standards can be found on the APRA website as:
  • Reporting Standard HRS 601 Statistical Data by State;
  • Reporting Standard HRS 602 Financial and Capital Data;
  • Reporting Standard HRS 603 Statistical Data on Prosthetic Benefits; and
  • Reporting Standard HRS 604 Medical Specialty Block Grouping Information.
The new reporting standards (HRS 601 to HRS 604) collect the same data as the previous PHIAC reporting requirements.
 
Other guidance to the PHI industry
 
Standard Operating Procedures
 
PHIAC developed a series of Standard Operating Procedures (SOPs) to explain to the industry and the general public how PHIAC, in the normal course of business, exercised its key regulatory powers. The SOPs also aided PHIAC in exercising its regulatory powers in a lawful and transparent way.
 
In 2014-15, the five SOPs were:
 
Standard Operating Procedures Action
SOP 1 Accepting a written undertaking given by a private health insurer
SOP 2 Giving a Council Direction
SOP 3 Information Acquisition Powers
SOP 4 Appointing an Inspector to a private health insurer.
SOP 5 Appointment of an External Manager to a private health insurer
 
APRA has retained these documents on its website post transition as important industry reference material.
 
Workshops
 
During 2014-15, PHIAC participated in a series of industry workshops hosted by the Department of the Treasury, DoH and APRA on the proposed changes to the PHI Act and subordinate legislation. These forums were designed to facilitate the transition from PHIAC to APRA for industry.
 
Industry risk management
 
During 2014-15 PHIAC carried out the functions of collecting and disseminating PHI industry statistics. These functions satisfied the requirements of administering the RETF and oversight of the prudential soundness of the industry, as well as informing industry stakeholders including government, private health insurers and consumers about the PHI industry.
 
The data collected by PHIAC, mostly reported on PHIAC's website for reference by the PHI industry and the general public, covered utilisation of health services paid for by private health insurers, and financial accounts statistics from the insurers. This information included statistical trends, PHI industry specific information such as data on gap payments and statistics on specific service areas, all provided with state and national comparisons.
 
PHIAC's Quarterly Statistics report provided a summary and commentary of all the statistical reports produced by PHIAC.
 
Risk Equalisation Trust Fund (RETF)
 
PHIAC was responsible for administering the RETF which supported a cornerstone of PHI in Australia, community rating. The RETF was established to ensure that insurers whose members have higher risk profiles were not unduly impacted by higher cost claims. The RETF ensured that certain benefit claims which arose out of community rating requirements were shared across all insurers in the PHI industry.
 
PHIAC administered the RETF. Based on claims data provided by each insurer, PHIAC calculates payments into and out of the RETF every quarter, in each state and territory based jurisdiction and ensures that the payments are timely, accurate and in compliance with legislative requirements.
 
In 2014-15, PHIAC administered and processed approximately $441 million in RETF payments as presented in Table 2.
 
Table 2: Quarterly Administered Risk Equalisation Payments
 
Quater Amount
June 2014 $105,835,115.40
September 2014 $110,967,856.86
December 2014 $117,304,179.80
March 2015 $106,766,866.76
Total $440,874,018.83
 
Note: The June quarter 2014 returns were processed in the 2014-15 period.
 
The $441 million in RETF payments represented a 4 per cent increase in RETF payments compared to 2013-14. This increase reflected a trend in the current system of risk equalisation increasing as a proportion of benefits over time due to the ageing population.
 
Cooperation and liaison
 
PHIAC's interaction with other regulators was an important element in the framework for maintaining financial stability and industry compliance in 2014-15. Whilst some consultations occurred within the formal constructs of a Memorandum of Understanding (MoU), most occurred less formally primarily to facilitate knowledge sharing and to reduce the regulatory burden on the industry and consumers.
 
Department of Health
 
PHIAC maintained a strong working relationship with the DoH during 2014-15. The focus of PHIAC's liaison with DoH during the financial year was to:
  • facilitate the transition of PHIAC's prudential supervision function to APRA;
  • minimise the regulatory and cost burdens on the PHI industry during the transition period;
  • advise on the proposed amendments to the PHI Act and the drafting of the PHIPS Act to facilitate the transfer of PHIAC's regulatory framework to APRA by 30 June 2015; and
  • undertake shared co-regulatory activity.
The work in relation to effecting the transition into APRA was achieved primarily through PHIAC's active participation on the intra-agency steering committee, working group and sub committees chaired by DoH.
 
PHIAC also maintained a strong focus on regulatory oversight during the transition period, having frequent discussions with DoH on prudential matters including breaches of the PHI Act, planned industry expansion, the annual health insurance premium applications, data collection, portability, risk equalisation and consumer protection.
 
Department of Finance
 
PHIAC worked closely with the Department of Finance in the first half of 2014-15 in relation to the Commonwealth due diligence process for the sale of Medibank Private Ltd by Initial Public Offering (IPO). PHIAC's participation in the due diligence disclosure process assisted the Commonwealth to meet the statutory requirements of an IPO.
 
PHIAC also regularly engaged with the Department of Finance throughout the year to ensure no additional costs were shouldered by the PHI industry during the transition year. This was achieved primarily through the approvals processes allowing PHIAC to draw down on its reserve, rather than imposing a supplementary levy on the industry to cover the costs of transition.
 
Private Health Insurance Ombudsman
 
The Private Health Insurance Ombudsman (PHIO) protects the interests of people with private health insurance policies by receiving and investigating complaints against insurers and private health service providers and by providing consumer information on its website: www.phio.org.au.
 
In 2014-15, PHIAC's discussions with PHIO included the resolution of consumer enquiries, the provision of information on the annual pricing round and information to assist PHIO in publishing the annual State of the Health Funds Report.
 
PHIO functions were transferred to the Commonwealth Ombudsman's Office on 1 July 2015 following passage of the Private Health Insurance Amendment Act 2015.
 
Bilateral arrangements
 
Australian Prudential Regulation Authority
 
PHIAC's MoU with APRA has facilitated the development of a close dialogue between the two regulators in recent years. This was further strengthened in 2014-15 by the increased sharing of information and the provision of specialised regulatory training which facilitated the transition of key staff and functions to APRA following the planned transfer of PHIAC's prudential supervision functions to APRA on 1 July 2015.
 
In 2014-15 PHIAC signed a supplementary MoU with APRA which established a framework for the payment of specified administrative costs incurred by APRA in undertaking its responsibilities in transferring the prudential supervision functions of PHIAC to APRA.
 
Australian Competition and Consumer Commission
 
Since 2011 the level of cooperation between the Australian Competition and Consumer Commission (ACCC) and PHIAC has been facilitated by the development of a Memorandum of Understanding (MoU). This formalised a more robust framework of cooperation and contributed to improved liaison and cooperation on emerging issues of relevance to both agencies.
 
Australian Securities and Investment Commission
 
The MoU between PHIAC and the Australian Securities and Investments Commission (ASIC) recognised the high level of cooperation and liaison between the two agencies. One of the drivers for this MoU was the requirement in section 126-10 of the PHI Act that all insurers be registered as a company under the Corporations Act 2001. This requirement has meant that all insurers operate within the regulatory purview of both PHIAC and ASIC.
 
International liaison
 
Over many years the International Association of Insurance Supervisors (IAIS) provided a reliable forum for PHIAC to interact with international regulators and to ensure that its prudential settings and activities aligned appropriately with international best practice. In particular, PHIAC has, through adoption of, and benchmarking against the IAIS Insurance Core Principles sought to ensure that its regulatory decision-making was informed by appropriate international standards. This will be maintained through APRA's continued participation in the IAIS.
 
Information provision to other agencies
 
As part of its obligation under the PHI Act regarding the dissemination of useful statistics to the public, PHIAC provided statistical information to other agencies to assist in their public information functions. These agencies included the Private Health Insurance Ombudsman (PHIO), the Australian Competition and Consumer Commission (ACCC), the Australian Bureau of Statistics (ABS) and the Australian Institute of Health and Welfare (AIHW). For example:
  • The PHIO utilised PHIAC-provided data in its State of the Health Funds Report. Through this report, the PHIO provided consumers with important information to assist them to make decisions about their health insurance.
  • PHIAC contributed to the ACCC annual report to the Senate on anti-competitive and other practices by health funds and providers in relation to private health insurance. This contribution included statistical data, charts and commentary.
  • Statistics provided to the ABS included data on benefits paid by insurers and the utilisation of services by policy holders. This data was used in Consumer Price Index (CPI) and Gross Domestic Product (GDP) calculations.
  • The AIHW used PHIAC data in its Health Expenditure Australia and Australian Hospital Statistics reports.
 
Chapter 3: Industry overview

The private health insurance industry continued to perform well in 2014-15 and maintained a strong financial position.
 
A competitive and sustainable PHI market is more able to support the increasing utilisation of health and medical services and complement the public health system.
 
PHIAC worked to promote an efficient and competitive health insurance market through:
  • the provision of specialist advice on premium applications;
  • assisting the industry in a range of complex corporate transactions; and
  • compiling, analysing and publishing quarterly industry statistics.
The focus for this chapter includes changes to the PHI industry and the provision of information to other agencies in 2014-15.
 
Changing structure of the PHI industry
 
Significant changes to the PHI industry in 2014-15 included the sale of Medibank Private Ltd (MPL), the conversion of two restricted access insurers to open access, one industry merger, and the cancellation of the registration of one private health insurer.
 
Sale of Medibank Private Ltd
 
MPL was listed on the Australian Securities Exchange on 25 November 2014, following a scoping study in 2013-14 to determine the most appropriate way to progress the sale. The transfer of shares under the MPL Share Offer occurred on 1 December 2014.
 
