Switching between health funds is no longer frowned upon and is even encouraged in a competitive marketplace. But before you switch, it’s important to consider all the implications to make sure you’re really getting a better deal. This guide looks at what those implications are and what to think about before switching between health insurance funds.
One of the first things you need to consider when switching health funds is whether you will have to wait to be eligible for benefits with your new provider and if so, for how long. Waiting periods are the time limits imposed by insurers to prevent people from taking out cover, making a claim and then cancelling their policy – a practice that would cause premiums to rise for legitimate health fund members.
Will you have to re-serve waiting periods?
The rule of thumb regarding waiting periods is if you are moving to a policy with a lesser or equivalent level of cover, then you will not have to re-serve any waiting periods you have already served with your previous health fund.
Exceptions to this include partially served waiting periods, the remainder of which must be served with your new provider and any new services or treatments that weren’t covered in your previous policy, which may have their own waiting periods that will need to be served.
Another consideration when switching health funds is the Lifetime Health Cover loading (LHC). If you don’t have hospital cover in place by 1 July following your 31st birthday, you’ll have a 2% loading added to the cost of your premiums for every year over the age of 30 that you don’t have private hospital cover. The LHC is capped at a maximum of 70% and removed altogether after you have held hospital cover for 10 continuous years. When you switch to a new health fund, your LHC status travels with you to your new fund, where you will continue to pay (or not pay) the loading, depending on how long you have held hospital cover. Your LHC status is one of the details listed on your clearance certificate, which is discussed in the next section.
A clearance certificate is a document that your previous health fund must supply to your new fund when you switch providers. It lists all the information your new fund will need to determine your level of cover and the cost of your premium. This includes:
- The type of cover you have (e.g. hospital, extras or combined)
- The level of cover you have (e.g. basic, medium or comprehensive)
- Your commencement and cancellation dates
- Your Lifetime Health Cover (LHC) certified age of entry
- Your recent claim history
When you switch health funds, your new fund will usually take care of the entire moving process for you, including requesting a clearance certificate from your former provider.
The reason why one fund must provide another with a clearance certificate is because of portability rules introduced by the government. These rules are designed to enable the free movement of consumers between service providers, without the fear of being penalised for doing so. Portability rules ensure that you won’t have to serve waiting periods twice, but they only apply to hospital cover and not to ancillary (extras) cover, where additional waiting periods may need to be served. However, many providers will waive the two-month waiting periods on extras for new members as an incentive for switching to their fund.
Are there any cooling-off periods?
All health funds are required to provide new policyholders with a cooling off period. This is a time period (usually 30 days) in which they can cancel their new policy and, providing they haven’t made any claims, receive a full refund of premiums paid. The advantage of a cooling off period when switching between health funds is that if you suddenly discover your new policy isn’t as great as you thought it was, you will be able to cancel it and will still be covered in the interim while you look around for a better deal.
When switching between health funds, it’s important to maintain continuity of cover. That means ensuring your new policy comes into effect the day after your old policy is cancelled. That way, there won’t be any overlaps in payment or worse still, gaps in cover should you require hospital treatment. Your new fund can usually arrange this detail for you as part of the moving process.
What happens to your loyalty bonuses?
While waiting periods are not affected by switching funds, loyalty bonuses are and this is one factor you will need to weigh up carefully when deciding if a switch is right for you. Loyalty bonuses are discounts and incentives health funds provide to their long-time members to reward them for their loyalty and to discourage them from switching to another fund. Loyalty bonuses are not transferable and you will lose them when you cancel your policy, so it is important to work out what they are worth to you financially when compared with the savings you may be making on a new policy. One factor that may counteract the loss of loyalty bonuses is the often generous sign-up bonuses offered by many health funds (i.e. combined policy discounts or waived waiting periods).
While the previous factors are all important to consider when switching between health funds, the most important one of all is whether you are getting better value for money than your current policy offers. The cost of premiums may be cheaper, but are you receiving the same or better levels of cover and are there any exclusions or restrictions which might limit the level of protection your new policy offers? With premiums on the rise every year, cost is certainly important, but equally important is having cover that will be there for you if you need it, without having to pay a raft of additional out-of-pocket expenses.