Paying too much with your current health fund? Here's some general advice for identifying the best value health cover for your needs.
Not all cheap* health insurance policies are created equal. While finding cover for the lowest possible cost is important for some people but this quest to pay as little as possible often leaves people with cover that doesn't suit their needs.
Finding cheap* private health insurance is about finding the policy that provides you with all the benefits you need with the smallest hit to your wallet. Get value for money. Get the policy that's right for you.
Maybe you're after the highest cover that's most affordable. Maybe you're just looking to avoid the Medicare Levy Surcharge (MLS). Maybe you don't want to get stung by the Lifetime Health Cover (LHC). What ever the reason, we're here to help. This guide looks at some of the traps and pitfalls, what to look for in a policy and how to reduce your premiums once you’ve found the right cover.
The Medicare Levy Surcharge (MLS) is an initiative of the Federal Government, the MLS is designed to reduce the strain on Australia’s public hospital system by encouraging more people to take out private health cover. While all Australians have to pay a 2% Medicare Levy, the MLS is an additional tax on top of that and must be paid by those who earn over a specified level of income but don't have any private hospital cover in place.
The rebate and surcharge levels applicable from 1 April 2016 to 31 March 2017 are:
In order to avoid paying extra tax each year, you will need to take out hospital cover with an excess of:
- $500 or less per calendar year for singles
- $1,000 or less per calendar year for couples, families and single parent families
The Lifetime Health Cover (LHC) is an Australian Government initiative designed to encourage Australians to take out hospital cover earlier. If you don’t take out hospital cover with a registered Australian health fund before 1 July following your 31st birthday, you will pay an additional 2% loading on your health insurance premiums for every year you are over 30. For example, if you take out cover when you’re 35 years old, your premiums will cost 10% extra.
Once you’ve paid the LHC loading on your private hospital cover premiums for 10 consecutive years, the loading is removed and if you retain cover the loading will remain at 0%.
There are four kinds of private health insurance in Australia:
- Hospital cover. Hospital covers your expenses when you go to hospital such as accommodation, theatre fees and in-hospital treatment by your doctor.
- Extras cover. Extras helps you pay for ancillary services not covered by Medicare such as optical, dental and physio treatments.
- Combine hospital and extras. A hospital and extras policy provides a combination of the above benefits.
- Ambulance cover. Ambulance cover is available as both standalone and as part of a hospital or extras policy and covers ambulance transport.
There are four types of hospital cover:
- Public hospital cover. Public hospital covers treatment in a public hospital
- Basic hospital cover. Basic hospital covers treatment in a private or public hospital, but excludes or restricts cover for things such as cardiac-related services, non-cosmetic plastic surgery, rehab, psychiatric services and palliative care
- Medium hospital cover. Medium hospital covers most of what basic hospital cover doesn’t, but usually excludes or restricts pregnancy and birth-related services, IVF, cataract procedures, joint replacements and dialysis
- Top hospital cover. Top hospital covers every service where Medicare pays a benefit.
There are three types of extras cover:
- Basic extras cover. Basic extras makes up all other forms of extras cover
- Medium extras cover. Medium extras covers general and major dental, endodontic and any five of the following services; optical, orthodontic, physio, chiro, podiatry, psychology, hearing aids and non-PBS pharmaceuticals
- Comprehensive extras cover. Comprehensive extras covers general and major dental, endodontic, orthodontic, optical, physio, podiatry, psychology and non-PBS pharmaceuticals.
Private vs public health care
There is some debate as to which type of cover if better: Public or private health insurance. Below is a comparison table of what's covered by each type:
Medicare does not cover:
Medicare will reimburse 100% of the MBS fee for a general practitioner and 85% of the MBS fee for a specialist if you visit a doctor outside a hospital. If your doctor bulk bills then you wont pay a cent.
|Your private health insurance may cover:||Medicare provides benefits for:|
Thanks to the Pharmaceutical Benefits Scheme (PBS), you only pay for a portion of the cost of prescription medications. The amount varies depending on the medication up to a standard maximum.
If you live in the ACT or NSW the only people who get free ambulance transport are pensioners and low income earners. In QLD and TAS, ambulance services are free.
If you’re young and healthy and don’t expect to need comprehensive hospital cover in the near future, you may be able to just take out basic hospital cover plus cover for those extras you use regularly. But even if you are older and spending more on health cover because your need is greater, there are still ways to reduce your premiums, save and find cheap* health cover:
- Pay your premium annually in advance to avoid paying administration fees
- Pay your premium before the annual increase (31 March each year) to lock in your current rate for the coming year
- Pay by direct debit, which many funds reward with a discount
- Increase your excess to lower your premium
- Join a restricted membership fund (most people are eligible to join at least one such fund) to benefit from lower premiums and higher benefits
- Take out your medical insurance through your super fund, as it may cost you less and you aren’t required to have a medical exam
- Don’t pay for things you don’t need, such as pregnancy and IVF cover
- Take out health cover through your employer if available, as they may have negotiated a discounted rate for staff
- If you have children, look for policies that waive their hospital excess, offer gap-free extras for children such as dental, and cover dependent children up to the age of 25
Everyone’s health insurance needs are different and your age, relationship status and general health will dictate how much cover you ultimately need. Other factors that can influence your decision may include:
- Do you want your privacy? Whether you are happy to receive hospital treatment in a public hospital under Medicare, or whether you would prefer your own doctor in a private hospital and private room and be treated when you choose, rather than joining a waiting list
- Do you need extras? Whether you use a particular service regularly such as dental or optical and whether the amount you spend on this is more than the ongoing cost of extras cover
- Are you a high income earner? If you are a high income earner, whether taking out basic hospital cover is more cost-effective than paying the Medicare Levy Surcharge
- Do you earn a low income? If you earn a lower income, whether the government rebate on private health insurance is enough to make the cost of taking out cover affordable
- Are you turning 31? If you are turning 31, whether delaying taking out cover and paying 2% more for every year you delay, will be worth it when you come to need health insurance at a later life stage.