As the prudential regulator, PHIAC provided factual information for the IPO and the associated due diligence process. Whilst the IPO represented a significant share offer for the government and the PHI industry, the regulation of MPL by PHIAC remained consistent and effective during this significant change in the PHI sector.
 
Transport Health Pty Ltd
 
Transport Health Pty Ltd became an open access private health insurer on 10 November 2014 following the lodgment of a compliant change of registration notification with PHIAC under section 126-40(4) of the PHI Act. Previously, policy holders needed to be employed, previously employed or a contractor to the transport industry or Transport Friendly Society Ltd.
 
On 1 December Primary Health Care Ltd assumed ownership of Transport Health Pty Ltd.
 
Phoenix Health Fund Ltd
 
Phoenix Health Fund Ltd converted to an open access insurer on 18 May 2015 after PHIAC found its notification to be compliant with the requirements of section 126-40(4) of the PHI Act. Prior to this date, membership was restricted to employees and former employees of the steel industry, associated companies and family members.
 
Merger of HBF Health Ltd and Healthguard Health Benefits Fund Ltd
 
At its meeting on 15 May 2015, PHIAC approved the application to transfer all health fund assets, liabilities and policies of HealthGuard Health Benefits Fund Ltd (HealthGuard) to HBF Health Ltd (HBF), in accordance with section 146-5 of the PHI Act. The transfer took place on 30 June 2015.
 
Cancellation of the registration of Healthguard Health Benefits Fund Ltd
 
PHIAC resolved to cancel the registration of HealthGuard as a registered private health insurer, with effect from 30 June 2015, as HealthGuard would no longer undertake health insurance business following the transfer of its health benefits fund to HBF.
 
Premium analysis
 
Insurers made submissions to the Minister for Health for permission to change the premiums they charged for PHI products. Under section 66-10 of the PHI Act, the Minister must approve requests for premium changes unless the Minister is satisfied that to do so would be contrary to the public interest.
 
In 2014-15, PHIAC was again the lead adviser to the Minister on premium applications. Industry feedback on PHIAC's assessment process was positive, with insurers citing transparency, consistency and timeliness of feedback as key factors behind a well-run process.
 
Industry circulars
 
PHIAC regularly issued circulars to communicate information to the PHI industry and other stakeholders on a range of topics which included:
  • changes to prudential standards or legislation;
  • reporting requirements (both quarterly and annual);
  • changes to fund rules;
  • PHI industry transactions;
  • release of publications; and
  • opportunities for industry consultation.
During 2014-15, ten circulars were released by PHIAC.
 
PHI industry statistics
 
PHIAC's ongoing statistical analysis provided relevant, timely and accurate data on individual insurers. This data was used by stakeholders and also assisted staff to identify issues across the PHIAC industry.
 
PHIAC statistics were disseminated to the public to inform policy makers and other stakeholders on industry trends and to enable consumers to make informed choices about PHI.
 
PHIAC followed international standards to ensure users had confidence in the integrity of the data and that the statistics were made available on an impartial basis.
 
Data integrity was strengthened in 2014 with the introduction of a new reporting template designed to collect updated financial statistics from insurers consistent with changes to the Capital Standards. Further enhancements to PHIAC's statistical information system were made during the year with the introduction of an automated lodgement system to be used by insurers.
 
All quarterly statistics were made available in a timely manner and were generally published on the PHIAC website within four weeks of receipt. Significant trends are analysed each year in PHIAC's Operations of Private Health Insurers Annual Report.
 
One example of how PHIAC data is widely used is the evolution of the PHI industry in Australia shown by the reporting of the number of privately insured people with hospital cover as depicted in Figure 1. The chart provides a historical perspective of the number of people with hospital treatment coverage since 1971 and notes the significant changes in government policy and significant industry events around PHI that have occurred since that time.
 
Figure 1: Significant changes to the private health insurance industry and the number of people with hospital treatment cover.
 
Line chart showing significant changes to the private health insurance industry and the number of people with hospital treatment cover from June 1971 to June 2015. In 2015 there were around 11 million people with hospital treatment cover. This number increased the most quickly by more than 2 million people when Life Time Health Cover was introduced from 1 July 2000.
 
Click on the above image to view the figure 1 in a larger size.
 
 
Chapter 4: Governance and management

PHIAC had a robust and comprehensive governance structure in place throughout 201415 that ensured authority was appropriately exercised and controlled.
 
The focus for this chapter includes the governance structure and Council framework, the Audit, Risk and Compliance Committee, human resources and the management of legislative changes in 2014-15.
 
Governance structure
 
The operations of PHIAC during 2014-15 were governed by the Council which was responsible to the Parliament through the Minister for Health for the overall strategy, governance and performance of the organisation.
 
The Council consisted of a Commissioner and two to four other members, all appointed on a part-time basis for a fixed term by the Minister. The Council appointed the Chief Executive Officer (CEO) in consultation with the Minister and employed the number of staff it considered necessary to undertake the performance of the Council's functions as described in section 264-10 of the PHI Act.
 
PHIAC's executive management comprised of the CEO and two general managers, the General Manager - Prudential Supervision (and Deputy CEO) and the General Manager - Industry Operations and General Counsel. This group formed the Executive Management Committee (EMC) and was responsible for the day-to-day management of PHIAC, delivery of the corporate objectives and regulatory oversight activities. The EMC met fortnightly, or more frequently as required.
 
Supporting the EMC were executive level managers who led teams of staff performing a range of functions required by PHIAC in order to deliver its corporate goals and key priorities.
 
Table 3: Council members renewal dates and meetings attended in 2014-15
 
Council Member Date First Appointed End Date Meetings Attended in 2014-15 Meetings Eligible to Attend in 2014-15
Ms Lynn Ralph, Commissioner 29 Nov 10 30 June 15 9 9
Mr John McGee, Deputy Commissioner and Chair of the Audit, Risk and Compliance Committee 17 Mar 05 30 June 15 9 9
Mr John Barrington, Member 29 Nov 10 10 Nov 14 3 3
Mr Terry Downing, Member 29 Nov 10 30 June 15 9 9
Dr Barry Catchlove, Member 27 Feb 12 26 Feb 15 5 5
 
PHIAC Chief Executive Officer (CEO) with Members of the ARCC. From left to right: Barry Catchlove, Terry Downing, John Barrington, John McGee and Shaun Gath.
 
The Council
 
The Council members had the collective power to manage and direct the operations of PHIAC.
 
The Council met regularly to discharge this responsibility and received briefings and updates from management on a range of governance and operational matters requiring their attention.
 
As a consequence of the scheduled closure of the agency on 1 July 2015, as Council members resigned or their term expired new members were not appointed unless, the Council was inquorate as a result.
 
Image of the PHIAC CEO with Members of the ARCC: Barry Catchlove, Terry Downing, John Barrington, John McGee and Shaun Gath.
 
Click on the above image to view the photo in a larger size.
 
Council Membership
 
During 2014-15, there were several changes to the composition of the Council and PHIAC would like to recognise and thank all council members for their contributions over the past 25 years.
 
Mr John Barrington resigned as a member of the Council on 10 November 2014 and Dr Barry Catchlove's term as a Council member expired on 26 February 2015.
 
Mr John McGee's term as a Council member expired on 26 February 2015. Mr McGee was reappointed as a Council member.
 
The Council 2014-15
 
Ms Lynn Ralph — Commissioner of Private Health Insurance Administration
 
Photo of Ms Lynn Ralph
 
Ms Ralph has worked in the financial services sector for over 20 years, specialising in funds management and insurance.
 
Ms Ralph is co-founder of Cameron Ralph Pty Ltd, a firm which assists boards to improve their effectiveness. She has over 40 years cumulative boardroom experience and lectures and writes on corporate governance.
 
Ms Ralph is Chairman of BT Funds Management and a director of Sydney Swans Ltd, The Sydney Institute and Bangarra Dance Theatre.
 
Ms Ralph is a Fellow of the Australian Institute of Company Directors and a Senior Fellow of the Financial Services Institute of Australasia.
 
Previously she held the position of Deputy Chair of ASIC.
 
Mr John McGee — Deputy Commissioner and Chair of the Audit, Risk and Compliance Committee
 
Photo of Mr John McGee
 
Mr McGee has practised as a solicitor in Sydney and London and has spent approximately twenty years in the financial services industry working primarily in mortgage securitisation and life insurance. He was a managing director of The Bank of New York Mellon's corporate trust business in Australia and was previously a non-executive director of Westpac Funds Management Ltd, the responsible entity for many Westpac related listed and unlisted trusts.
 
Mr McGee has served on other corporate boards in the oil, gas and biotechnology industries.
 
Mr John Barrington—Council Member
 
Photo of Mr John Barrington
 
Mr Barrington is the Principal of Barrington Legal, a law firm located in Sydney specialising in business acquisitions, insurance software licensing and hospitality. Mr Barrington is also Chair of Meridian Lawyers, a national law firm specialising in insurance and liability claims.
 
Previously, Mr Barrington was General Counsel for the National Mutual Life Association, CEO of Mutual Community Ltd and Senior Vice President of CUNA Mutual Ltd.
 
Mr Terry Downing — Council Member
 
Photo of Mr Terry Downing
 
Mr Downing has over thirty years' experience in the financial services industry in Australia and Asia. A Certified Practising Accountant, Mr Downing's areas of expertise include general insurance, funds management, and superannuation and risk management.
 
