28/03/2025

Interpreting and applying Legislation:

Private health insurance, ‘pre-existing condition’, and the 12-month waiting period for a benefit for hospital treatment

This insight forms part of a series of notes about statutory interpretation. For more in this series, or for notes in other series or on other relevant topics of interest, please see: www.geoffreywakerandassociates.com.au.

Introduction

Most people are aware that when an individual first signs up for a new private health insurance policy, there are waiting periods that will apply. In other words, there is a period of time during which you pay your health insurance premiums to your private health insurer, but you will not be eligible to receive a benefit back until the end of your waiting period.

Private health insurers are governed by the Private Health Insurance Act 2007 (PHIA). Under the PHIA, private health insurers must ensure that they only make available insurance policies that comply with the requirements of the PHIA (see section 63.1 PHIA).

One of the requirements set out in the PHIA relates to the maximum waiting periods that private health insurers are allowed to set in their policies.

Section 75.1(1)(a) stipulates the maximum waiting period private health insurers are allowed to set for a benefit for hospital treatment that is treatment for “a pre-existing condition”. That maximum waiting period is 12 months.

What is “a pre-existing condition”?

This is a question that leads many people (including private health Insurers, insured individuals, and medical practitioners) into error.

The phrase pre-existing condition in section 75.1 is not to be understood by the ordinary meaning of its words. That is, you cannot say that a pre-existing condition as it appears in section 75.1 of the PHIA means ‘a condition that was pre-existing’.

The term pre-existing condition is a defined term in the PHIA that occurs only once in the PHIA in relation to establishing the maximum permissible waiting period a private health insurer may specify in an insurance policy for a benefit for hospital treatment that treats a pre-existing condition. The definition is contained in section 75.15 of the PHIA.

To properly understand the circumstances in which a private health insurer may impose a 12-month waiting period on an insured person (that is, to properly interpret section 75.1 of the PHIA), the definition of pre-existing condition and the statutory definition of hospital treatment (found in section 121.5) must be read into the text of section 75.1, and then the ordinary rules of interpretation must be applied. Interpreting the definition contained in section 75.15 (or any other definition of “pre-existing condition” that may be contained in a private health insurance policy) in isolation will lead to an error of law.[1]

Ordinarily, definitions contained in legislation do not form part of the substantive content of the legislation (they don’t themselves create rights or obligations), they simply aid in the interpretation of what the words of the Act mean.[2] Statutory definitions that have been drafted to include substantive material have been referred to by leading authorities as “poor drafting”[3]. The definition of pre-existing condition contained in section 75.15 is such a definition.

The definition of pre-existing condition contained in section 75.15 contains two factors[4] and includes substantive material, affecting the rights of insured individuals, and creating enforceable obligations on private health insurers (when read into section 75.1 and together with the requirement in section 63.1 that private health insurers must only make available insurance policies that comply with the requirements of the PHIA[5]).

Once read and interpreted in accordance with the above principles, the two factors contained in section 75.15 are as follows, in effect:

1. The private health insurer must appoint a medical practitioner (as defined in the PHIA to mean a medical practitioner within the meaning of the Health Insurance Act 1973), and must ensure that the appointed medical practitioner forms a subjective medical opinion as to whether the signs or symptoms[6] of the condition the insured has (the condition that is being treated in hospital), existed at any time in the 6 months ending on the date the insured became insured under the policy, and

2. The private health insurer must also ensure that the appointed medical practitioner, in forming such an opinion, has regard to any information in relation to the insured’s condition that the medical practitioner who will provide the hospital treatment (e.g. the surgeon) gives to him or her.

Private health insurers have an enforceable obligation to ensure that the operative substantive material in section 75.15, read with the definitions of hospital treatment and medical practitioner is strictly complied with, and that this obligation is reflected in the terms of their Insurance Policies.[7]

Medical practitioners and private health insurers will be led into error if they interpret the meaning of pre-existing condition to mean a condition that was pre-existing. A medical practitioner is not required or entitled under the PHIA to decide whether an insured person has a condition that was pre-existing. Rather, the insurer-appointed medical practitioner must form the opinion required under section 75.15. Namely, they must form a medical opinion as to whether the signs or symptoms of the condition the insured person has (for which they seek hospital treatment) existed in the 6 months ending on the day the insured person became insured, having taken into consideration information from the treating medical practitioner (usually the surgeon). Only if that medical opinion is formed in the affirmative can the private health insurer impose a 12-month waiting period on an insured person for a benefit for hospital treatment to treat that condition.

[1] DC Pearce, “Statutory Interpretation in Australia” 10th Ed, Lexis Nexus, 2024 citing McHugh J’s comments in Kelly’s Case.

[2] Pearce (n 1) [6.22] citing Gibb’s case.

[3] Pearce (n 1) at [6.22] citing San v Rumble (No 2) and cases in the Annexure to [6.22].

[4] Pearce (n 1) at [6.16]. See also PHIA sections 63.5 and 63.10 read with 63.1.

[5] See also PHIA section 63.10(d), 63.5, Peace (n 1) at [6.16] and PHIA section 185.5(a).

[6] The Federal Court said in Australian Securities and Investments Commission v HCF Life Insurance Company Pty Ltd [2024] FCA 1240, for the purpose of forming a medical opinion, it is appropriate for “sign” and “symptom” to be given their medical meaning. According to Butterworth’s Medical Dictionary “sign” means “objective evidence of disease or deformity”, and “symptom” means “the consciousness of a disturbance in a bodily function; the subjective feeling that there is something wrong in the working of the body and of which the patient complains, e.g. shortness of breath, pain, fatigue, palpitation, etc.”

[7] See PHIA sections 84.15 and 203.1.

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