Bupa HI Pty Ltd v Chief Commissioner of State Revenue

The legislation

1. It is helpful to approach the facts with an appreciation of the statutory setting.

The Health Insurance Levies Act 1982

1. The long title to the Act is as follows: "An Act to impose a levy on organisations carrying on health benefits business in New South Wales; to make provision to free contributors to health benefits funds and other persons from ambulance fees; and for other purposes."
2. The levy is for this reason sometimes referred to as the "ambulance levy".
3. Sections 10, 10A, 11 and 11A of the Act are as follows: 10 Monthly levy payable An organisation which, on the first day in any month, carries on the business in New South Wales of providing health benefits to contributors is liable to pay to the Chief Commissioner, on or before the 15th day of that month, the monthly levy calculated in accordance with section 10A. 10A Calculation of monthly levy (1) The monthly levy for a month is the amount calculated in accordance with the following formula: L = (S + 2F) × C × D × 1/7 where: L is the monthly levy in dollars. S is the number of single contributors at the beginning of the month. F is the number of contributing families at the beginning of the month. C is the prescribed rate in force during the month. D is the number of days in the month. (2) In subsection (1): contributing family means a family or group whose members are contributors with respect to a health benefits fund by virtue of a single policy of insurance. single contributor means a contributor who is not a member of a contributing family. (3) In determining the values of S and F in the formula given in subsection (1), single contributors, or members of a contributing family all of whom: (a) are permanently resident outside New South Wales, or (b) are members of one or more of the following classes of contributors: (i) persons who contribute to an organisation for the purpose of securing entitlement only to benefits other than basic health benefits, (ii) persons who hold one or more of the following cards issued to them by the Commonwealth: • Concession Card • Health Benefits Card • Pensioner Health Benefits and Transport Concession Card • Pharmaceutical Benefits Concession Card and Social Security Card (iii) persons who are in receipt of a service pension under Part III of the Veterans' Entitlements Act 1986 of the Commonwealth, are not to be counted. (4) If a monthly levy comprises, in addition to a number of dollars, a number of cents, the number of cents is to be disregarded. 11 Requirement to furnish a monthly return Any organisation which carries on the business in New South Wales of providing health benefits to contributors shall furnish, together with each monthly levy under section 10, a return in a form approved by the Chief Commissioner. Maximum penalty: 50 penalty units. Note- An offence against this section committed by a corporation is an executive liability offence attracting executive liability for a director or other person involved in the management of the corporation - see section 121 of the Taxation Administration Act 1996. 11A Assessment of monthly levy by organisations in certain circumstances (1) If an organisation is liable to pay a monthly levy under section 10 but is unable to determine accurately the number of contributors for the purpose of calculating the amount of the levy, the organisation is to make an estimate of the number of its contributors for the purpose of paying the levy. (2) The organisation must, once the precise number of contributors becomes known to it, inform the Chief Commissioner of the number of contributors. (3) The organisation: (a) must then assess the difference between the amount paid and the amount of the monthly levy, and (b) must pay any additional amount required or it may apply for a refund if the amount paid exceeds the monthly levy.
4. It is not in dispute that the plaintiff is an organisation to which s 10 applies.
5. Despite what is said in s 11, no form of return has been approved by the defendant.

The Taxation Administration Act 1996

1. The Act is a "taxation law" within the meaning of s 4 of the Taxation Administration Act 1996 (NSW) (the Administration Act). Sections 8 and 9 of the Administration Act provide for the making of assessments and reassessments as follows: 8 General power to make assessment (1) The Chief Commissioner may make an assessment of the tax liability of a taxpayer. (2) An assessment of a tax liability may consist of a determination that there is not a particular tax liability. … 9 Reassessment (1) The Chief Commissioner may make one or more reassessments of a tax liability of a taxpayer. (2) A reassessment of a tax liability is to be made in accordance with the legal interpretations and assessment practices generally applied by the Chief Commissioner in relation to matters of that kind at the time the tax liability arose except to the extent that any departure from those interpretations and practices is required by a change in the law (whether legislative or non-legislative) made after that time. (3) The Chief Commissioner cannot make a reassessment of a tax liability more than 5 years after the initial assessment of the liability, unless - (a) the reassessment is to adjust tax to give effect to a decision on an objection or review as to an assessment, or (b) at the time the initial assessment or a reassessment was made, all the facts and circumstances affecting the liability under the relevant taxation law of the person in respect of whom the assessment or reassessment was made were not fully and truly disclosed to the Chief Commissioner and, as a result, the tax liability was assessed at a lower amount, or (c) the reassessment is authorised to be made more than 5 years after the initial assessment by another taxation law, or (d) the reassessment is made as a consequence of an application by a taxpayer, being an application made within 5 years after the initial assessment of the liability, and the reassessment reduces the tax liability. (4) The initial assessment of a tax liability remains the initial assessment of the liability for the purposes of this Act even if it is withdrawn under section 13.
2. Part 10 of the Administration Act deals with objections and appeals. Section 97(1) and (4) provide: 97 Review by Supreme Court (1) A taxpayer may apply to the Supreme Court for a review of a decision of the Chief Commissioner that has been the subject of an objection under Division 1 if - (a) the taxpayer is dissatisfied with the Chief Commissioner's determination of the taxpayer's objection, or (b) 90 days (not including any period of suspension under section 92) have passed since the taxpayer's objection was served on the Chief Commissioner and the Chief Commissioner has not determined the objection. … (4) A review by the Supreme Court is taken to be an appeal for the purposes of the Supreme Court Act 1970 and the regulations and rules made under that Act, except as otherwise provided by that Act or those regulations or rules.
3. The powers of the Court on an application for review are set out in s 101: 101 Powers of court or tribunal on review (1) The court or tribunal dealing with the application for review may do any one or more of the following - (a) confirm or revoke the assessment or other decision to which the application relates, (b) make an assessment or other decision in place of the assessment or other decision to which the application relates, (c) make an order for payment to the Chief Commissioner of any amount of tax that is assessed as being payable but has not been paid, (d) remit the matter to the Chief Commissioner for determination in accordance with its finding or decision, (e) make any further order as to costs or otherwise as it thinks fit. (2) Nothing in this section limits the application of the following provisions in respect of an application for review before the Civil and Administrative Tribunal - (a) Division 3 of Part 3 of Chapter 3 of the Administrative Decisions Review Act 1997, (b) section 60 (Costs) of the Civil and Administrative Tribunal Act 2013.
4. The expression "assessment" is defined in s 3 as follows: assessment means an assessment made by the Chief Commissioner under Part 3 of the tax liability of a person under a taxation law, and includes - (a) a reassessment and a compromise assessment under Part 3, and (b) an assessment by the Supreme Court or the Civil and Administrative Tribunal on an application for a review.
5. It is also relevant to note s 48: 48 Requirement to keep proper records (1) A person must keep, or cause to be kept, such records as are necessary to enable the person's tax liability under a taxation law to be properly assessed. Maximum penalty - 250 penalty units. (2) This section does not affect a provision of any other taxation law concerning the keeping of records. Note- A person who is required by a taxation law to keep a record may include other information in the record for the person's own use.