Mr Downing currently holds a number of non-executive director positions in the public and private sectors. He is also a Fellow of the Australian Institute of Company Directors and the Australian and New Zealand Institute of Insurance and Finance.
 
Dr Barry Catchlove—Council Member
 
Photo of Dr Barry Catchlove
 
Dr Catchlove is a qualified physician with more than forty years' experience in healthcare. Dr Catchlove is Deputy Chair of the Sydney Local Health District and he also served on the Sydney University Senate from 2008 to 2013 as Chairman of the Safety and Risk Management Committee.
 
Previously, Dr Catchlove served as Pro-Chancellor of Sydney University in 2012 and a senior manager of Mayne Nickless. Between 1997 and 1999, he was Chair of the Health Insurance Commission (now Medicare Australia).
 
The Audit, Risk and Compliance Committee
 
The Council established an Audit, Risk and Compliance Committee (ARCC) in accordance with section 45 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act) and subsection 17 of the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule).
 
The ARCC was a sub-committee of the Council whose objective was to assist the Council to discharge its responsibilities to the Minister for Health by ensuring due care and diligence was applied to:
  • the objectivity and reliability of PHIAC's published financial information;
  • the internal control systems of PHIAC;
  • the financial management processes adopted by PHIAC;
  • the processes for identifying, monitoring and controlling business risk; and
  • the monitoring and undertaking of reviews of any matters which the Council referred to this sub-committee.
Mr John McGee was the Chair of the ARCC, with other members being Mr John Barrington, Mr Terry Downing and Dr Barry Catchlove.
 
With the resignation of Mr John Barrington in November 2014 and the expiration of Dr Barry Catchlove's term in February 2015, the ARCC had insufficient members to remain in compliance with subsection 17 of the PGPA Rule 2014.Subsequently the Council appointed Mr Paul Groenewegen (PHIAC Deputy CEO) as a member of the ARCC. During 2014-15, the ARCC met five times.
 
In addition to the ARCC members, regular attendees at ARCC meetings were the Commissioner (observer status), PHIAC's CEO, the General Manager - Industry Operations and General Counsel, and the Chief Financial Officer. A representative from the Australian National Audit Office was also invited to attend all meetings.
 
Table 4: Attendance at ARCC meetings during 2014-15
 
ARCC Member Meetings Attended in 2014-15 Meetings Eligible to Attend in 2014-15
Mr John McGee, Chair 5 5
Mr John Barrington, Member 3 3
Dr Barry Catchlove, Member 3 3
Mr Terry Downing, Member 5 5
Mr Paul Groenewegen, Member 2 2
 
Staffing and resources
 
The PHIAC secretariat comprised 26.6 full-time equivalent (FTE) staff as at 30 June 2015 (with an additional 1.5 FTE staff represented by the Council).
 
Personnel working in the secretariat reported to the Chief Executive Officer through the two general managers.
 
The secretariat comprised a diverse range of qualifications and skills including corporate governance, commerce, banking and finance, actuarial, accounting, economics, statistics, education, law, risk management and information technology.
 
PHIAC adhered to the Australian Public Service Code of Conduct and Values and maintaining the appropriate work-life balance of staff was actively encouraged by PHIAC management.
 
Throughout 2014-15 PHIAC maintained its commitment to ongoing staff training for further knowledge, skills and professional development. Staff attended a range of courses, conferences and seminars in line with their learning development plans.
 
Each staff member contributed to the ongoing success of PHIAC during its operation and most staff transitioned to APRA at the transfer date of 1 July 2015 to continue this work.
 
PHIAC executive management
 
Mr Shaun Gath — Chief Executive Officer
 
Photo of Mr Shaun Gath
 
Appointed for a five year term to the position of CEO of PHIAC in June 2008, Mr Gath was reappointed for a further five year term in June 2013.
 
Prior to his appointment, Mr Gath was a partner in a national law firm where he worked with Government and health sector clients, focusing on governance and regulatory issues.
 
Earlier in his career Mr Gath worked as a ministerial adviser and spent four years as General Counsel of the Health Insurance Commission (now Medicare Australia). Mr Gath has held a number of professional positions, including ACT President and National Vice-President of the Australian Corporate Lawyers Association and Deputy Chair of the Public Law Committee of the International Bar Association.
 
Mr Paul Groenewegen — General Manager, Prudential Supervision and Deputy CEO
 
Photo of Mr Paul Groenewegen
 
Mr Groenewegen joined PHIAC in 2001 and was appointed to his current role in September 2005. He has played a leading role in developing PHIAC's supervisory activities.
 
Prior to joining PHIAC, Mr Groenewegen held a series of financial and accounting based positions with a large health service provider and the Commonwealth Government. Mr Groenewegen is a Certified Practising Accountant, is a Graduate Member of the Australian Institute of Company Directors and holds a Graduate Diploma in Applied Corporate Governance.
 
From February 2015, Mr Groenewegen was a member of the PHIAC ARCC.
 
Mr Neil Smith — General Manager, Industry Operations and General Counsel
 
Photo of Mr Neil Smith
 
Mr Smith joined PHIAC in December 2008 after working for more than a decade in the Commonwealth DoH including as Special Legal Advisor on Private Health Insurance
 
As General Counsel, Mr Smith was responsible for a small team of lawyers which provided a range of legal advice including specialist advice on the prudential regulation of private health insurance.
 
As General Manager, Mr Smith was also responsible for enforcement and compliance, industry transactions, crisis management, and the day-to-day running of the PHIAC office, including PHIAC's corporate services, IT and administration. Mr Smith is a Barrister and Solicitor and is a Graduate Member of the Australian Institute of Company Directors.
 
Mr Mark Lott—Council Secretary
 
Photo of Mr Mark Lott
 
Mr Lott provided guidance to both the Council and PHIAC on a part-time basis, advising on administrative processes.
 
Mr Lott has over 16 years Government experience in reporting and human resource management, including policy and advisory experience.
 
Mr Lott also has private sector management experience and holds a degree in philosophy with a focus on ethics and logic.
 
Performance pay
 
PHIAC has a performance bonus system in place designed in consultation with staff and managers and covering all employees. For 2014-15, the aggregate bonus pool was $544,981. This figure included the payment of the 2013-14 cycle in November 2014 and payment of the 2014-15 cycle, which was paid in June, just prior to the transition to APRA.
 
PHIAC website
 
During 2014-15, PHIAC's website continued to meet its obligations to stakeholders and government in the areas of information access, usability, easy to follow navigation and accessibility.
 
The PHIAC website provided information in three broad categories:
  • Industry—provided access to information about the regulatory framework, reporting activities, regular PHI industry statistics, consultation opportunities, notification and application forms and education programs.
  • Consumers—enabled access to a range of information about private health insurance including areas of healthcare, consumer statistics and the PHI industry. There were also links to other related websites including the DoH, PHIO, the ACCC and consumer forums.
  • Corporate—provided details of PHIAC's governance arrangements, organisational structure, publications, media releases, employment opportunities and contact information.
As at 1 July 2015 the PHIAC website ceased operation however information on the PHI industry is now available on the APRA website: www.apra.gov.au/phi/Pages/default.aspx.
 
Management of legislative obligations
 
Cost recovery impact statement
 
PHIAC did not publish a Cost Recovery Impact Statement on the Council Administration Levy in 2014-15 due to the transition process. Instead, the agency's costs were closely scrutinised by DoH, the ANAO and the Department of Finance throughout the year. Both the Departments supported an application to the Ministers for Health and Finance for PHIAC to operate at a loss in 2014-15. This approval enabled PHIAC to utilise its reserve in 2014-15 to cover the costs of transition, rather than impose a supplementary levy on the industry. This was the only year in over 25 years of operation that PHIAC recorded a loss.
 
In addition, the Minister for Health approved the non-collection of the Council Administration Levy for the fourth quarter of 2014-15, a saving to the PHI industry of $1.554 million.
 
Public Governance, Performance and Accountability Act 2013
 
On 1 July 2014, a new resource management framework for all Commonwealth entities commenced when the Public Governance, Performance and Accountability Act 2013 (PGPA Act) replaced the Financial Management and Accountability Act 1997 (FMA Act) and the Commonwealth Authorities and Companies Act 1997 (CAC Act).
 
Throughout the year PHIAC strengthened its compliance with the PGPA Act and the PGPA Rule, underpinning the implementation of the Act. In particular, PHIAC's response to the PGPA Act included:
  • adopting the relevant recommendations contained in the Resource Management Guidance papers on the Department of Finance website;
  • attending targeted training;
  • amending the procurement process to incorporate the duties of officials to disclose any perceived conflicts of interest;
  • providing Council briefings on new developments such as the new rule governing the composition of PHIAC's Audit Committee; and
  • reminding staff of their duties as officials at staff meetings and via email updates.
Risk management framework
 
PHIAC embedded risk management practices and processes to support governance and business management across the organisation. Underpinning this application was a risk management framework that identified and brought together the organisational components that contribute to achieving PHIAC's vision and corporate goals.
 
PHIAC's risk management framework was based on the COSO1 Enterprise Risk Management Integrated Framework (better practice) and tailored for PHIAC's corporate structure and business environment.
 
1. Committee of Sponsoring Organizations of the Treadway Commission.
 
PHIAC organisational chart 2014-15
 
PHIAC organisational flow chart for 2014-15.
 
 
Chapter 5: Statutory responsibilities

PHIAC continued to operate under section 264-1 of the PHI Act and as a corporate Commonwealth entity within the meaning set out in section 11 of the PGPA Act.
 
