Barbara Drury June 20, 2012
Check your policy ... has your fund diluted cover as an alternative to raising stock premiums? Photo: istock
When it comes to health cover, it makes more sense to buy a comprehensive policy with a maximum deductible rather than a cheaper product with lots of exclusions.
Try this quick quiz. Does your private health insurance policy cover you for an emergency ambulance ride to hospital? Are you covered if you fall on or off the sporting field and need a knee reconstruction? How much will you be out-of-pocket after a short hospital stay?
If you need to retrieve your health insurance policy from the bottom of a drawer to answer these questions and you have already called the ambulance, it may be too late.
As the July 1 deadline approaches for changes to the private health insurance rebate and Medicare levy surcharge, there is no better time for all Australians to review their health cover.
Even if you are not affected by the changes, chances are that you and your family have outgrown your policy.
''It is easy to set and forget health insurance. I recommend you review your policy every year to check what you are covered for,'' the Private Health Insurance Ombudsman, Samantha Gavel, says.
Of the 10.4 million Australians covered by private health insurance, 8 million will be unaffected by the changes but close to one in four people will pay more.
An actuary and health insurance specialist, Peter Carroll, says the concern among health funds is that people may be induced to reduce their coverage in some way.
''It may take three to four years for people to make a decision about their cover once they see the extra costs they are incurring,'' he says.
Before you hit the panic button and drop or reduce your health cover, you need to be clear about why you have health insurance in the first place.
Carroll says the major benefits of private health insurance are the ability to choose your own doctor, to avoid public hospital waiting lists, and to have financial protection against high-cost medical events.
Anyone can go to a private hospital if they are prepared to pay, but the costs for some procedures are likely to be out of reach for all but the very wealthy unless you are privately insured.
According to Medibank Private, knee and hip joint replacements cost up to $27,000, a shoulder reconstruction costs about $6700 and childbirth by caesarean costs close to $8000. Heart surgery and cancer treatment in a private hospital can easily cost much more.
''If you're a high-income earner, then private health insurance is almost a no-brainer because of the [Medicare levy] surcharge. If you're over 31 and pay the surcharge, you can spend as little as $800 a year and get basic hospital cover,'' Carroll says.
But even if you are a low-or middle-income earner, particularly where you have a family history of breast cancer or a penchant for high-risk sports and you couldn't afford to pay to jump the public hospital queue, then private health insurance makes sense.
The question then is, how to maximise cover while minimising costs.
With more than 30 private health insurance funds in the market, all with slightly different inclusions and payment structures, the choice can be overwhelming.
Health funds offer hospital cover and extras or ancillary cover, or a combination of the two with tiered premiums based on the exclusion of certain services or restricted benefits.
The higher the premium, the more comprehensive the coverage.
''The mistake is usually the wrong cover rather than choice of fund. If you take top hospital cover, it doesn't matter what you need or where you need to go, you are covered,'' Carroll says.
However, he warns that some funds have been diluting cover as an alternative to raising their premiums, so you do need to review your policy every year or so to make sure it still provides the cover you need.
A Canstar financial analyst, Mitchell Watson, agrees that the most important consideration is to be fully covered for the procedures you are most likely to use. ''Look for the right cover as well as inclusions,'' he says.
One simple way to save money is to pay one year's premiums in advance.
Some funds are using the reduction in the health-insurance rebate to hold on to wealthier members and win new business by offering a one-off opportunity to pay more than 12 months' premiums before June 30.
Australia's newest online health fund, health.com.au, is allowing people to pre-pay up to 30 months' premiums and lock in the current 30 per cent rebate while also avoiding any premium increases during that period.
This represents a saving of up to $4500 for someone on their mid-range plan, which is the cost of almost one year's insurance, according to the fund's chief executive, Andy Sheats.
Other funds offering pre-payment include Medibank Private, which is offering pre-payment for up to 18 months, NIB, HCF, GMHBA and Frank Health Insurance (13 months), Australian Unity and Bupa (12 months).
A longer-term strategy, if your fund allows it, is to prepay 12 months' premiums in March each year to avoid the inevitable annual premium hikes in April.
Even so, it is a false economy to select a fund purely for a premium discount if it doesn't offer the cover you need.
EXCLUSIONS AND RESTRICTIONS
Gavel says the bulk of complaints received by her office are about services that are excluded from hospital cover as well as the level of benefits paid and delays in payment.
''Most complaints tend to be about restricted cover. For example, basic hospital cover may only cover you for five or six services, such as wisdom teeth and tonsil removal, and nothing else,'' Gavel says.