The factual background

1. There was no dispute as to the factual background.
2. The plaintiff is Bupa HI Pty Ltd, a private health insurer whose business includes the provision of private health insurance to customers resident in NSW.

The "private ruling"

1. By letter dated 22 December 2009, the plaintiff informed the defendant that one of the entities in its group, MBF Australia Pty Ltd, had for some time been calculating the levy without making any exclusion for Commonwealth concession car holders and had, for that reason, been overpaying the levy. The letter proposed a methodology for estimating the number of Exempt Contributors and annexed a table calculating the estimates of the number of Exempt Contributors between October 2006 and July 2009 (and the levy proposed not to be paid in respect of them), and a report detailing an estimation methodology for the number of Exempt Contributors for use in the future.
2. The letter stated: "We will continue to use this methodology and process for determining the number of exempt contributors, particularly the class of concession card holders, and calculating the ambulance levy amounts payable, until we can design and implement an automated solution. We should be able to let you have a further update about our automated solution by June 2010."
3. The methodology to which the letter referred was one which arrived at an estimate of Exempt Contributors by a combination of: 1. the actual number of contributors who held "non-packaged" products and who had at some point reported to MBF Australia Pty Ltd that they held a relevant concession card; and 2. an approximation of the number of contributors who held "packaged" products who also held a relevant concession cards.
4. A "packaged" product is a health insurance policy that includes the ambulance levy as part of the product. In a "non-packaged" product the ambulance levy is specified as a separate rider to the product.
5. The need to make an approximation of the number of Exempt Contributors who held "packaged" products reflected the fact that it was not then possible to store and track whether contributors in that class held concession cards. The approximation used was that 6.9% of "packaged" product holders were Exempt Contributors.
6. By letter dated 5 May 2010, the defendant informed the plaintiff that he accepted that the methodology set out in the 22 December 2009 letter was fair and reasonable. The letter stated that he would accept this methodology for the period from November 2006 to December 2009. He also said that "this estimate can be used for the period from January 2010 until your new automated system is implemented."
7. For a time, the defendant treated this letter as an administratively binding "private ruling" and it was referred to as such in later correspondence.
8. The plaintiff replied by letter dated 1 June 2010. That letter relevantly contained the following: "We confirm that we have now completed an extensive review into the implementation of a fully automated system for the calculation of the levy as mentioned in our previous correspondence. Our investigations have revealed that an automated solution would entail significant customer impacts and systems implications that the business is unable to manage or fund, particularly as the business is undergoing a major systems change. Accordingly, we confirm that we will continue to calculate and pay levy in accordance with the methodology set out in our letter to you dated 22 December 2009."
9. The defendant allowed the then outstanding levy to be reduced by the amount theoretically overpaid in respect of Exempt Contributors on the basis of the methodology set out in the 22 December 2009 letter, thereby producing a net figure payable by the plaintiff.
10. On 20 December 2010, the plaintiff wrote to the defendant to inform him that from 1 July 2010 the funds operated by MBF Alliances Pty Ltd and Bupa Australia Health Pty Ltd had merged into a single fund operated by the plaintiff. The plaintiff also informed the defendant that each of these funds had overpaid the levy because they had failed to exclude Exempt Contributors from the statutory calculation. The letter stated that the plaintiff intended to use the methodology set out in its 22 December 2009 letter (which was referred to as the "MBF Methodology") to calculate the amount of the levy for the merged fund and added: "We have also completed designing an automated solution, based on the MBF Methodology, which we expect to implement in the BOSS system mid next year. When we have completed testing of the automated solution, we are happy to provide you with a further update."
11. However, in the events that happened, the plaintiff did not implement an automated solution to the problem of calculating Exempt Contributors. I will set out the evidence on this issue in the context of dealing with the evidence of Ms Gunther. For the moment, it is sufficient to note that her evidence demonstrates that there were (and remain) fairly significant difficulties in the way of any system that seeks to compel concession card and pension details from prospective members. She also explained that even if the plaintiff did collect information about concession cards, it was unable to verify the accuracy or currency of that information from month to month, as the Act contemplates.