The focus for this chapter reflects the legislative and reporting requirements applicable to PHIAC in 2014-15.
 
Statutory reporting information
 
PHIAC complied with a number of statutory obligations required by legislation, rules and orders. These included:
  • Public Governance, Performance and Accountability Act 2013;
  • Public Governance, Performance and Accountability Rule 2014;
  • Commonwealth Authorities (Annual Reporting) Orders 2011
  • Environment Protection and Biodiversity Conservation Act 1999;
  • Freedom of Information Act 1982;
  • Private Health Insurance Act 2007;
  • Public Interest Disclosure Act 2013;
  • Privacy Act 1988;
  • Work Health and Safety Act 2011;
  • Australian Equivalents to International Financial Reporting Standards;
  • Commonwealth Fraud Control Guidelines;
  • Commonwealth Procurement Rules; and
  • National Disability Strategy.
The PGPA Rule set out arrangements for the preparation of an annual report where the functions of an entity are transferred. In PHIAC's case the functions associated with the prudential supervision of private health insurers were planned to transfer to APRA. In addition, clause 17A of the PGPA Rule required APRA to prepare the annual report in accordance with section 46 of the PGPA Act and the Commonwealth Authorities (Annual Reporting) Orders 2011 for the 2014-15 reporting period.
 
General policy orders
 
Under section 22 of the PGPA Act, the Minister for Finance may make an Order to PHIAC which specifies a general policy of the Australian Government with which PHIAC must comply.
 
In September 2011, the Minister for Finance issued the Commonwealth Authorities (Annual Reporting) Orders 2011. These Orders specified the requirements for the Annual Report of Operations that the directors of a Commonwealth authority must provide and include in its annual report. PHIAC complied with these orders in 2014-15.
 
PHIAC did not receive any additional general policy orders in 2014-15.
 
Ministerial requirements
 
In 2014-15 PHIAC was subject to requirements by the Minister for Health, the Hon Sussan Ley and the Hon Peter Dutton MP (Minister for Health to December 2014) and the Minister for Finance, the Hon Mathias Cormann.
 
PHIAC complied with these requirements in 2014-15.
 
Directions by the Minister for Health
 
Under section 264-25(1) of the PHI Act, the Minister may, by legislative instrument, give directions with respect to the performance of PHIAC's functions or the exercise of its powers. In 2014-15, PHIAC did not receive any directions from the Minister for Health.
 
Rules by the Minister for Finance
 
Section 19(1)(b) of the PGPA Act enabled the Minister for Finance to require PHIAC to provide reports, documents and information as directed. Section 46 of the PGPA Act set out the specific requirement for PHIAC to provide an annual report to the responsible Minster by 15 October each year.
 
Section 102(1)(h) of the PGPA Act allows the Minister for Finance to make rules for the preparation of a report or financial statements where the functions of an entity are being transferred to another Commonwealth entity.
 
In addition, PHIAC was required by section 43 of the PGPA Act to ensure that its annual financial statements were audited by the Auditor-General.
 
In accordance with this power, clause 17A of the PGPA Rule transfers the responsibility for the preparation of the 2014-15 Annual Report from PHIAC to APRA.
 
Public Interest Disclosure Act
 
In 2014-15 PHIAC strengthened its compliance with the requirements of the Public Interest Disclosure Act 2013 (the PID Act), which came into effect on 15 January 2014. This included further training of two authorised officers and PID awareness training with staff. These arrangements enabled current and former PHIAC employees to make confidential and protected disclosure of suspected wrongdoings within the Commonwealth public sector.
 
In accordance with section 76(3) of the PID Act, PHIAC provided information on the number and types of disclosures to the Commonwealth Ombudsman to facilitate the preparation of an annual report under s 76(1) of the PID Act.
 
Privacy Act
 
In March 2014, major changes to the Privacy Act 1988 came into effect. These changes included the introduction of the Australian Privacy Principles, which consolidated what was previously referred to as the Information Privacy Principles and the National Privacy Principles.
 
The Australian Privacy Principles contained in the Privacy Act set out PHIAC's obligations in relation to the collection, storage, use, disclosure, quality and security of personal information and the access and correction rights of individuals in relation to their personal information.
 
PHIAC maintained the privacy of staff and consumers in 2014-15 by reviewing its practices to protect information, including personal information, against loss, unauthorised access, use, modification or disclosure, and against other misuse. These steps included improvements to PHIAC's password protection for accessing PHIAC's electronic system, further restricting access to paper files in locked cabinets and electronic access.
 
Officers were also required to assess the consequences of damage from unauthorised compromise or misuse of information and apply appropriate security classifications to documents they created or handled.
 
When personal information was collected by PHIAC and was no longer required, it was stored, managed and destroyed so as to be consistent with the Archives Act 1983.
 
Freedom of Information
 
The Freedom of Information Act 1982 (FOI Act) requires PHIAC to publish information as part of the Information Publication Scheme.
 
During 2014-15, PHIAC received two requests for documents under the FOI Act and both applications received response within the statutory time period.
 
Work Health and Safety
 
PHIAC was committed to protecting workers and other persons against harm to their health, safety and welfare through the elimination or minimisation of risks arising from the work environment and activities.
 
Throughout 2014-15, PHIAC continued to comply with all aspects of the Work Health and Safety Act 2011 (WHS Act) as they related to the Council, CEO, officers and staff.
 
In 2014, PHIAC reviewed its Work, Health and Safety Hazard Assessment in partnership with staff, which resulted in an updated Work Health and Safety Plan. This plan ensured that risks to the work health and safety of PHIAC staff and visitors were minimised and controls continued to be checked and reviewed.
 
Table 5 details all notifiable incidents, as defined under section 35 of the WHS Act, during the last three reporting periods.
 
Table 5: Workplace health and safety notifiable incidences 2012-15
 
Notifiable Incidents 2012-13 2013-14 2014-15
Death of a person 0 0 0
Dangerous incident 0 0 0
Serious injury or illness of a person 0 1 0
 
Disability reporting
 
Since 1994, Commonwealth departments and agencies have reported on their performance as policy adviser, purchaser, employer, regulator and provider under the Commonwealth Disability Strategy. In 2007-08, reporting on the employer role was transferred to the Australian Public Service (APS) Commission's State of the Service Report and the APS Statistical Bulletin, available at www.apsc.gov.au. From 2010-11, departments and agencies have no longer been required to report on these functions.
 
The National Disability Strategy 2010-2020 (applicable to Commonwealth departments and agencies), sets out a ten-year national policy framework to improve the lives of people with disability, promote participation and create a more inclusive society. A high level two-yearly report will track progress against each of the six outcome areas of the strategy and present a picture of how people with disability are faring. The first of these reports will be available in late 2014, and can be found at www.dss.gov.au.
 
Judicial decisions and reviews
 
During the reporting period, PHIAC was not the subject of any judicial decisions or decisions of an administrative tribunal. Neither was the performance or operations of PHIAC reviewed by the Auditor-General (other than the report on the financial statements), a Parliamentary committee or the Commonwealth Ombudsman.
 
Ecologically Sustainable Development and Environmental Performance
 
The Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act) requires Commonwealth agencies to report on ecologically sustainable development and environmental matters.
 
In 2014-15 PHIAC continued to be mindful of the responsibilities under the EPBC Act. At all times PHIAC sought to ensure it subscribed to the principles of ecologically sustainable development and that its decision-making processes integrated long-term and short-term economic, environmental and social equity considerations.
 
This was achieved in the corporate and project management spheres via embedded environmental impacts in the agency's governance procedures and considerations for environmental effects in all project management plans. In terms of the work environment, PHIAC was active in reducing its environmental impact in its use of electricity, paper and water. This was achieved through the use of LED down-lights in PHIAC premises, the increased utilisation of electronic documentation rather than printed documentation and the active management of water-conserving appliances.
 
Financial activities
 
All operational accounts that were utilised by PHIAC in 2014-15 were compliant with sections 54 and 55 of the PGPA Act. All investments of relevant money were compliant with section 59 of the PGPA Act.
 
PHIAC also remained fully compliant with the Australian equivalents to IFRS.
 
Financial statements
 
PHIAC's annual budget review ensured sufficient reserves were maintained in order to undertake its functions in accordance with the PHI Act and other applicable legislation whilst minimising costs to insurers.
 
The financial statements of PHIAC's operations are included in more detail in Chapter 6 of this report and they comply with the:
  • statements of accounting concepts;
  • Australian accounting standards and accounting interpretations;
  • accounting guidance notes; and
  • other mandatory professional reporting requirements.
Indemnities and insurance premiums for officers
 
PHIAC has an insurance policy with Comcover for general insurance including the indemnification of its directors and officers. The policy is consistent with sections 61 and 62 of the PGPA Act.
 
Fraud control
 
PHIAC complied with the requirements set out in the Commonwealth Fraud Control Guidelines. During 2014-15, PHIAC:
  1. prepared fraud risk assessments and fraud control plans;
  2. established and maintained appropriate fraud prevention, detection, investigation, training, reporting and data collection procedures and processes that met the specific needs of the agency; and
  3. took all reasonable measures to minimise the incidence of fraud and to investigate and recover the proceeds of fraud.
Procurement
 
In 2014-15 PHIAC procured goods and services to support its business operations when it was not practical for employees of PHIAC to provide such services.
 
PHIAC's procurement policy:
  • established a procurement framework to guide the procurement of goods and services;
  • aligned procurement processes with the Commonwealth Procurement Guidelines; and
  • ensured alignment with, and that obligations were met in relation to, procurement under the PGPA Act.
The details in, and adherence to, the policy ensured that PHIAC procured goods and services on a value-for-money basis, and was guided by the principles of encouraging efficient, effective, competitive and ethical use of resources while maintaining accountability and transparency in procurement decision making.
 
