Health insurance reforms: Low-priced private health insurance

If you hold some form of basic coverage, your policy might change under the new government reforms.

Many of us are happy with basic coverage when it comes to our private health insurance (PHI). Basic cover is affordable and provides us with the necessities. However, the government's new four-tiered system has introduced standardised clinical categories for medical treatments, meaning there will be some changes to basic coverage.

Luckily, the upcoming reforms aim to keep lower-level coverage the same. The government is maintaining the current minimum product standards for PHI to ensure affordable basic category products are still available to you.

What's changing?

Insurers have recently begun introducing a new tier system for health insurance. The change is intended to simplify the current system by placing policies under a specific classification: Gold, Silver, Bronze or Basic. Extras policies only have three tiers under the new system: Gold, Silver and Bronze. Combined hospital and extras policies will offer separate ratings for each component.

Many insurers have already rolled out their Gold, Siver, Bronze and Basic policies. However, they have until April 2020 to comply with the new system, so not every insurer will be offering them just yet.

As a result of these changes, the government has worked hard to ensure that the current minimum product standards for PHI remain the same. If you currently hold some form of basic cover, it's likely that the most important thing about it is its affordability. The changes will mean that there will be no more than an average annual increase in premiums for those who hold the lowest levels of coverage (Bronze and Basic).

As of April 2019, lower-level cover policies in the Basic category will include (at a minimum) restricted hospital cover for clinical categories including:

  • Hospital psychiatric services. This includes care for patients with psychiatric issues and disorders like schizophrenia as well as addiction and eating disorders.
  • Rehabilitation. Patients recovering from surgery or illnesses including strokes and rehabilitation will receive rehab in hospital.
  • Palliative care. This includes hospital treatment for those with a terminal illness.

How will this affect you?

If you are on a fixed income, live in a rural area or simply want to access private services in public hospitals, the government has ensured you will still have at least the same level of cover as you do now. Although basic cover is set to stay the same, be sure to check your insurer isn't altering its lower-level policies. It's worth remembering that these are only minimum requirements, so your policy might change.

This sort of policy is also really important for those who purely want to avoid the Medicare Levy Surcharge or Lifetime Health Cover loading. Although the new discounts for 18- to 29-year-olds will change things, in the past younger people have purchased low-priced products to avoid paying the loading and retained the option to upgrade their cover at a later date.

Importantly, all PHI contributes to the Risk Equalisation Pool. This helps keep PHI affordable for everyone, which is why lower-level coverage is so important; it helps support the entire PHI system.

Deloitte also found that removing low-priced products would increase premiums by up to 15.7% and reduce the number of people covered by PHI.

The government's primary aim is to keep premiums as low as possible and changing coverage would require that they go up, which is why it has decided to maintain the current minimum product standards.

Will it impact your wallet?

The 3.25% premium rate rise in 2019 is the lowest since 2001, helping keep money in your pocket. Similarly, the introduction of the new four-tier structure will bring premium prices more closely in line with your policy coverage. That means for anyone with basic coverage, you could be looking at saving a significant amount over the coming years, thanks to the government's reforms.

Why is it changing?

Trying to compare PHI can be complicated and at times confusing. Are you getting the best-value cover? Could you get better coverage for the same price with another provider?

The implementation of the four-tier structure makes it much easier for you to know you're getting the best value for your money. It ensures that every policy has bare minimum requirements, for each tier, that must be offered by an insurer. However, this could result in rising premiums due to improved coverage.

Luckily, the government will maintain the current minimum product standards for PHI so that there is no significant rise in premiums. While these changes will help simplify the current system, the government has been quick to ensure this will not result in rising premiums for those on Basic cover. This is important because low-priced products ensure a huge number of us have access to PHI.

When's it changing?

The new tiered structure officially kicked off in April 2019 but insurers have until April 2020 to comply. Because there are no changes to lower-level coverage, your policy should not change. However, because the next year will see a lot of change to PHI, it may be worth shopping around as it's likely there are some improved deals out there.

What else is changing?

Announced on 13 October 2017, the reforms are part of a raft of changes reshaping the PHI industry in Australia and will come into place between October 2017 and February 2020. As well as the simplified product categories, there will be:

  • Discounts for 18- to 29-year-olds. Those under 30 are now able to earn up to a 10% discount on their PHI.
  • Better access to mental health services. Those in need of mental health services can now get access when they need it with the scrapping of waiting periods for those upgrading their policies.
  • Improved access for those in rural areas. Accommodation benefits for those in rural and regional areas are now more affordable.
  • Increased maximum excess. An increase in maximum excess levels to help slow premium increases.

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