The 2013 audit

1. On 4 December 2013, the defendant notified the plaintiff that he had commenced an audit of the plaintiff's compliance with its obligations under the Act for the period from 1 August 2010 to 1 November 2013. The defendant notified the plaintiff of the completion of that audit on 8 May 2015. The letter informing the plaintiff of the finalisation of the audit raised no issue in relation to the estimation of Exempt Contributors. The result of the audit was that the plaintiff became entitled to a net refund of $4,371,013.62. I also note that 55 policies with no postcode were identified in the course of the audit but that the defendant agreed that a figure of 28.8% was a reasonable estimate of the number of NSW policyholders in this category.
2. During the whole of the Relevant Period now in dispute, being the period 1 July 2016 to 30 June 2021, the plaintiff used the methodology contained in the 22 December 2009 letter to estimate the number of Exempt Contributors.

Further audit

1. On 4 December 2020, the defendant advised that he had commenced a state tax investigation under the Administration Act, focussing on the plaintiff's compliance with the Act.
2. There followed a significant amount of correspondence as to the plaintiff's entitlement to continue to employ the methodology described in the 22 December 2009 letter. Three letters are of particular note.
3. On 1 June 2021, the defendant wrote to the plaintiff advising, among other things, that he had revoked the "private ruling" of 5 May 2010 with retrospective effect to 1 June 2016.
4. By email dated 22 October 2021, Ms Margaux Perrone, Senior Compliance Officer, Customer Service - Taxes & Grants at Revenue NSW, wrote to Mr Bryan Grills, Tax Director - Bupa Asia Pacific. She referred to an earlier telephone discussion and stated: "We advised that we cannot rely on ABS data and require specific details of Commonwealth concession cards to support that a single contributor, or all members of a contributing family hold one or more of the eligible Commonwealth concession cards. This approach is taken across all health insurance levy audits in line with legislative requirements. Richard Dwyer [of the plaintiff] made reference to section 11A of the Act which allows a Health Fund to make an estimate of the number of its contributors for the purpose of paying the levy in the case that they are unable to accurately determine the number of contributors. However, once the precise number of contributors becomes known, the Chief Commission [sic] must be informed. This section of the Act allows the provision to estimate contributors for a return month and not on an ongoing basis."
5. On 23 December 2021, Ms Perrone wrote again to Mr Grills. She pointed out that s 48 of the Administration Act requires that "records must be kept to enable the tax liability to be properly assessed." Ms Perrone continued: "As you are aware, concession cards issued by the Commonwealth government are only valid for a certain time and carry an expiry date. Whilst in many cases they are renewed upon expiry, this is not always the case. In order for the exemption to be claimed, evidence must be maintained to capture a valid concession card for each relevant return period. … We recognise that contributors holding the levy exempt product may hold a valid concession card. However, during this investigation we require evidence to support that single contributors and all members of contributing families hold valid concession cards as at the point in time when levy is calculated in line with legislation."
6. The letter suggested an underpayment of levy by the plaintiff between 1 July 2016 and 30 June 2021 in an amount of $13,777,524.32. The letter invited comment on this "preliminary finding".
7. Subsequent correspondence marked out the plaintiff's position on this issue, including that it was appropriate to rely on actuarial evidence to ascertain the number of Exempt Contributors.
8. By letter dated 25 February 2022 from the plaintiff's solicitors to the defendant, the plaintiff argued that actuarial evidence was indirect but probative evidence of the precise number of Exempt Contributors and that: "If reassessments were to be issued for the health insurance levy, the Chief Commissioner ought to make a genuine attempt to determine the actual size of [Bupa's] contributor base for levy purposes. This should include a genuine attempt to estimate the number of concession card holders, rather than simply assuming that number to be zero until proven otherwise. That would be consistent with the way in which the Chief Commissioner is empowered to administer the Levies Act under the TAA. Subsection 11(2) of the TAA provides that 'if the Chief Commissioner has insufficient information to make an exact assessment of a tax liability, the Chief Commissioner may make an assessment by way of estimate.'"
9. On 11 April 2022, the assessments were issued under cover of a letter from Ms Perrone to Mr Grills, which noted: "Whilst it is agreed that holders of certain Commonwealth concession cards are not to be counted, there is an onus on the health fund to substantiate that their member is a holder of a valid card."
10. Also on 11 April 2022, the defendant wrote to the plaintiff's solicitor rejecting various claims made in their letter of 25 February 2022, stating: "An estimated calculation of concession card holders is no longer acceptable. Until [Bupa] can present evidence of valid concession card data, all NSW-resident contributors will be included in the levy calculation. If [Bupa] captures this retrospective data from their contributors, we may issue a reassessment to include the Exempt Contributors and issue a refund where the exemption is proven. We refer to your concern that 'Even if some members voluntarily provided concession card details, some members would choose not to - meaning that any count of concession card holders would be incomplete and imprecise.' For the purpose of calculating the levy, if members choose not to provide their concession card details to [Bupa], this will mean that they are not deemed to be concession card holders for the purpose of the levy calculation. We understand that [Bupa] would have no means of independently verifying concession card information that may be given by its members. In this regard, we would argue a degree of reasonableness would apply to the term precise. A robust system of collecting and confirming concession cardholder details would provide a higher degree of accuracy and assurance than relying on estimates where there is no proven correlation to the actual concession cardholder status of [Bupa] members. It is not reasonable to disregard a section of legislation on the basis that the interpretation of precise, means absolute accuracy. Section 48 of the TAA states that a person must keep such records as are necessary to enable the persons' [sic] tax liability under a taxation law to be properly assessed. Without records such as contributor concession card information, [Bupa's] levy under the Act cannot be properly assessed."
11. On 7 June 2022, the plaintiff served notices of objection to the assessments under Part 10 of the Administration Act. The plaintiff duly paid the amount of the assessments, namely $20,857,816.07 made up as follows: 1. Unpaid Health Insurance Levy of $17,027,631.32; 2. Penalty Tax of $3,405,526.33; 3. Interest until 11 April 2022 (at market rate only) of $419,946.09; and 4. Additional interest (11 April 2022 until 21 October 2022) of $4,712.33.
12. On 16 November 2022, the objections were disallowed. These proceedings were commenced on 11 January 2023.