Professional services
 
During 2014-15, professional advice and services were outsourced where it was determined it would not be cost effective for staff to provide such expertise or that expertise was not available internally.
 
A total expenditure of $694,800 (compared with $390,944 in 2013-14) was spent on professional fees during 2014-15. Details of this expenditure are set out in Table 6.
 
Table 6: Professional fees during 2014-15
 
Service 2014-15
Audit Fees $49,039
Legal $31,918
Financial $31,630
Human Resources $11,515
IT Support $18,889
Other $40,632
Transition-related Fees
  Transition Legal $31,367
  Transition Human Resources $15,622
  Transition IT Support $178,242
  Transition Financial $89,654
  Transition Website $6,100
  Transition Project Management $190,192
Total $694,800
 
 
Chapter 6: PHIAC's financial reporting and performance 2014-15

In 2014-15 PHIAC's total operating expenditure was $7.05 million, compared to the budget figure of $6.93 million.
 
This chapter explains how PHIAC was funded and the way it maintained efficiency, transparency and equity, and includes further details for the 2014-15 financial statements.
 
Funding of PHIAC
 
Council Administration Levy
 
The regulatory activities of PHIAC were funded in 2014-15 through the Council Administration Levy, a cost recovery tax capped in the Private Health Insurance (Council Administration Levy) Act 2003 at $2 per annum for holders of single private health insurance policies and $4 per annum for holders of couple or family policies.
 
Stringent controls remained in place on the utilisation of levy funding throughout 201415, with the Council reviewing expenditure against revenue at every meeting. Regular reporting was also submitted to the transition steering committee and the working group which comprised representatives of DoH, the Departments of Finance and the Treasury, and APRA. Expenditure was also subject to ongoing monitoring by the ANAO.
 
PHIAC was also accountable to the Parliament throughout the year through regular appearances at Senate Estimates Committee hearings.
 
The Risk Equalisation Levy
 
The Risk Equalisation Levy was collected by PHIAC from the PHI industry as part of PHIAC's prudential regulatory functions.
 
All monies collected from the industry by the levy were returned to the industry in the same quarter. No moneys were withdrawn to cover PHIAC's general administrative costs, or its administration of the RETF.
 
The data determining the levy calculations was provided to PHI industry at the same time the levy was calculated. Each insurer was able to check the industry calculations and those for their own fund/s on a state by state basis to verify the calculations as correct.
 
The Risk Equalisation Levy calculations were also audited by the ANAO every quarter, and PHIAC reported the Risk Equalisation Levy in the annual Portfolio Budget Statement.
 
In 2014-15, the Risk Equalisation Levy redistributed $441 million of industry funds.
 
Collapsed Insurer Levy
 
The Collapsed Insurer Levy enables PHIAC to raise a levy from the industry to help meet a collapsed insurer's liabilities to the people insured under its policies where the insurer was unable to meet these liabilities itself.
 
To date, this levy has not been imposed on the PHI industry.
 
Late Payment Penalties
 
Section 307-5 of the PHI Act provides that if a private health insurance levy remains wholly or partly unpaid after it becomes due and payable, the insurer is liable to pay a late payment penalty. This penalty is calculated at the rate specified in the Private Health Insurance (Levy Administration) Rules 2010.
 
PHIAC may waive the whole or a part of a late payment levy if it considered there were good reasons for doing so.
 
In 2014-15, PHIAC imposed no penalty payments.
 
Reserve
 
PHIAC established a reserve in 1998 to finance extreme expenditures such as a prudential crisis, a significant enforcement action, or litigation.
 
Accumulated reserves from operations arising from the Council Administration Levy in 2014-15 totalled $2.8 million, of which $256,044 was in the Asset Revaluation Reserve.
 
Table of Contents for Financial Statements
Independent Auditor's Report
 
Independent Auditor's Report page 1
 
Click on the above image to view the independent auditor's report in a larger size.
 
Independent Auditor's Report page 2
 
Click on the above image to view the independent auditor's report in a larger size.
 
Statement by Members and Executive General Manager - Corporate Services
 
Statement by Members and Executive General Manager Corporate Services.
 
Click on the above image to view the statement by members and executive general manager in a larger size.
 
Statement of comprehensive income for the period ended 30 June 2015
 
Image of a Private Health Insurance Administration Council Statement of Comprehensive Income for the period ended 30 June 2015. Total expenses for 2015 are listed as $7047317. Total comprehensive income attributable to the Australian Government for 2015 is listed as $(2099960).
 
Click on the above image to view the statement of comprehensive income in a larger size.
 
The above statement should be read in conjunction with the accompanying notes.
 
Statement of financial position as at 30 June 2015
 
Image of a Private Health Insurance Administration Council Statement of Financial Position as at 30 June 2015. Total assets for 2015 are listed as $4314772. Net assets for 2015 are listed as $2821148. Total equity for 2015 is listed as $2821148.
 
Click on the above image to view the statement of financial position in a larger size.
 
The above statement should be read in conjunction with the accompanying notes.
 
Statement of changes in equity for the period ended 30 June 2015
 
Image of a Private Health Insurance Administration Council Statement of Changes in Equity for the period ended 30 June 2015. The Closing Balance as at 30 June 2015 is listed as $2565104 for retained earnings, $256044 for asset revaluation reserve, and $2821148 for total equity.
 
Click on the above image to view the statement of changes in equity in a larger size.
 
The above statement should be read in conjunction with the accompanying notes.
 
Cash flow statement for the period ended 30 June 2015
 
Image of a Private Health Insurance Administration Council Cash Flow Statement for the period ended 30 June 2015. Operating activities total cash received for 2015 is listed as $5035103. Net cash from/(used by) operating activities for 2015 is listed as $(2467880). Investing activities total cash received is listed as $11385. Net cash used by investing activities is listed as $(53008). Cash at the end of the reporting period is listed as $3794206.
 
Click on the above image to view the cash flow statement in a larger size.
 
The above statement should be read in conjunction with the accompanying notes.
 
Schedule of commitments as at 30 June 2015
 
Image of a Private Health Insurance Administration Council Schedule of Commitments as at 30 June 2015. Net commitments by type for 2015 is listed as $287420. Net commitments by maturity for 2015 is listed as $287420.
 
Click on the above image to view the schedule of commitments in a larger size.
 
Notes:
  1. Commitments are GST inclusive where relevant.
  2. Operating lease included is effectively non-cancellable and comprises a lease for office accommodation.
The above schedule should be read in conjunction with the accompanying notes.
 
Note 1: Summary of Significant Accounting Policies
 
1.1 Objective of the Private Health Insurance Administration Council (PHIAC)
 
PHIAC is an Australian Government controlled entity. PHIAC aims to protect and maintain a viable, prudentially sound, and competitive private health insurance industry. PHIAC ceased on 1 July 2015.
 
PHIAC is structured to meet one outcome which is described in the 2015-16 Portfolio Budget Statement (PBS) as: "Prudential safety and competitiveness of the private health insurance industry in the interests of consumers, including through efficient industry regulation".
 
PHIAC provides reliable and timely private health insurance information to the industry, consumers and the Government. It also manages the Risk Equalisation Trust Fund which supports 'community rating'.
 
PHIAC also maintains prudential and capital standards for the private health insurance industry, and provides direction to the industry on compliance with these standards.
 
With the passage of the Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Act 2015, the prudential supervision functions, assets and liabilities of PHIAC were transferred to the Australian Prudential Regulation Authority (APRA) and PHIAC was abolished on 1 July 2015. Responsibility for general private health insurance policy issues remains with the Department of Health.
 
Following the transfer of PHIAC to APRA, the continued performance of PHIAC's functions in their present form and with their present programs is dependent on Government policy and on continuing funding by Parliament for APRA's administration and programs.
 
1.2 Basis of Preparation of the Financial Statements
 
The financial statements are general-purpose financial statements and are required by section 42 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act).
 
The Financial Statements have been prepared in accordance with:
  1. the Financial Reporting Rule (FRR) for reporting periods ending on or after 1 July 2014; and
  2. Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period.
PHIAC's financial statements have been prepared on an accrual basis and in accordance with the historical cost convention, except for certain assets and liabilities at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.
 
The financial statements are presented in Australian dollars and values are rounded to the nearest dollar unless otherwise specified.
 
Unless an alternative treatment is specifically required by an accounting standard or the FRR, assets and liabilities are recognised in the statement of financial position when and only when it is probable that future economic benefits will flow to PHIAC (or APRA) or a future sacrifice of economic benefits will be required and the amounts of the assets or liabilities can be reliably measured. However, assets and liabilities arising under executory contracts are not recognised unless required by an accounting standard. Liabilities and assets that are unrecognised are reported in the Schedule of Commitments or the contingencies note.
 
Unless alternative treatment is specifically required by an accounting standard, income and expenses are recognised in the Statement of Comprehensive Income when and only when the flow, consumption or loss of economic benefits has occurred and can be reliably measured.
 