Basic hospital products are aimed at young healthy singles and people buying the lowest level of cover to avoid the Lifetime Health Cover penalties. While excluded services such as heart-related treatments and cancer might be thought of as diseases of old age, they can and do strike young people.
The danger is that people take out cheaper, restricted cover when they are young and healthy and don't review it until they need expensive medical services. But with waiting periods of a year for obstetrics, which is excluded from basic hospital policies, and up to three years for some services, that may be too late.
Many basic hospital-only products also exclude ambulance cover. In Victoria, an emergency call-out in a metropolitan area costs more than $900, while in NSW fees start at $320 and are not capped until they reach $5248.
Even if you are young and healthy, you should look at your family's medical history, your level of physical activity and what your health needs might be in a year or two, because waiting periods may apply. Look for a policy that includes common procedures such as wisdom tooth removal, reconstructions (such as knee and shoulder reconstruction) and psychiatric cover.
''Most funds include these [as part of their basic hospital cover] but some may only offer restricted benefits. What they do pay out may just be a bed in hospital but not your medical expenses,'' Watson says.
Carroll says the amount saved with exclusions might only be $1 a week, which is very small when weighed against the risk of huge out-of-pocket expenses if disaster strikes and you want to be cared for in a private hospital.
''Sometimes a fund has an offering that doesn't cost a lot more but is a lot more comprehensive,'' Gavel says.
She urges people to look at the Private Health Insurance Ombudsman website (phio.org.au) to compare funds not just on price but also on their features.
EXCESS AND CO-PAYMENTS
The best way of saving money on premiums is to agree to pay an excess, also called a front-end deductible.
This is an amount you pay when you go to hospital before insurance benefits are payable. The most common excess amounts are $100, $250 and $500. The higher the excess, the lower the premiums you pay.
With a co-payment, you agree to pay a set amount each day you are in hospital. For example, you may have to pay the first $50 for each day you occupy a hospital bed. Some funds limit the total amount payable per hospital visit, some set limits per person on a family policy, while others set limits per family.
For example, Watson says one fund may charge a co-payment of $200 a night up to a maximum of $500 a stay, while another might charge $70 a night unlimited. If you have family cover, some funds waive or discount any excess or co-payments for children who are admitted to hospital.
These days, many funds offer extended family cover for all children up to the age of 25 when they are students or still living at home.
This is generally a more economic way to cover young adults than having them take out their own singles policy.
''Unless you go to hospital every year or two, it is cheaper in the long run to have the maximum deductible [excess]. If you do go to hospital regularly, then take top hospital cover without a deductible. All other decisions don't save a lot,'' Carroll says.
''I think it is best to buy a top hospital product with a maximum deductible.''
Gavel agrees. ''You should purchase the highest level of cover you can afford and take a high excess rather than restrictions,'' she says.
The next big financial decision is whether to insure for extras or ancillary services such as dental, optical and various therapies.
Most funds push their extras cover heavily in advertising and whenever you ring them for assistance, which is a big hint that extras put money in the pocket of the funds rather than the customer.
While it might be tempting to have extras cover in years when your kids need braces, you need crowns on your teeth, your partner needs extensive physiotherapy and everyone in the house needs new glasses, viewed over a lifetime most people would be better off paying for services as they need them and saving on premiums.
''Don't have it,'' is the blunt advice offered by Carroll.
Gavel is more measured.
''If you can't afford hospital and extras, then focus on hospital cover because that's where you get the highest bills,'' she says.
''You can pay [out of your own pocket] for extra services as you go.''
From July 1, the 30 per cent private health insurance rebate on premiums will be income tested.
The upshot is that a single person earning more than $84,000 a year and families earning more than $168,000 will pay more for health cover.
In order to make high-income earners think twice about bolting for the exits, the government is also increasing the penalty for not taking out private health insurance. At present, higher income earners who do not have private health insurance pay a Medicare levy surcharge of up to 1.5 per cent of their taxable income. This is on top of the 1 per cent Medicare levy on all taxpayers, whether they are privately insured or not.
Despite the increase, most people affected by the change will still find they can buy hospital cover for less than the surcharge. For example, a 1.25 per cent surcharge would amount to $1213 for a single person earning $97,001 and $2425 for a family earning $194,001.
According to research group Canstar, the average top hospital cover in NSW for private health insurance, is $1197 for a single person and $2409 for a family (after the rebate is taken into account). In order to avoid the surcharge you need to have hospital cover with an excess of less than $500 if single and $1000 for a family.
These measures are in addition to some existing arm twisting.
Under the Lifetime Health Cover rules, if you don't purchase cover by July 1 after you turn 31, or decide to drop it then take it up later on, you will pay an extra 2 per cent in premiums for every year you were without cover.