The evidence of Ms Gunther

1. An aspect of the defendant's case as to why it was inappropriate for the Court to have regard to actuarial evidence to determine the number of Exempt Contributors was, as he submitted, that it would have been "easy" for the plaintiff to obtain contemporaneous evidence from policyholders for each month of the Relevant Period but that the plaintiff had simply failed to do so.
2. I will comment on the relevance of that proposition to the issue in dispute in due course. Nonetheless, because the point was argued, I will set out Ms Gunther's evidence and my findings in relation to it.
3. Ms Gunther is a business process and impacts manager for the plaintiff. She has worked for the plaintiff or within the Bupa Asia Pacific Group in the health insurance business for the past 27 years. In her current role, Ms Gunther is responsible for "optimising, documenting and maintaining a repository of business processes with the health insurance business for the Asia Pacific region". She does so together with a team of people whom she manages and supervises. The particular business processes for which she is responsible relevantly include those core processes supporting the plaintiff's health insurance business that touch on the customer experience or relationship, including product quoting, onboarding of customers, claims processes and membership management processes.
4. Ms Gunther explained that the plaintiff requires the following information from a person who seeks to purchase health insurance: 1. The prospective member's name. 2. The list of all other persons to be covered under the policy. 3. The relationship between the prospective member and all other persons to be covered under the policy. 4. The dates of birth of the prospective member and all other persons to be covered under the policy. 5. The prospective member's contact details and, at minimum, an address. 6. The product selected.
5. That "mandatory" information is required in order to enrol a person as a member of the private health insurance fund. The information is "mandatory" in that the plaintiff will offer private health insurance to a person who provides at least that information.
6. Once a person takes out private health insurance with the plaintiff, their membership will remain valid until cancelled by the member or by the plaintiff (for example if premiums are not paid by a member for a specified amount of time).
7. If a member's circumstances change, they generally advise the plaintiff by speaking with a customer service representative in a retail store or through a contact centre. For example, this might occur if a member wishes to add a child to their policy or to amend their level of coverage.
8. Ms Gunther also explained that information about whether a prospective customer holds a concession card is not, and was not during the Relevant Period, information necessary for the commencement or continuation of membership or the purchase of health insurance from the plaintiff. Ms Gunther's principal explanation for the plaintiff's caution about making this information "mandatory" was that the plaintiff is subject to the operation of the "community rating" provisions of Part 3.2 of the Private Health Insurance Act 2007 (Cth). Those provisions provide that the plaintiff must not discriminate between people who wish to be insured on the basis of certain characteristics, including health, gender, race and where a person lives. Ms Gunther did not say that these principles altogether prevented the plaintiff from inquiring about whether a proposed insured, or their family members, held concession cards or were in receipt of a pension, but suggested that this is a reason why the provision of that information was not "mandatory".
9. Ms Gunther provided copies of the application forms used by the plaintiff during at least part of the Relevant Period, although she said the forms did not change in relevant respects during the whole period. Section B of that form includes the following: "To ensure the correct amount of ambulance levy is paid for the state/territory ambulance insurance plans, please complete the section below. If anyone on your membership holds one of the following concession cards: Health Benefits Card; Pensioner Health Benefits and Transport Concession Card; Pharmaceutical Benefits Concession Card; Social Security Card; or Pensioner Concession Card issued by the Department of Veterans' Affairs (DVA), please provide the name of each concession card holder, the type of concession card and card expiry date (if relevant)."
10. Ms Gunther said that language to that effect had been included on the plaintiff's application forms for as long as she could recall. Nonetheless, she said that the plaintiff did not have and had never had a uniform policy or method of requesting concession card details in NSW and the ACT from members purchasing a health insurance policy which entitled them to hospital cover. She explained that this was because of the various channels by which customers were able to apply for insurance. Each such channel has its own process, even though the information requested from customers is the same (and includes information about whether they hold a concession card).
11. To the extent the plaintiff has collected information about whether policyholders hold concession cards, it has not been mandatory for that information to be supplied and it has therefore not been collected uniformly.
12. Ms Gunther also explained that the plaintiff does not and cannot verify the accuracy or currency of concession card information provided to it by current or prospective customers. This was the case during the Relevant Period and remains the case now. She said that the only way for the plaintiff to obtain concession card details from existing members would be to prepare a list of all NSW resident members and commence a proactive campaign to ask them to verify their concession card details. She said that the plaintiff's experience in attempting to request information of this kind from existing members was that only a small percentage of customers responded. By way of example, the plaintiff recently identified some 69,000 customers who were eligible to nominate a dependant between the ages of 25 and 32 to remain covered by an existing policy. The plaintiff wrote to all 69,000 customers to inform them of this fact, to alert them to the potential savings associated with making such a nomination and invited them to nominate the eligible dependant. Despite this, only 7,920 did so.
13. I am satisfied on the basis of Ms Gunther's evidence that it would not be at all easy to obtain and maintain current information from customers as to whether or not they and other persons covered by family policies are Exempt Contributors. Once it is appreciated that the calculation of the levy requires an insurer to know the number of Exempt Contributors in every month of coverage, and given the demonstrated inefficiency of trying to gather such information from customers once a policy is in place, it is unlikely in the extreme that any system implemented by a health insurer that depended on regular customer feedback would provide a reliable basis upon which to identify the actual number of Exempt Contributors at any particular point in time. This is especially so when it is remembered that the actual number of Exempt Contributors also turns, in the case of family contributors, on whether all members of the family are exempt.
14. I am unable to determine on the basis of the material before me whether the community rating provisions of the Private Health Insurance Act 2007 would make it unlawful to make concession card information "mandatory" for the inception of a policy. Given that I am satisfied on the basis of Ms Gunther's other evidence that it would not be feasible to collect such information from customers on an ongoing basis in any event, I prefer to express no view about that matter. I do however accept that the plaintiff's perception of how the Private Health Insurance Act 2007 applied during the relevant years is at least part of the reason why such information was not obtained at the time.
15. There was some evidence about the prospect of obtaining the relevant information directly from Services Australia by way of its Centrelink Confirmation eServices Service. The evidence about this matter was somewhat indistinct. The Centrelink policy governing the terms on which it is prepared to make such information available to businesses states that Centrelink will only do so where, relevantly, the business gives the customer a corresponding rebate. It was submitted that there would be no utility in pursuing such an arrangement because the cost involved would comfortably outweigh any benefit gained, having regard to the very small (cents per month) amount of the levy on a per customer basis. I accept that there would be no utility in implementing a system if the benefit it delivers to the plaintiff's cost of doing business is outweighed by the cost of implementing the system in the first place. However, it was not clear to me that there was evidence that that would be the result in this particular case.