1.3 Significant Accounting Judgements and Estimates
 
In the process of applying the accounting policies listed in this note, PHIAC has made the following judgements that have the most significant impact on the amounts recorded in the financial statements:
 
PHIAC's functions, assets and liabilities were transferred to APRA, and PHIAC abolished, on 1 July 2015.
  • PHIAC has assessed the value of all items of land and buildings and property, plant and equipment to determine the basis that all assets are transferred to APRA and used for their existing purpose. The current lease of premises ceases at 30 June 2016 with two additional one year options. This lease novated to APRA effective at the transition date of 1 July 2015.
  • The liability for employee provisions includes an estimation component in respect of long term employee benefits measured as the present value of estimated future cash outflows on the assumption that current staff follow the roles and functions transferred to APRA.
No other accounting assumptions or estimates have been identified that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next reporting period.
 
1.4 New Australian Accounting Standards
 
Adoption of New Australian Accounting Standard requirements
 
No accounting standard has been adopted earlier than the application date as stated in the standard.
 
No accounting standards issued prior to the signing applicable to the current or future reporting periods would have a material financial impact on PHIAC.
 
1.5 Revenue
 
Revenue from the sale of goods is recognised when:
  1. the risks and rewards of ownership have been transferred to the buyer;
  2. PHIAC retains no managerial involvement or effective control over the goods;
  3. the revenue and transaction costs incurred can be reliably measured; and
  4. it is probable that the economic benefits associated with the transaction will flow to PHIAC.
Revenue from the rendering of services is recognised by reference to the stage of completion of contracts at the reporting date. The revenue is recognised when:
  1. the amount of revenue, stage of completion and transaction costs incurred can be reliably measured; and
  2. the probable economic benefits associated with the transaction will flow to PHIAC.
The stage of completion of contracts at the reporting date is determined by reference to the proportion that costs incurred to date bear to the estimated total costs of the transaction.
 
Receivables for goods and services, which have 30 day terms, are recognised at the nominal amounts due less any impairment allowance amount. Collectability of debts is reviewed at the end of the reporting period. Allowances are made when collectability of the debt is no longer probable.
 
Interest revenue is recognised using the effective interest method as set out in AASB 139 Financial Instruments: Recognition and Measurement.
 
Revenues from Government
 
PHIAC administers the Council Administration Levy collecting monies from industry which are placed into the Consolidated Revenue Fund and then allocated back to PHIAC. For the purposes of these accounts, income from the Levy is shown as Revenue from Government. PHIAC does not receive any direct appropriations.
 
The Minister for Health in conjunction with the Minister for Finance approved the non-collection of the June 2015 quarter of the Council Administration Levy.
 
Section 307-10 (1) of the Private Health Insurance Act 2007 states Levies collected under the following Acts are payable to PHIAC:
  • Private Health Insurance (Risk Equalisation Levy) Act 2003;
  • Private Health Insurance (Council Administration Levy) Act 2003; and
  • Private Health Insurance (Collapsed Insurer Levy) Act 2003.
Section 307-10 (2) of the Private Health Insurance Act 2007 appropriates the Consolidated Revenue Fund for the amounts payable under section 307-10.
 
1.6 Gains
 
Sale of Assets
 
Gains from disposal of assets are recognised when control of the asset has passed to the buyer.
 
1.7 Employee Benefits
 
Liabilities for 'short term employee benefits' (as defined in AASB 119 Employee Benefits) and termination benefits due within 12 months of the end of the reporting period, are measured at their nominal amounts.
 
The nominal amount is calculated with regard to the rates expected to be paid on settlement of the liability. PHIAC has adopted the Commonwealth Government bond rates in helping to calculate the present values of employee entitlements.
 
Other long-term employee benefits are measured as the net total of the present value of the defined benefit obligation at the end of the reporting period minus the fair value at the end of the reporting period of plan assets (if any) out of which the obligations are to be settled directly.
 
Leave
 
The liability for employee benefits includes provision for annual leave and long service leave. No provision has been made for sick leave as all sick leave is non-vesting and the average sick leave taken in future years by employees of PHIAC is estimated to be less than the annual entitlement for sick leave.
 
The leave liabilities are calculated on the basis of employees' remuneration at the estimated salary rates that will be applied at the time the leave is taken, including PHIAC's employer superannuation contribution rates to the extent that the leave is likely to be taken during service rather than paid out on termination.
 
The liability for long service leave is recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at 30 June 2015. In determining the present value of the liability, PHIAC has taken into account attrition rates and pay increases through promotion and certified agreement increases.
 
Superannuation
 
The majority of staff of PHIAC are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS), or the PSS accumulation plan (PSSap). The CSS and PSS are defined benefit schemes for the Commonwealth. The PSSap is a defined contribution scheme. PHIAC also contributes to other funds where nominated by employees in accordance with Super Choice guidelines.
 
The liability for defined benefits is recognised in the financial statements of the Australian Government and is settled by the Australian Government in due course. This liability is reported by the Department of Finance as an administered item.
 
PHIAC makes employer contributions to the employees' superannuation schemes at rates determined by an actuary to be sufficient to meet the current cost to the Government. An additional contribution for employer productivity benefits is made in accordance with Employer Productivity Superannuation Contribution rates where applicable. The liability for superannuation recognised as at 30 June represents outstanding contributions for the final fortnight of the year.
 
1.8 Leases
 
Operating lease payments are expensed on a straight-line basis which is representative of the pattern of benefits derived from the leased assets.
 
1.9 Cash
 
Cash and cash equivalents includes notes and coins held and any deposits in bank accounts with an original maturity of 12 months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value. Cash is recognised at its nominal amount.
 
1.10 Fair Value Measurement
 
PHIAC deems transfers between levels of the fair value hierarchy to have occurred at reporting date.
 
1.11 Financial Assets
 
PHIAC classifies all financial assets as Receivables.
 
Effective interest method
 
The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts over the expected life of the financial asset, or, where appropriate, a shorter period.
 
Income is recognised on an effective interest rate basis except for financial assets at fair value through profit or loss.
 
Receivables
 
Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as Receivables. Receivables are measured at amortised cost using the effective interest method less impairment. Interest is recognised by applying the effective interest rate.
 
Impairment of financial assets
 
Financial assets are assessed for impairment at the end of each reporting period.
 
Financial assets held at amortised cost - if there is objective evidence that an impairment loss has been incurred for receivables or held to maturity investments held at amortised cost, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the asset's original effective interest rate. The carrying amount is reduced by way of an allowance account. The loss is recognised in the Statement of Comprehensive Income.
 
1.12 Financial Liabilities
 
Financial liabilities are classified as either financial liabilities 'at fair value through profit or loss' or other financial liabilities. Financial liabilities are recognised and derecognised upon 'trade date'.
 
Financial liabilities at fair value through profit or loss
 
Financial liabilities at fair value through profit or loss are initially measured at fair value. Subsequent fair value adjustments are recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability.
 
Other financial liabilities
 
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. These liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.
 
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.
 
Supplier and other payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).
 
1.13 Contingent Liabilities and Contingent Assets
 
Contingent liabilities and contingent assets are not recognised in the balance sheet but are reported in the relevant schedules and notes. They may arise from uncertainty as to the existence of a liability or asset or represent an asset or liability in respect of which the amount cannot be reliably measured. Contingent assets are disclosed when settlement is probable but not virtually certain and contingent liabilities are disclosed when settlement is greater than remote.
 
1.14 Acquisition of Assets
 
Assets are recorded at cost on acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. Financial assets are initially measured at their fair value plus transaction costs where appropriate.
 
Assets acquired at no cost, or for nominal consideration, are initially recognised as assets and income at their fair value at the date of acquisition.
 
1.15 Property, Plant and Equipment
 
Asset Recognition Threshold
 
Purchases of property, plant and equipment and intangibles are recognised initially at cost in the balance sheet, except for purchases costing less than $1,000, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total).
 
The initial cost of an asset includes an estimate of the cost of dismantling and removing the item and restoring the site on which it is located. This is particularly relevant to 'make good' provisions in property leases taken up by PHIAC where there may exist an obligation to restore the property to its original condition. These costs are included in the value of PHIAC's other non-financial assets with a corresponding provision for the 'make good' recognised.
 
Revaluations
 
Fair values for each class of asset are determined as shown below:
 
Asset class Fair value measured at:
Leasehold improvements Depreciated replacement cost
Property, plant & equipment Market approach and depreciated replacement cost
Heritage and cultural Market approach
 
Following initial recognition at cost, valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets do not materially differ with the assets' fair values as at the reporting date. The regularity of independent valuations depends upon the volatility of movements in market values for the relevant assets.
 
Revaluation adjustments are made on a class basis. Any revaluation increment is credited to equity under the heading of asset revaluation reserve except to the extent that it reverses a previous revaluation decrement of the same asset class that was previously recognised through the operating result. Revaluation decrements for a class of assets are recognised directly through the operating result except to the extent that they reverse a previous revaluation increment for that class.
 
Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the asset is restated to the revalued amount.
 
Depreciation
 
Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to PHIAC (or APRA) using, in all cases, the straight-line method of depreciation. Leasehold improvements are depreciated on a straight-line basis over the lesser of the estimated useful life of the improvements or the unexpired period of the lease.
 
Depreciation rates (useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future reporting periods, as appropriate.
 
Depreciation rates applying to each class of depreciable asset are based on the following useful lives:
 
Leasehold improvements 2015 Lease term 2014 Lease term
Property, plant & equipment
Office equipment 3-10 years 3-10 years
Computer equipment 3-10 years 3-10 years
Office furniture & fittings 5-13 years 5-13 years
Heritage and cultural 50 years 99 years
Intangibles 3 years 3 years
 
PHIAC has reassessed the useful life of its assets during 2014-15 to reflect the future economic benefits expected.
 
Impairment
 
All assets were assessed for impairment at 30 June 2015. Where indications of impairment exist, the asset's recoverable amount is estimated and an impairment adjustment made if the asset's recoverable amount is less than its carrying amount.
 
