It’s been a big week for insurance solutions crafted by the Federal Government. Its solution to the crisis in medical indemnity insurance isn’t quite as elegant as its terrorism insurance scheme, but it’ll do for now.

The Government has extended its financial guarantee to failed mutual United Medical Protection for another 12 months, until December 31 next year. That should be enough to reassure doctors that their claims will be met and they can stay in business.

From January the Government will also cover half the cost of medical indemnity claims higher than $2 million. It will also subsidise Medicare-billing obstetricians, neurosurgeons and GPs to help them meet the spiralling indemnity premium costs.  The subsidy alone is expected to cost the government about $50 million a year and will be funded through you, the taxpayer.

The cost of the UMP bailout will continue to be covered through a levy on doctors who are part of medical defence organisations with unfunded laibilities (UMP has up to $500 million). The doctors can also claim a tax deduction for the levy.

While all this money is flying about, the Government is making sure it doesn’t happen again. It will change legislation to bring MDOs under the regulatory net of APRA.

Prime Minister John Howard called on state and territory governments to remove stamp duties on medical indemnity insurance premiums. He’s aware there’s very little chance of them changing anything to do with insurance and stamp duty. “Input tax credits are of course available in relation to the GST and it would be a matching gesture if I could put it that way on the part of the states to remove stamp duty,” he said. He is unlikely to be holding his breath in anticipation.

NSW Treasurer Michael Egan said the state has “dramatically” cut its stamp duty on general insurance. But ICA Executive Director Alan Mason said stamp duty on premiums should be abolished. “The combination of GST, stamp duty, and in some states, a fire service levy on property insurance, acts as a disincentive to people to purchase protection and should be addressed in a holistic way,” he said.