The actuarial evidence

1. The plaintiff relied on two reports prepared by Mr Nicholas Stolk. Mr Stolk has been a consultant actuary for 18 years, providing actuarial advice in the private health insurance and aged care sectors. He is the Appointed Actuary to nine health insurers. He was well qualified to express an opinion about the questions he was asked to consider. Mr Newman, who gave evidence for the defendant, was equally well qualified.
2. Mr Stolk was asked the following question: "For each of the calendar months in the period 1 July 2016 to 30 June 2021, determine the number of New South Wales resident contributors of [the plaintiff] who are not to be counted in calculating the monthly levy payable pursuant to section 10 of the [Act] on the basis that they hold a Commonwealth issued concession card and/or are in receipt of a service pension under Part III of the Veterans' Entitlements Act 1986 (Cth)."
3. In his principal report delivered on 12 July 2023, Mr Stolk explained that it was not possible for him to know with certainty the number of Exempt Contributors. In the absence of direct survey information, he estimated the proportion of NSW resident contributors who were exempt on a "central estimate" basis, namely an "estimate which represents an expected value over the range of possible outcomes, for each of the calendar quarters between 1 July 2016 to 30 June 2021." He then considered the uncertainty in that first conclusion and, having done so, identified an estimate that was "highly unlikely" to exceed the actual number of Exempt Contributors. I will explain this in a little more detail shortly.
4. Having identified the central estimate and the highly unlikely estimate for each quarter, he expressed a view as to the number of Exempt Contributors for each month by reference to the plaintiff's monthly hospital insurance cover policy counts for the Relevant Period.
5. Mr Stolk's reference to quarterly, as opposed to monthly, estimates reflects the fact that the datasets on which he relied to reach his conclusions included "payment demographic" datasets published quarterly by the Department of Social Services and "pension summaries" published quarterly by the Department of Veterans Affairs (DVA). He also had regard to ABS survey data on the incidence of private health insurance and APRA data on private hospital insurance coverage in NSW.
6. The methodology which Mr Stolk employed to reach his conclusions was not in dispute. The defendant relied on the evidence of Mr Newman, who was equally qualified to express an opinion on the topic. Mr Newman broadly agreed with Mr Stolk's method for reaching his conclusions, subject to some minor matters.
7. Mr Stolk's methodology involved the following seven steps, reflecting his own actuarial analysis of the available data: "I estimate quarterly exemption rates by undertaking the following seven steps: (a) Step 1 - Using DSS data and DVA data to estimate the monthly average number of cards and DVA Service Pensioners in NSW by age band and partnered status for each quarter in the Relevant Period. This is the most granular presentation of this data available. (b) Step 2 - Using ABS Survey data to form assumptions around: (i) The ratio of cards (and Service Pensioners) to unique counts of cardholders, by card type (ii) The proportion of partnered cardholders/pensioners where both adults of the household are cardholders/pensioners and therefore eligible for exemption from the levy formula, by card type (iii) The private hospital insurance participation rate of cardholders/pensioners by card type, partnered status and age band. (c) Step 3 - Combining the counts from Step 1 above with the assumptions in Step 2 above to estimate the number of Exempt Contributors for levy purposes. (d) Step 4 - DVA Gold Card holders are provided with private hospital cover by the Australian Government without the need for a private health insurance policy. I have assumed the analysis in Steps 1 to 3 above includes DVA Gold Card holders. Therefore, I exclude the count of DVA Gold Card holders from the count of Exempt Contributors by using DVA data on the number of Gold Card holders. (e) Step 5 - Using APRA data to determine the total number of NSW resident contributors. (f) Step 6 - Determining the proportion of NSW resident contributors who are exempt from the levy by age band. (g) Step 7 - Apply the results from Step 6 to BHI's NSW resident contributors by age band."
8. These steps produced a "central estimate" of the exemption rate for each quarter during the Relevant Period. He produced the following table to illustrate his methodology for the September 2016 quarter:
9. When the same process was repeated for all of the quarters during the Relevant Period, he determined that the overall average exemption rate was 18.7%.
10. However, as already noted, he then considered the question of uncertainty in his central estimate. As he pointed out, the actual number of Exempt Contributors over the Relevant Period "will almost certainly be different" from his estimate. One reason for that, as he noted, was that he had relied on quarterly data, not monthly data.
11. Mr Stolk therefore identified a number of potential sources of uncertainty in his primary analysis, being those relating to data error, those relating to specification error and those relating to parameter selection error. In practical terms, this involved interrogating a number of potential so-called "what if?" scenarios. For example, "what if there were 2% fewer cards than the data suggested?", "what if APRA insured persons were 1% higher than reported?" and so on. In all, he identified seven such scenarios. He then considered the effect which each such scenario would have on his overall conclusions if it were true.
12. Mr Stolk summarised his conclusions about these questions in the following table:
13. Table 1.3 demonstrates that if all of Mr Stolk's somewhat conservative but plausible "what if?" scenarios were true, then the combined effect would be to reduce his overall average estimate of Exempt Contributors to 10.5% for that period. The average for the whole of the Relevant Period would be 11%. On the other hand, he is highly confident that all of those scenarios would not be true. To adopt his language, it is "highly unlikely" that the figure of 11% exceeds the actual number of Exempt Contributors for any period, with "highly unlikely" meaning it is only 10% likely.
14. A slightly more vernacular way of saying all of this is that he is 90% sure that at least 11% of contributors were exempt.
15. The one small point of disagreement between Mr Stolk and Mr Newman concerns one of the "highly unlikely" scenarios posited by Mr Stolk, namely that in which he considers the possibility that the plaintiff's members may be underrepresented among concession card holders. In other words, the possibility that the average Bupa policyholder is less likely to hold a concession card than the general insured population. To allow for this possibility, Mr Stolk applied an overall reduction of 5% to the rate used to arrive at the central estimate.
16. Mr Newman points to some data to suggest that the plaintiff's members may have a lower exemption rate than the general NSW insured population. Mr Newman did not necessarily consider that this had the consequence that the percentage used by Mr Stolk to arrive at his lower range estimate for this scenario was wrong. Rather, he said that the 5% figure was somewhat random. He said that to make less allowance for the plaintiff's members being underrepresented, Mr Stolk could have used a figure of 3% and to make more allowance, he could have used a figure of 10%.
17. In reply, Mr Stolk explained that the 5% figure was not "arbitrary", as suggested by Mr Newman. He said that he had arrived at that figure using his expert judgment and set out his reasons for having done so. He maintained the figure to be reasonable.
18. Mr Stolk also worked Mr Newman's suggested numbers into his analysis, which produced very slightly different overall outcomes. If a figure of 3% were to be used for this scenario, the overall average exemption rate would be 11.2%. If a figure of 10% were to be used, the overall average exemption rate would be 10.4%.
19. I accept Mr Stolk's analysis on this point. He has set out his reasoning for reaching the figure of 5% and was not challenged on it. I note that Mr Newman does not in any event contend for a different figure. He does no more than say that if a different percentage were to be used, then the outcome would be different.