The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. Where the future economic benefit of an asset is not primarily dependent on the asset's ability to generate future cash flows, and the asset would be replaced if PHIAC (or APRA) were deprived of the asset, its value in use is taken to be its depreciated replacement cost.
 
Derecognition
 
An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.
 
Heritage and Cultural Assets
 
PHIAC has artwork with an aggregated fair value of $1,400 (2014: $7,000). PHIAC has classified its artwork as heritage and cultural assets as they were primarily used for purposes that relate to their cultural significance.
 
1.16 Intangibles
 
PHIAC'S intangibles comprise commercially developed software for internal use. These assets are carried at cost less accumulated amortisation and accumulated impairment losses.
 
Software is amortised on a straight-line basis over its anticipated useful life. The useful lives of PHIAC's software is 3 years.
 
All software assets were assessed for indications of impairment as at 30 June 2015.
 
Purchases of intangibles are recognised initially at cost in the Balance Sheet, except for purchases costing less than $1,000 per item, which are expensed in the year of acquisition.
 
1.17 Reporting of Risk Equalisation Activities
 
Cash Transfers to and from the Official Public Account
 
Revenue collected by PHIAC through the levy arrangements described in 'Revenues from Government' is considered by the Government as Administered revenue and expenses for the Department of Health. Collections are transferred to the Official Public Account (OPA) maintained by the Department of Finance. These monies are drawn down from the OPA to the Risk Equalisation Trust Fund (RETF) in order to make payments from the Trust Fund. Detail of the movements within the RETF is disclosed in Note 19.
 
Note 2: Events After the Reporting Period
 
The legislation transferring PHIAC to APRA was passed in June and subsequently received Royal Assent. All functions have transferred to APRA on 1 July 2015.
 
Note 3: Expenses
 
Image of a financial statement showing expenses. In 2015, total employment benefits are listed as $4823916. Total goods and services are listed as $1619971. Total supplier expenses are listed as $1992019.
 
Click on the above image to view the note 3 in a larger size.
 
In order to give effect to the Government decision to abolish PHIAC and transfer the majority of its functions to APRA, PHIAC incurred significant and unbudgeted costs in preparing for the transfer. These are detailed in Goods and services - transition above.
 
Image of a financial statement showing expenses. In 2015, total depreciation and amortisation is listed as $231174. Total losses from asset sales are listed as $208.
 
Click on the above image to view the note 3 in a larger size.
 
Note 4: Income
 
Image of a financial statement showing income. Total revenue from government is listed as $4664250.
 
Click on the above image to view the note 4 in a larger size.
 
Note 5: Income Tax Expense (Competitive Neutrality)
 
PHIAC is not subject to Competitive Neutrality.
 
Note 6: Financial Assets
 
Image of a financial statement showing financial assets. Total cash and cash equivalents is listed as $3794206. Total trade and other receivables is listed as $62825.
 
Click on the above image to view the note 6 in a larger size.
 
PHIAC held $4,957 in the Risk Equalisaiton Trust Fund (RETF) account to maintain a mimimum balance (Note 19). This amount was returned to the administration account in June 2015.
 
Note 7: Fair Value Measurement
 
The following tables provide an analysis of assets and liabilities that are measured at fair value. The different levels of the fair value hierarchy are defined below.
 
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at measurement date.
 
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
 
Level 3: Unobservable inputs for the asset or liability.
 
Image of a financial statement showing fair value measurements. In 2015, total non-financial assets are listed as $300489.
 
Click on the above image to view the note 7 in a larger size.
 
1. PHIAC did not measure any non-financial assets at fair value on a non-recurring basis as at 30 June 2015.
 
2. There has been changes to the valuation techniques for assets in the property, plant and equipment class. In instances where sufficient observable inputs, such as market transactions of similar assets, were (not) identified in this financial year, the valuation technique was changed from a DRC (Market) approach to a Market (DRC) approach.
 
3. Fair value measurements - highest and best use differs from current use for non-financial assets (NFAs).
PHIAC's assets are held for operational purposes and not held for the purposes of deriving a profit. The current use of all NFAs is considered their highest and best use.
 
4. Recurring and non-recurring Level 3 fair value measurements - valuation processes
PHIAC tests the procedures of the valuation model as an asset materiality review at least once every 12 months (with a formal revaluation undertaken once every three years). If a particular asset class experiences significant and volatile changes in fair value (i.e. where indicators suggest that the value of the class has changed materially since the previous reporting period), that class is subject to specific valuation in the reporting period, where practicable, regardless of the timing of the last specific valuation. The entity engaged Australian Valuation Solutions (AVS) to undertake a full revaluation and confirm that the models developed comply with AASB 13.
 
Significant Level 3 inputs utilised by the entity are derived and evaluated as follows:
 
Property, Plant & Equipment - Adjusted Market Transactions
 
The significant unobservable inputs used in the fair value measurement of PPE assets relates to the market demand and valuers judgement to determine the fair value measurement of these assets. A significant increase (decrease) in the transaction price would result in a significantly higher (lower) fair value measurement.
 
Leasehold Improvements, Property, Plant and Equipment - Consumed economic benefit / Obsolescence of asset
 
Assets that do not transact with enough frequency or transparency to develop objective opinions of value from observable market evidence have been measured utilising the cost (Depreciated Replacement Cost or DRC) approach. Under the DRC approach the estimated cost to replace the asset is calculated and then adjusted to take into account its consumed economic benefit / asset obsolescence (accumulated depreciation). Consumed economic benefit / asset obsolescence has been determined based on professional judgement regarding physical, economic and external obsolescence factors relevant to the asset under consideration.
 
The weighted average is determined by assessing the fair value measurement as a proportion of the total fair value for the class against the total useful life of each asset.
 
Note 7B: Level 1 and Level 2 transfers for recurring fair value measurements
 
There have been no transfers between levels 1 and 2 of the hierarchy during the year (2014: nil).
 
Note 7C: Reconciliation for recurring Level 3 fair value measurements
 
Recurring Level 3 fair value measurements - reconciliation for assets
 
Image of a financial statement showing reconciliation for recurring Level 3 fair value measurements. In 2015, the totals as at 30 June are listed as $122850 for leasehold improvements, $59800 for property, plant and equipment, and $182650 total.
 
Click on the above image to view the note 7 in a larger size.
 
1. These losses are presented in the Statement of Comprehensive Income under Depreciation expense.
 
2. These gains are presented in the Statement of Comprehensive Income under Changes in asset revaluation surplus.
 
3. There have been transfers of property, plant and equipment asset fair value measurements into Level 3 during the year due to changes in the valuation technique from a market approach to DRC.
 
Note 8: Non-Financial Assets
 
Image of a financial statement showing non-financial assets. In 2015, total leasehold improvements are listed as $122850. Total property, plant and equipment is listed as $177639. Total intangibles are listed as $74832. Total other non-financial assets are listed as $82420.
 
Click on the above image to view the note 8 in a larger size.
 
Image of a financial statement showing non-financial assets. Net book value as of 30 June 2015 is listed as $122850 for leasehold improvements, $177639 for property, plant & equipment, and $300489 total. Net book value at 30 June 2014 is listed as $74716 for leasehold improvements, $159354 for property, plant & equipment, and $234070 total.
 
Click on the above image to view the note 8 in a larger size.
 
Image of a financial statement showing non-financial assets. Net book value at 30 June 2015 is listed as $74832 for computer software purchased, compared to $184421 at 30 June 2014.
 
Click on the above image to view the note 8 in a larger size.
 
Note 9: Payables
 
Image of a financial statement showing payables. In 2015, total suppliers payable are listed as $161364. Total other payables are listed as $127347.
 
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Note 10: Provisions
 
Image of a financial statement showing provisions. In 2015, total employee provisions are listed as $1099013. Total other provisions are listed as $105900. Closing balance 2015 is also listed as $105900.
 
Click on the above image to view the note 10 in a larger size.
 
PHIAC currently has an agreement (2014: 1 agreement) for the leasing of its premises which has a provision requiring PHIAC to restore the premises to its original condition at the conclusion of the lease.
 
Note 11: Cash Flow Reconciliation
 
Reconciliation of cash and cash equivalents as per Balance Sheet to Cash Flow Statement
 
Image of a financial statement showing cash flow reconciliation. In 2015, net cash from operating activities is listed as $2467880.
 
Click on the above image to view the note 11 in a larger size.
 
Note 12: Contingent Liabilities and Assets
 
Quantifiable Contingencies
 
There were no qantifiable contingencies at 30 June 2015. (Nil at 30 June 2014).
 
Unquantifiable Contingencies
 
There are no unquantifiable contingencies at 30 June 2015. (Nil at 30 June 2014).
 
Significant Remote Contingencies
 
There are no significant remote contingencies at 30 June 2015. (Nil at 30 June 2014).
 
Note 13: Council Remuneration
 
Image of a financial statement showing council remuneration. In 2015, the total remuneration received or due and receivable by council members is listed as $302510.
 
Click on the above image to view the note 13 in a larger size.
 
Note 14: Related Party Disclosures
 
The Members of the Council during the year were:
 
Member Date Appointed Date Appointment Ceased
or Date Resigned
Lynn Ralph - Commissioner 29-Nov-10 30-Jun-15
John Barrington 29-Nov-10 10-Nov-14
Barry Catchlove 27-Feb-12 26-Feb-15
Terry Downing 29-Nov-10 30-Jun-15
John McGee - Deputy Commissioner
(previous term 17-Mar-05 to 17-Dec-11)
27-Feb-12 30-Jun-15
 
Other than that shown in Note 13, during the year no member of the Council has received, or become entitled to receive, a material benefit by way of a contract made by PHIAC with a member of the Council or with an organisation in which he or she is a member or has a substantial financial interest. No loans or grants were made by PHIAC to directors or to the entities of which they are directors.
 
