Is extras cover really worth it?

There's a big gap in how much you pay in premiums versus what you get back.

Is health insurance worth it? Be honest, it's something you've wondered about.

Trust me, you're not alone. It's probably the question that, as an insurance editor, I get asked more than any other.

Finder research suggests 1 in 7 Australian adults – equivalent to 2.9 million people – plan to let their health insurance expire this year.

But here's the thing: we don't walk the talk.

APRA figures released yesterday (Wednesday) show people are hesitant to drop their private health cover.

That's despite the fact we're getting back less than half of what we pay into the system (more on this later).

In fact, private health membership has increased. Whether you have hospital only; hospital and extras combined or extras only cover.

Now hospital cover is complicated – you've got to decide what's best for you.

But extras? That's a little easier to figure out.

Remind me, how does extras cover work?

Extras cover helps with the cost of non-hospital treatments such as dental, optical and physio.

You need to serve a waiting period before you can claim money back. And any savings are restricted by annual cover limits.

These reset each January or July, depending on which fund you're with. This is important too – we'll come back to it shortly.

Is extras cover worth it?

As with any insurance, your personal circumstances hold the answer to whether your cover's worth paying for.

Finder editor Amy Bradney-George told me her ahm lifestyle extras had paid out $916.60 from benefit claims in the past year.

This was $270 more than the cost of her premiums over the same time.

But while Amy is ahead for the year, does extras cover actually offer value for money for most people?

"It's like paying for a voucher you won't use"

The answer's a firm "no". At least, for John Connor, founder of ExtrasJar, a health insurance disruptor.

"I don't think extras insurance gives customers value for money," Connor told me.

"Major funds have set up benefits like gift vouchers, which they hope you'll forget to use in time.

"And even when you do use your 'voucher', you still lose out financially."

Connor continued: "Because of the way these products have been set up, they also put undue pressure on the healthcare system.

"Especially towards the end of the year and during the holiday season, as people scramble to use their extras."

Benefits lag behind costs

A look at APRA figures appears to back up Connor's words.

There's a wide gap between what people are paying insurers in premiums compared to what they get back.

In summary:

• $12.17 billion in fees were paid by policyholders in the year to June 2022. Yes, that's billion with a "b". By "fees", it means premium costs plus out-of-pocket expenses.
• Benefits paid back to consumers for extras treatments totalled $5.42 billion.
• There's a difference of $6.75 billion between what's paid for and what's claimed back.

So, for every dollar you spend, you get less than 45 cents back. Well, not you personally – the average Australian.

The newest APRA stats show out-of-pocket costs ($5.28 billion) were nearly as high as benefit payments ($5.69 billion), in the year to September 2022.

For Connor, only the "very savvy" could make a traditional extras policy pay, but this makes up only "a small minority" of the market.

In practice, this would be someone switching plans regularly each year. For example, to make use of a no-waiting period deal to claim benefits quickly and save.

Confusion on how extras cover works

Finder stats show that, for 27% of people, managing health coverage is their second most stressful expense.

Connor said he felt insurers used "confusing and ambiguous" terms for how waiting periods and pre-existing conditions work.

He added: "Another common misconception of policyholders is that they need extras as well as hospital cover to get around the Medicare Levy Surcharge.

"It's a particularly common question for ExtrasJar customers. But it's not the case."

"However, it's not in the health insurer's interest to call this out," concluded Connor.

What can I do if my insurance isn't offering me value for money?

Put simply, you could put your cash into a high-interest savings account as a way to self-insure.

Alternatively, you could try ExtrasJar's app. It lets account funds roll over each year, instead of your benefits expiring.

If you're fiercely loyal to the big health funds, you could split your hospital and extras policy (known as "combined cover") and choose 2 standalone policies.

There's no need to get both policies from the same provider, meaning you can shape them more to your specific needs.

Finally, taking the time to compare deals is another simple but effective tip.

A quick look at policies available on Finder shows a difference of $134.06 per month between the cheapest and the most expensive extras policy.