The issue in dispute in more detail

1. In the light of the foregoing discussion of the background to the dispute and the evidence as to the actuaries' opinions, it is possible to identify the issue in dispute in slightly more detail.
2. The plaintiff accepted that it bore the onus of proof to demonstrate what the number of Exempt Contributors was for each month during the Relevant Period. It contended that the Court should accept Mr Stolk's evidence of the "central estimate" as persuasive evidence of the number of Exempt Contributors for each month in the Relevant Period, namely 18.7% of total contributors. In the alternative, the plaintiff contended that the Court should accept the "highly unlikely" estimate, namely 11% of all contributors.
3. By the time of the hearing, the issues about penalties and interest had been resolved between the parties.
4. The defendant approached the issue somewhat differently. Both in his written and oral submissions, he submitted that the case turned on a question of statutory construction which he framed as follows: "…whether properly construed, the [Act] allows the use from time to time of an actuarily estimated number of [Exempt Contributors]."
5. He contended that the plaintiff cannot succeed unless it is able to demonstrate the "precise" number of Exempt Contributors and that this could not be done by way of actuarial evidence. Rather, he contended that the effect of ss 10, 10A and 11A of the Act was to impose an "obligation" on a health insurer to: "…take such steps as are necessary: (1) to know in the month in which it pays Levy "the number" of its contributors relevant to the calculation of the Levy; and (2) if is for some proper reason '…."unable" to determine accurately the number of contributors' for the purpose of calculating Levy, it is (within a reasonable period) to ascertain the precise number of its contributors for the purpose of paying the Levy." (Emphasis added.)
6. The defendant also called s 48 of the Administration Act in aid in support of its submission that a health insurer was under a positive obligation to "ascertain the precise number" of Exempt Contributors wishing to have the benefit of what he called the "exemption" in s 10A(3) of the Act for Exempt Contributors. On his case, a health insurer like the present plaintiff who fails to collect such information contemporaneously is not entitled to prove the number by indirect means.

Resolution

1. I will deal with the issues in stages. I will first deal with the defendant's contention that the plaintiff is not entitled to rely on actuarial evidence at all, having regard to the terms of the Act. I will then deal with the question of whether the actuarial evidence is sufficient to discharge the plaintiff's onus of proof and, if so, to what extent.

Is the plaintiff entitled to rely on actuarial evidence?

1. The defendant's submission as to why the plaintiff may not rely on actuarial evidence is closely bound up with its contention as to how the Act operates generally. On the defendant's case, the "exemption" in s 10A(3) is one that is only available to those health insurers who are able to prove the "precise" number of Exempt Contributors. A health insurer who does not know the "precise" number is, on this view of the Act, liable to pay the levy but without the benefit of any exemption.
2. I cannot accept this description of how the Act operates. An insurer's liability to pay the levy is required to be worked out in accordance with the whole of the formula in s 10A, two integers of which are (a) the total number of contributors and the (b) total number of Exempt Contributors. The formula produces a final number by reference to those and other integers, and this final number is the amount of the insurer's liability. Liability in that amount is imposed by s 10. The Act does not operate by imposing the levy on the basis of the first integer and then allowing an exemption for the second.
3. As to whether the Act requires an insurer to know and prove the "precise" number of Exempt Contributors, it is necessary to note two related matters of context. The first is that s 11A, which contains the reference to a "precise" number, supplies a mechanism for an insurer to rely on an "estimate" of "contributors" until such time as a "precise" number is known. However, it does not thereby alter the incidence or amount of the levy imposed by s 10. Secondly, s 11A does not limit the defendant's power in s 8 of the Administration Act to issue an assessment in any case where he forms the view that the amount included in the return is incorrect, or where he otherwise disagrees with the taxpayer's s 11A "estimate" or with what the taxpayer contends to be the "precise" number.