Note 15: Senior Management Personnel Remuneration
 
Image of a financial statement showing senior management personnel remuneration. In 2015, the total senior executive remuneration expenses are listed as $985585.
 
Click on the above image to view the note 15 in a larger size.
 
The total number of senior management personnel that are included in the above table are three (2014: Three).
 
Note 16: Financial Instruments
 
Image of a financial statement showing financial instruments. In 2015, the carrying amount of total assets is listed as $3794206. The carrying amount of financial liabilities is listed as $161364. The net gain/(loss) from financial assets is listed as $168760.
 
Click on the above image to view the note 16 in a larger size.
 
Note 16C: Fair value of financial instruments
 
The carrying value of all financial instruments as recognised in the statement of financial position approximates the fair value of these assets and liabilities.
 
Note 16D: Credit Risk
 
PHIAC is exposed to minimal credit risk as all exposures are in cash or cash equivalents largely from the Westpac Institutional Bank.
 
At 30 June 2015, no financial instruments were past due or impaired (2014: nil).
 
Note 16E: Liquidity risk
 
PHIAC's financial liabilities were payables, and finance leases. The exposure to liquidity risk was based on the notion that PHIAC will encounter difficulty in meeting its obligations associated with financial liabilities. This was highly unlikely due to appropriation funding and mechanisms available to PHIAC and internal policies and procedures put in place to ensure there were appropriate resources to meet its financial obligations.
 
Image of a financial statement showing financial instruments. In 2015, the carrying amount of total assets is listed as $3794206. The carrying amount of financial liabilities is listed as $161364. The net gain/(loss) from financial assets is listed as $168760.
 
Click on the above image to view the note 16 in a larger size.
 
Image of a financial statement showing financial instruments. In 2015, the total liquidity risk is listed as $272957, compared to $650414 in 2014.
 
Click on the above image to view the note 16 in a larger size.
 
PHIAC revenue was paid into consolidated revenue and then appropriated back to PHIAC by the Australian Government. PHIAC managed its funds to ensure it had adequate funds to meet payments as they fell due. In addition, PHIAC had policies in place to ensure timely payments were made when due and had no past experience of default.
 
Note 16F: Market Risk
 
PHIAC held basic financial instruments that did not expose it to certain market risks. PHIAC was not exposed to 'currency risk' or 'other price risk'.
 
Interest rate risk
 
The only interest-bearing items on the balance sheet were bank accounts held with Westpac (2014: Westpac and NAB) as such, there is no material interest rate risk.
 
Note 17: Financial Assets Reconciliation
 
Image of a financial statement showing financial assets reconciliation. In 2015, the total financial assets as per financial instruments note are listed as $3794206.
 
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Note 18: External Financing Arrangements
 
Image of a financial statement showing external financing arrangements. In 2015, there was no facility available.
 
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Note 19: Trust Money
 
Image of a financial statement showing trust money. In 2015, the total balance carried forward to next year held by PHIAC is not given.
 
Click on the above image to view the note 19 in a larger size.
 
Note 20: Reporting of Outcomes
 
Image of a financial statement showing reporting of outcomes. In 2015, the total net cost of outcome delivery is given as $6878000.
 
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Note 21: Budgetary Reports and Explanations of Major Variances
 
The following tables provide a comparison of the original budget as presented in the 2014-15 Portfolio Budget Statements (PBS) to the 2014-15 final outcome as presented in accordance with Australian Accounting Standards for PHIAC. The Budget is not audited.
 
Note 21A: Departmental Budgetary Reports
 
Image of a financial statement showing a statement of comprehensive income for the period ended 30 June 2015. It shows the 2015 budgeted net cost of services ($6930000) compared to the actual cost ($7047000). The budgeted total own-source revenue is given as $163000 compared to the actual revenue $169000. The surplus/(deficit) attributable to the Australian government is listed as $(2214000). The total comprehensive income attributable to the Australian government is listed as $(2100).
 
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1. PHIAC's original budgeted financial statement that was first presented to parliament in respect of the reporting period (i.e. from PHIAC's 2014-15 Portfolio Budget Statements (PBS)).
 
2. Between the actual and original budgeted amounts for 2015. Explanations of major variances are provided further below.
 
Image of a financial statement showing a statement of financial position as at 30 June 2015. In 2015, the total actual assets are listed as $4314000. The net assets are listed as $2821000. Total equity is listed as $2821000.
 
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1. PHIAC's original budgeted financial statement that was first presented to parliament in respect of the reporting period (i.e. from PHIAC's 2014-15 Portfolio Budget Statements (PBS)).
 
2. Between the actual and original budgeted amounts for 2015. Explanations of major variances are provided further below.
 
Image of a financial statement showing a statement in changes in equity for the period ended 30 June 2015. The 2015 actual closing balance at 30 June is listed as $2565000 for retained earnings, $256000 for asset revaluation, and $2821000 for total equity.
 
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1. PHIAC's original budgeted financial statement that was first presented to parliament in respect of the reporting period (i.e. from PHIAC's 2014-15 Portfolio Budget Statements (PBS)).
 
2. Between the actual and original budgeted amounts for 2015. Explanations of major variances are provided further below.
 
Image of a financial statement showing a cash flow statement for the period ended 30 June 2015. The 2015 actual net cash from/(used by) operating activities is listed as $(2468000). Actual net cash from/(used by) investing activities is listed as $(53000). Actual cash and cash equivalents at the end of the reporting period is listed as $3794000.
 
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1. PHIAC's original budgeted financial statement that was first presented to parliament in respect of the reporting period (i.e. from PHIAC's 2014-15 Portfolio Budget Statements (PBS)).
 
2. Between the actual and original budgeted amounts for 2015. Explanations of major variances are provided further below.
 
Note 21B: Departmental Major Budget Variances for 2015
 
Explanations of major variances Affected line items (and statement)
Suppliers
This variance relates to costs incurred by PHIAC (including invoices submitted by APRA for associated expenses accepted as reasonably necessary) in the transition including project management, IT resourcing and infrastructure, travel and legal fees.
Suppliers (Statement of Comprehensive Income), Suppliers payable (Statement of Financial Position), Operating cash used -suppliers (Cash Flow Statement)
Other expenses
This variance relates to Consumer Information and Industry Information project costs which were not incurred this year following the announcement to transfer PHIAC to APRA.
Expenses (Statement of Comprehensive Income)
Revenue from Government
This represents the Council Administration Levy income. The variance was caused by two factors. First, the Minister for Health approved a levy amount which was $549,000 less than the amount agreed in the PBS. Second, the Minister for Health, in conjunction with the Minister for Finance, approved the non-collection of the June 2015 quarter of the Council Administration Levy. These items led to a decrease in the cash balance.
Revenue From Government (Statement of Comprehensive Income), Cash and cash equivalents (Statement of Financial Position), Operating cash received - Receipts from Government (Cash Flow Statement)
Employees
The variance is due to the resignation or expiration of the term of appointment of Council members and staff during the year. Replacement staff and Council members were not recruited or appointed given the timing of the transfer of PHIAC to APRA. Also reflected is the redundancy of staff not transferred to APRA.
Employee provisions (Statement of Financial Position) Employee benefits (Statement of Comprehensive Income)
Trade and other receivables
The figure relates to interest receivable. Due to the transition of PHIAC to APRA, all term deposits have been closed upon maturity. No interest is receivable as at 30 June 2015.
Trade and other receivables (Statement of Financial Position), Interest (Cash Flow Statement)
Other non-financial assets
The figure relates to prepayments. Due to the transition of PHIAC to APRA, fewer courses, memberships and subscriptions were prepaid as at 30 June 2015 than the budgeted amount. This reduction was offset by the prepayment of 3 months performance pay bonuses to staff.
Other non-financial (Statement of Financial Position)
Other payables
The figure relates to wage and superannuation accruals for nine days in 2015. The budgeted figure was based on previous years.
Other payables (Statement of Financial Position)
 
 

Compliance Index
 
Compliance Index Page
Audited Financial Statements 39
Auditors Certificate 40-41
Corporate Plan 5
Ecologically Sustainable Development and Environmental Performance 34
Enabling Legislation 28
Fraud Control 35
Indemnities and Insurance 35
Information Publication Scheme Statement (FOI) 33
Judicial Decision and External Review 34
Key Deliverables 7-8
Letter of Transmittal iii
Ministerial Direction 32
National Disability Strategy 34
Notification of a General Policy of the Government 32
Organisational Structure 30
PHIAC Committees 25
PHIAC Council Member Particulars 24-25
Report on Performance 38
Risk Management 29
Significant Events 20
Work Health and Safety 33
 
 

Tables and Figures
 
Tables
  1. PHIAC's Deliverables in 2014-15 against Program 1.1 of the Health Portfolio Budget Statements
  2. Quarterly Administered Risk Equalisation Payments
  3. Council members' appointment terms and meetings attended in 2014-15
  4. Attendance at ARCC meetings during 2014-15
  5. Workplace health and safety notifiable incidence
  6. Professional fees during 2014-15
Figures
  1. Significant changes to the private health insurance industry and the number of people with hospital treatment cover.
  2. PHIAC's organisational chart as at 30 June 2015