How does health insurance excess work and how does it affect the cost of your insurance?
An excess (also known as a front-end deductible) is a sum of money that you elect to pay towards your medical treatment. It’s an agreement you make with your health fund to take responsibility for some of your health cover costs in return for a lower premium. The higher the excess, the lower your premium should be, and you only pay it if you’re admitted to hospital.
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- A hospital excess is the amount you must pay towards your hospital treatment at the time of going to hospital; you will be required to pay this amount upfront before you are admitted by the hospital, who will then bill your insurer for the remaining costs.
- While some insurers require you to pay an excess every time you are admitted to hospital and others cap the amount at a maximum limit per year, most insurers will not charge a health insurance excess if you attend hospital for day surgery only.
- No. An excess is only applicable to hospital cover, as extras benefits are normally paid as a percentage of a service provider’s fee or as a set number of visits per year.
There are both advantages and disadvantages to choosing an excess with your cover.
- Some positives of opting for excess include:
- Agreeing to pay an excess lowers the cost of your premiums.
- The higher the excess you pay, the lower your premiums will be.
- No health insurance excess is payable unless you need to be admitted to hospital.
- No excess is payable for kids or day surgery, even though your premium is lower.
- While some disadvantages of excess are:
- Your policy may also require you to make a co-payment (a daily amount paid towards your hospital stay), so an added excess could prove expensive.
- If you are a high income earner and you choose a higher excess than allowed, you could be subject to the MLS.
- If you agree to an excess and then find you don’t have enough funds when being admitted to hospital, you may not receive cover.
|Health fund||Policy excess options available*||Find out more|
|Australian Unity||More info|
|GMHBA Health Insurance||More info|
|Transport Health||More info|
*The policies listed on this table are not a complete list of all hospital cover available from these providers, only the ones which have an excess or excess options attached.
A hospital excess has important implications for your income tax if you earn above a certain threshold, primarily due to the Medicare Levy Surcharge.
- The Medicare Levy Surcharge. This is an additional tax of between 1% and 1.5% that singles earning over $90,000 p.a. and families earning over $180,000 p.a. must pay if they don’t have adequate hospital cover.
- Adequate hospital cover. To be considered adequate, a health insurance policy must cover some or most of the basic hospital treatments and services and must not have an excess of more than $500 for singles and $1,000 for families (this will increase to $750 and $1,500 respectively beginning in April 2019). In this instance, opting for a higher excess to lower your premiums would not be advisable, as it could see you become eligible for the MLS.
- Accidental injury. Apart from day surgery, the only other time an insurer will not require you to pay an agreed excess before being admitted is if your need for hospitalisation is the result of being in an accident. In this case, most insurers will waive the excess requirement.
- Kids. If you have a family, the chances of needing hospital treatment are increased, and if you had to pay a hospital excess for each child, receiving treatment could become very expensive. Fortunately, most health funds waive the excess for kids being treated in hospital as an incentive for taking out family cover, and they will continue to provide cover for dependent children until they reach the age of 21.