4. Once an assessment has been issued, an insurer is liable to pay the amount so assessed until such time as that assessment is set aside or varied on review pursuant to the provisions of Part 10 of the Administration Act.
5. On an application for review to the Court, the taxpayer has the onus of proving its case: s 100(3) of the Administration Act. Here, the "case" which the taxpayer must prove is clearly identifiable. The plaintiff wants the assessments to be revoked on the basis that it had more Exempt Contributors than were taken into account by the defendant in raising the assessments. It must therefore demonstrate, by admissible evidence, the liability under s 10 of the Act for which it contends, as calculated pursuant to s 10A. It cannot succeed by calling s 11A in aid on the footing that it still does not know the "precise" number of Exempt Contributors.
6. That, however, is not what the plaintiff seeks to do. It is true that, in one sense, each of the numbers of Exempt Contributors for which it contends can be called an "estimate" in that each such number is derived from an actuarial study, but the evidence is relied on to establish the actual liability under s 10, not an estimate under s 11A.
7. In Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 624; [1990] HCA 3 (Dalco), Brennan J referred to the onus of a recipient of a default assessment under the Income Tax Assessment Act 1936 (Cth) to prove, on appeal or review, that the assessment was excessive. His Honour said "[t]he manner in which a taxpayer can discharge that burden varies with the circumstances."
8. As the reasons of Brennan J in Dalco make clear, there is a difference between the placement of the onus of proving a fact and the manner in which that onus may be discharged. Section 100(3) of the Administration Act is concerned with the former, not the latter: see Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 at 8 (Hunt J); see also Federal Commissioner of Taxation v Cassaniti (2018) 266 FCR 385 at [88]. Sections 10, 10A and 11A of the Act, taken together with s 48 of the Administration Act, do not alter this conclusion.
9. What is important is that the taxpayer must positively persuade the Court of its case: Briginshaw v Briginshaw (1938) 60 CLR 336 at 362; [1938] HCA 34; see also Helton v Allen (1940) 63 CLR 691 at 712; [1940] HCA 20.
10. An insurer is also not bound to rely only on evidence that was (or, in the defendant's submission, that should have been) available to it at the time its liability arose. The proceedings involve a de novo review, based on the material before the Court: Tasty Chicks Pty Limited v Chief Commissioner of State Revenue (NSW) (2011) 245 CLR 446; [2011] HCA 41 at [13]-[22]; see also Milstern Nominees Pty Ltd v Chief Commissioner of State Revenue [2015] NSWSC 68 at [4] (White J). It is not to the point that the evidence now relied on was not available to the insurer at the time its liability arose, nor is it relevant that it might alternatively have been possible for the insurer to prove its case by means of some system of data collection that it did not employ at the time.
11. The fact that actuarial evidence can provide only indirect proof of a fact in issue is not a reason to disregard it. What is necessary is that the evidence, like any other evidence, be probative of the existence of a fact in issue: s 55 Evidence Act 1995 (NSW). Where it consists of expert opinion, it must also meet the requirements of s 79 of the Evidence Act and relevant rules of Court. It is commonplace for facts in issue to be determined by reference to indirect or opinion evidence where appropriate, such as cases involving valuation and economic loss.
12. In the present case, the actuarial evidence on which the plaintiff relies is opinion evidence. But it is nonetheless probative of the existence of the particular fact in issue, namely the number of Exempt Contributors during the Relevant Period for which the plaintiff contends.
13. It follows that I am unable to accept the defendant's argument that the plaintiff is precluded by the terms of the Act from relying on actuarial evidence to prove the number of Exempt Contributors during the Relevant Period. It is entitled to rely on whatever admissible evidence it likes.

