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Health insurance reforms: Increasing maximum excess

You can now choose a higher excess in order to lower your premiums.

Do you find that your premiums are becoming unaffordable? With premiums set to go up an average of 3.25% in 2019, are you considering downgrading your coverage to lower costs?

Rising premiums have been a problem for some time now, especially if you're on a fixed income. The Australian Competition and Consumer Commission (ACCC) says that many Australians are shifting to cheaper products with reduced coverage, with some dropping their cover altogether.

In an attempt to tackle rising premiums, the Australian government is implementing a series of wide-ranging reforms intended to make private health insurance (PHI) simpler and more affordable.

One of these reforms now allows you to increase your maximum excess levels, thereby lowering your premiums. The government says this will benefit consumers and reduce health insurance costs. But is there a catch?

What's changing?

Premium increases are probably among your biggest concerns when it comes to your private health insurance. That's why the government has increased permitted voluntary excess levels, allowing you to choose products with higher excesses in return for lower premiums.

With higher excesses, you'll potentially be able to save on your hospital cover. Singles could be saving up to $200 while families could save as much as $350.

Maximum permitted excesses for private hospital insurance have been increased from $500 to $750 for singles and from $1,000 to $1,500 for couples and families. This applies to all new tiers – Gold, Silver, Bronze and Basic – providing you with greater choice and bigger savings.

How will this affect you?

While the prospect of lower premiums is very enticing, there's obviously a catch. By increasing your excess, it shifts some risk from the insurer back to you. The insurer can lower your premiums because it no longer has to pay out numerous small claims.

That's why it's crucial you do your research beforehand. When deciding which option suits you best out of lower premiums or excesses, be mindful of your own particular situation.

The problem with high excess levels is that a lot can go wrong with your health. If you're a young, healthy person, it might be worth the risk. But if you're older or have children, higher premiums may be a safer option.

Also think about your available funds. It might be easier for you to pay your premiums than risk being hit with a large excess at short notice.

Either way, the changes should be welcomed, primarily because they give you greater flexibility and choice to decide what's best for you. Cheaper insurance will also encourage more people to take out cover, protecting more Australians and putting more money in insurance provider's pockets.

Remember, when the changes come into effect, it won't affect your policy, it'll simply give you the option to increase your excess levels should you want to.

Will it impact your wallet?

Yes, the savings here really could be huge. If you're fortunate enough not to have to make a claim and you've increased your excess levels, you could save hundreds of dollars.

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Why is it changing?

Around 80% of us with hospital cover already choose products with excesses, so there's clearly a huge demand for it.

Excesses have also been set at a maximum of $500 or $1,000 for almost 20 years. Since then things have gotten a lot more expensive.

Each year, our premiums go up, in part due to inflation. But they also go up because new, costly diagnoses and treatments raise the price of health insurance for everyone. 20 years ago, treatment wasn't as sophisticated as it is today and people weren't living as long. It only makes sense then that the cap on excesses is raised.

Increasing excess levels will also help place downward pressure on premium price increases.

When's it changing?

The policy allowing insurers to offer higher excesses kicked in on 1 April 2019 so you should start to see more and more insurers offering this feature.

What else is changing?

There are also changes to mental health services, making it easier for you to access care should you need it. Other reforms include:

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Picture: Unsplash

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