Want to cut down how much you're spending on your premiums? 10 things you need to know about saving on health insurance.
With private health insurance becoming more expensive every year, more people than ever are looking for ways to save on the cost of their premiums. With that in mind, this guide looks at things you can do to reduce the cost of your health cover and the possible repercussions of switching funds in the hunt for a better deal. Keep reading to find out how to save on health insurance.
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If you are finding your health cover increasingly expensive, the first thing you should do is take out your policy and review it thoroughly. Experts recommend you do this anyway (at least once a year) to make sure it is still relevant to your needs. Health insurance is now a highly competitive marketplace and consumers need to be aware of what’s out there and shop around for a deal. When reviewing your policy, things to consider might include:
- Whether you still need the same extras cover – your children may be older now and no longer require major dental cover for things such as braces or wisdom teeth
- Whether you still need the same hospital cover – as you get older, you may require a higher level of hospital cover to include cover for things like hip replacements or cataract surgery
- Whether your policy is providing good value for money – the same level of cover may be available with another fund at less cost
- Whether you have had or are expecting major changes in your life which will impact on your health cover – you may be getting married, divorced, retiring or your children may be moving out of home.
Considerations before switching
- Is the policy not meeting your need? If you decide that your current policy is no longer meeting your needs, you don’t necessarily need to switch to another fund. You could try negotiating better coverage with your current fund, which would be to your advantage if you have accumulated loyalty bonuses with them over time which you don’t wish to lose.
- Is your current policy too expensive? You could consider reducing your level of cover. If you are young and healthy, you may be able to get away with basic hospital cover, but if you are older and starting to develop health issues or envisage yourself doing so in the not-too-distant future, you might be wise to retain your current hospital cover and even consider increasing it.
- Will reducing your cover mean you have to pay the MLS? Reducing your hospital cover to a basic level could also expose you to the Medicare Levy Surcharge if you earn above a certain level of income ($90,000 for individuals, $180,000 for couples and families). Many people take out basic cover to avoid the surcharge, but in order to be exempt from it, your hospital cover must not have an excess of less than $500 for singles and $1,000 for families.
If you do decide to switch funds to save on your health cover, there may be both advantages and disadvantages to doing so.
- On the plus side, a new fund may be offering a better deal than your current fund, with the same or better coverage for less money. They may also provide better service or be offering more benefits and incentives than your current fund.
- On the downside, you would lose any loyalty bonuses you have built up with your current fund and if your new policy includes benefits not included in your current policy, you may have to serve waiting periods on those new benefits.
As mentioned above, switching funds means that you will forfeit any loyalty bonuses you have acquired through your current fund, as these are obviously not transferable. Loyalty bonuses are benefits or discounts that a fund offers to long-term policyholders to reward them for their loyalty. Loyalty bonuses can include discounts in the form of accumulated credits which reduce the amount of excess you pay on your hospital cover or increased benefit limits on some extras such as dental or optical. The longer you have been with your current fund, the more loyalty bonuses you are likely to have accumulated. So this would obviously have to be factored into your decision to switch funds, as the amount you save on your new premium might be cancelled out by the amount you are losing in bonuses.Back to top
The Private Health Insurance Rebate is an incentive by the Australian Government to encourage more people to take out private health insurance. It provides either a reduction in the cost of your premiums or a tax offset with the aim of making health insurance more affordable.
Who is entitled?
Everyone who is eligible for Medicare, has taken out complying private health insurance (either hospital, extras or both) and earns below the maximum annual threshold ($140,000 for singles and $280,000 for families) is entitled to a Private Health Insurance Rebate.
What can I receive back?
The amount of rebate you will receive will depend on the income tier you fall under. Currently, singles under 65 earning up to $90,000 a year and families earning up to $180,000 will receive 25.93% of their health insurance contributions. Those earning $90,000 to $105,000 ($180,000 - $210,000 for families) will get around 17.2% back and those on $105,000 to $140,000 pa ($210,000 - $280,000 for families) will receive 8.64% of their contributions. As mentioned previously, those earning over $140,000 ($280,000 for families) do not qualify for the rebate. Your income for rebate purposes is not your taxable income, but your income for Medicare levy surcharge purposes (your taxable income plus any fringe benefits and superannuation contributions, minus any net investment losses).Back to top
Switching funds can be done without serving new waiting periods on your hospital cover, providing you are switching to a comparable level of cover. Portability legislation also exempts you from having to serve any benefit limitation periods. These are timeframes that funds impose on new policyholders, during which only a percentage of a benefit is paid for certain kinds of hospital care. On the downside, if one of the reasons you are switching policies is because your new policy has lower excesses and co-payments (amounts you are required to contribute at the time of your hospital treatment), you may still have to serve waiting periods before being eligible for them, as you are effectively moving to a policy with an increased level of cover.