Has the plaintiff discharged its onus?

1. It remains necessary to determine the weight to be given to Mr Stolk's opinions and, in particular, to determine whether it is appropriate to accept his "central estimate" or his "highly unlikely" estimate as evidence sufficient to discharge the plaintiff's onus.
2. My principal difficulty in accepting Mr Stolk's central estimate is that, as he himself points out, "the actual number of [the plaintiff's Exempt Contributors] over the Relevant Period will almost certainly be different from my estimate."
3. So, for example, the central exemption rate for the September 2016 quarter was calculated to be 18.2%, implying that for every 1,000 of the plaintiff's contributors, 182 would be exempt (the rate varies from quarter to quarter - the overall average is 18.7%). But the chances of this number being a little too high or a little too low are very high. I can accept that 182 is the "best" estimate in the sense of being the most statistically likely, but I am not persuaded that it is, for that reason, the actual number. Even as a best estimate, 182 is "almost certainly" incorrect for the September 2016 quarter.
4. I do not have the same reservations about Mr Stolk's "highly unlikely" estimate. That is because the evidence allows me to be confident that the actual number of Exempt Contributors implied by this lower estimate is highly unlikely to be less than the estimated number. The likelihood of there being fewer contributors than this number was quantified as 10%, a number with which Mr Newman did not disagree. I am therefore confident that the actual number of Exempt Contributors for each period is more than the number implied by the Mr Stolk's "highly unlikely" estimate.
5. The plaintiff has in these circumstances persuaded me that the actual number of Exempt Contributors for each month in the Relevant Period is not less than the number implied by Mr Stolk's "highly unlikely" estimate. The plaintiff has not proved what the "precise" number of Exempt Contributors was, but that is of no consequence. It has demonstrated that the number of single contributors and family contributors to be taken into account for the purpose of calculating its liability under s 10 is at least the amount I have indicated.
6. The plaintiff initially submitted that it would be appropriate for the Court to make an "estimate" assessment within the meaning of s 11(2) of the Administration Act, although in final oral submissions this was not pressed. Nonetheless, it is appropriate in the circumstances for me to comment on the point. In my view, there is no occasion for the Court to make an assessment under that provision in a case such as the present. The conclusion I have reached as to the plaintiff's liability does not involve an "estimate" of the "actual" liability. I have instead found that the plaintiff's liability under s 10 must be worked out by reference to the number of Exempt Contributors which they have proved to exist, being a number that is almost certainly somewhat less than the actual number.

ORDERS

1. It follows that the assessments will be revoked and new assessments should be issued reflecting Mr Stolk's "highly unlikely" exemption rates.
2. The plaintiff submitted that it would be appropriate for the Court to exercise the power of assessment, as it has power to do under s 101(1)(b) of the Administration Act. However, in the absence of an agreed form of assessment and without having heard argument as to that matter, it is appropriate for the matter to be remitted to the defendant to make assessments to give effect to my reasons.
3. The orders will therefore be: 1. The five notices of assessment issued to the plaintiff on 11 April 2022 for levy payable under s 10 of the Health Insurance Levies Act 1982 (NSW) for each month during the years ending 30 June 2017 to 2021 be revoked. 2. The matter be remitted to the defendant to make assessments in accordance with these reasons. 3. The defendant to pay the plaintiff's costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 August 2024