Restricted membership health funds, such as those run through certain employer and industry groups, usually offer higher benefits and lower premiums to members. The reason for this is they are usually not-for-profit funds, which re-invest their profits back into the fund to create better products for members, rather than paying them out as dividends to shareholders.
And although restricted to certain groups of employees and their families, restricted membership funds often allow former employees to join, even if some time has elapsed since they left their former positions.
Restricted membership health funds in Australia include:
Whichever level of health insurance you take out, making a claim is basically the same in every case. Here are some general tips that can help ensure the process goes smoothly and that your claim is paid:
- Don’t lie to your fund. Whether you are taking out a policy or making a claim, you have a Duty of Disclosure.
- Keep records. Make sure you have all the necessary paperwork required to support your claim, such as hospital and doctor’s bills.
- Lodge the claim in a timely manner. Lodge claims promptly, as time limits may apply.
- Go online. If your fund offers an online or mobile claims process, make full use of it, because it will substantially speed up your claim.
There are several traps to be wary of when choosing cheap* health cover and if you’re looking to take out a policy in the near future, it would pay to bear these in mind:
- Price is not everything. Never choose on the basis of price alone, as the reason many policies are cheap* is because they don’t provide adequate cover.
- Always read the fine print. While a policy may claim to cover a certain treatment or service, it might only do so to a certain benefit limit or there may circumstances in the exclusions in which it may not be covered.
- Review your policy. Review your policy regularly (at least once a year), as circumstances change. There may be a better deal out there that you’re missing out on, or your own circumstances (and coverage needs) may have changed.
Just as there are traps to buying cheap* health cover, so there are tricks to finding the right cover:
- Don’t be afraid to switch health funds if you find a better deal, as legislation now makes this easy to do without penalty
- There’s no law that says you must have your insurance through one fund. If you find better deals on hospital and extras cover with two different funds, take out two independent policies
- The most effective way to lower your premium is to increase your excess, but make sure you can afford to do so
- Avoid policies that require an excess and a co-payment, or you’ll be paying twice over
- Opt for policies offering full ambulance cover, as they provide better value than emergency ambulance cover alone
- Make sure your fund has agreements with your preferred doctor and hospital, otherwise you could end up paying a gap
Not everyone can afford private health cover, which is why the government offers an annual rebate, the size of which is determined by your income level. It is designed to make it more affordable and encourage more people to take out private cover and the income threshold level for singles is set at $140,000 a year and $280,000 a year for families.
As well as your income, to be eligible for the rebate, you must be eligible for Medicare and be a member of a registered private health fund. You can claim your rebate either from your fund (in the form of a premium discount), from Medicare or on your annual tax return.
The rebate and surcharge levels applicable from 1 April 2017 to 31 March 2018 are:
< Age 65
< Age 65
As with all forms of insurance, certain waiting periods apply before a claim can be made. The reason for this is to prevent someone from taking out a policy, making a claim immediately and then cancelling the policy. This not only costs the fund, but every member of the health fund and would soon push up premiums if not controlled by a waiting period.
While waiting periods vary with funds, those typical for hospital cover include:
- 1 day. Accidental injury and ambulance services
- 2 months. Psychiatric care, rehab, palliative care and other hospital services
- 12 months. Obstetric conditions and pre-existing ailments
Waiting periods for extras cover typically involve:
- 1 day. Ambulance services
- 2 months. All other services
- 6 months. Optical and healthier lifestyle services
- 12 months. Specialty dental and dentures
- 36 months. Hearing aids
Many people are reluctant to switch to a less expensive health fund because they fear they will lose their current benefits and entitlements. Due to recent legislation changes , this is no longer the case and switching is now a much easier and more straightforward process.
You may want to switch because your current policy is no longer meeting your needs, or you may have found a better deal with another fund. Whatever your reason, you can switch without penalty, providing your current policy is paid and up-to-date. Your current benefits will travel with you to your new fund, including:
- Your Lifetime Health Cover status. Whatever your current age loading is (if any), this will remain the same
- Your government rebate. As long as you aren’t changing your level of cover, you will receive the same rebate you received last year
- Your waiting period exemption. Any waiting periods you have already served remain in force and your new fund can’t make you serve a new waiting period.
To switch, simply notify your current insurance fund of your intention to switch and they will send a Transfer Certificate to you or your new fund. This confirms your level of cover and current status regarding age loading and waiting periods.
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