In a word, the answer is yes. Portability legislation only exempts you from hospital cover waiting periods. It does not apply to general treatment (extras) cover. So if you switch to a policy with new extras benefits included, you may have to serve a waiting period for those benefits. Typical extras waiting periods are:
- General dental and physio – 2 months
- Glasses and contacts – 6 months
- Major dental – 1 year
- Orthodontic treatment and hearing aids – 3 years.
The good news is that many funds often waive the shorter waiting periods to make their policies more attractive to those considering switching and may provide immediate cover for those extras benefits included in your previous policy.
Consumer protection when you change
Apart from when you switch to a policy with new benefits, Australian government portability legislation protects you from having to serve any other waiting periods that you have already served with your current fund. The only other exception is if you allow more than seven days to lapse between when your old cover ends and your new cover starts, in which case you may have to re-serve new waiting periods as if you were a new policyholder. Portability legislation also only applies to hospital cover and not to general treatment (extras) cover, so you may have to serve new waiting periods for any new extras benefits, although many funds waive the shorter waiting periods in order to attract new business.Back to top
Funds often reward early payment with a discount (can be up to 4%), as upfront payments help to reduce their administration costs. Some funds also offer a further discount if you pay by direct debit, again because administration costs are reduced. Another reason to pay your health insurance premiums 12 months in advance is to postpone the effects of the CPI premium rise on April 1st. This is an annual event when funds increase their premium rates to keep pace with inflation and rising medical costs. If you pay before April 1st, you can lock in your premium rate for another 12 months at the current rate and avoid the price rise until the following year. This can provide a useful breathing space if you are unhappy with the increase your current fund has introduced, giving you 12 months to find and switch to a fund offering a better deal.
Apart from reducing your level of cover or switching to a new fund, both of which have their pros and cons, other ways to save on health insurance include:
- Paying your premium annually in advance to avoid admin fees
- Paying your premium before the annual March 31st increase to lock in your current rate for another year
- Paying by direct debit, which can earn you a discount
- Increasing your excess to lower your premium, although never by more than you can afford to pay
- Joining a restricted membership fund to take advantage of lower premiums and higher benefits
- Not paying for things you don’t need, such as pregnancy and IVF treatments
- If you have kids, finding a policy that waives their hospital excess, offers gap-free extras such as dental and covers your dependant children up to 25 years of age.
Another way to save on your health insurance is to look for members discounts. You may be able to get a discounted premium through:
- Your super fund, which may have negotiated a cheaper rate with funds
- Your workplace, as your employer may receive a discounted rate for staff members
- Your association or club, some of which offer discounts to their members
- Your mutual bank or credit union, which may have negotiated a discount for its shareholders and customers.
Another area where savings can be made is in extras. Many people are paying out more in general treatment (extras) premiums than they get back in benefits, so working out if your extras health insurance is providing value for money is always a good idea. This can be done by comparing the total benefits paid out in your annual claims statement with the cost of your annual premium. If the premium amount is more than you got back in benefits, then you aren’t getting good value for money. If you have a policy with combined hospital and extras cover, the same comparison can be achieved by finding a comparable standalone hospital cover policy and deducting its cost from the annual premium you pay for your combined policy. The difference is roughly how much you are paying for extras benefits. Extras you aren’t fully utilising and which you may be able to discard or reduce could include Major Dental, if your children have grown past the age of needing such treatments and things such as dentures and hearing aids, if you are still relatively young and have no apparent need for them. Bear in mind though, that extras you discard and then take up later in life will require you to serve new waiting periods.Back to top
The Medicare Levy Surcharge (MLS) is a tax on high income earners who don’t have adequate private hospital insurance. It is designed to help reduce the burden on the public hospital system by encouraging those who can afford it to take out private cover. The MLS applies to hospital cover only (extras cover does not exclude you from the levy) and the policy must have an excess of no more than $500 for singles or $1,000 for families. Singles earning above $90,000 pa ($180,000 for families) are subject to the levy and the percentage payable ranges from 1% to 1.5%, depending on your income. Many high income earners avoid the MLS and save themselves money by taking out basic complying hospital cover, which can usually be purchased for less than the surcharge that would apply.
A co payment is similar to an excess in that it is an amount you agree to pay out of your own pocket towards the cost of your hospital treatment. Unlike an excess, it is a daily amount that contributes towards your daily hospital accommodation and expenses, but similar to an excess, the more you agree to pay, the cheaper your health insurance premiums will be. When considering co payments and excesses, it is important to weigh up whether you will have the money available should you need it at short notice and only opt for an amount you know you will be able to afford.
As mentioned before, one way to save on your health insurance is to pay your annual premium before the rate rise that occurs each year on March 31st in order to lock in your current rate for a further 12 months. This rise is a government sanctioned increase (usually around 5%) which allows funds to keep pace with inflation. However this option will depend on your available finances, as the average singles cover is around $800 a year and family cover around $1,500.
Clearly then, there are ways to save on your health insurance both with and without switching funds. Cutting a little fat here and saving a few percent there can all add up to a cheaper premium, without necessarily having to sacrifice the level of cover that you need.