With price hikes ahead, is private health cover worth it?

Premiums just keep increasing

The rising cost of living has made it harder for Australians to justify private health insurance. Image: Unsplash

You've no doubt already had word from your insurer that premiums are set to increase again from June 1, leaving many of us wondering if the cost is justified.

Just last month, it was confirmed that Medibank has confirmed a rise of 2.96% across all private health covers that will come into effect on June 1.

This increase was somewhat predicted as private health insurance has been steadily increasing on an annual basis for the past decade.

But with the rise only continuing, and at a rapid pace, is it time to consider downgrading our cover?

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According to APRA, it is estimated that 45 per cent of all Australians currently have private hospital cover, of which, more than half have additional private cover for other health services.

The current health insurance system enforces specific financial indicators that encourage private cover among Australians. For instance, those who earn above $90,000 a year (or families with a combined income of more than $180,000) are automatically charged a Medicare levy surcharge of one per cent if they don’t have private health insurance. This surcharge increases as individual or household income increases.

The University of Melbourne Professor of Health Economics Yuting Zhang admits that these policy incentives have a strong influence on why people opt for private cover.

"Even if [their private health insurance cover] doesn't represent value for them, they'll save by not paying the tax," she explains to ABC’s The Drum.

Private health insurance is more valuable for some than others. Image: iStock

Why should I take up – or keep – my private health insurance?

On top of the income-based incentives, Zhang notes the lifetime health cover loading initiative as another reason people take up private health insurance.

The government policy encourages Australians to maintain their cover from a young age by imposing a two per cent annual loading fee on those who take up the insurance later in life. Essentially what this translates to is for every year over the age of 30 that private cover is not taken out, individuals must pay two per cent more each year when cover is finally purchased.

While she admits not all people over the age of 30 are in desperate need of private health cover, this incentive has effectively increased the insurance uptake by four per cent.

Beyond these financial incentives, the primary motivations for Australians to obtain private cover include access to more healthcare providers along with reduced wait times for elective surgeries. For most Australians, reduced wait times are worth the money spent on private cover, as it can save some patients months of waiting when compared to the public system.

Zhang notes this is particularly important when it comes to age-specific life considerations, saying that those who intend on having children in their 30s and 40s, or those with mid-life hereditary dispositions tend to take up private cover to safeguard their needs during this time.

Private health insurance is incredibly valuable for pregnancy. Image: iStock

Is private health insurance actually valuable?

Private cover is very dependent on an individual’s circumstance and will vary for everyone.

For the most part, private health insurance is incredibly valuable to all Australians, but there are instances where people find themselves over-insured for services they don’t need, and that is when value for money becomes uneven.

Choice health insurance specialist Uta Mihm says that age and health needs should be used as primary indicators for the level of insurance an individual should seek.

"Older Australians get a lot more out of private hospital insurance," she says, as a result of general health risks increasing with age.

"Young Australians may not get much out of it, but if something unexpected were to happen, it would be value for money.

Why is the cost of insurance rising?

No one likes receiving their annual notice of increase, but it comes like clockwork every year. The reasons this happens are:

• Inflation: the cost of goods going up
• Cost of the service delivery: it’s getting more expensive to provide health care because we’re living longer
• Business reasons: at the end of the day health insurance companies are a business that needs to make a profit

Since the pandemic health has been front of mind for more of us. Image: Unsplash

What are the appropriate reasons to give up private health insurance?

With no sign of the private health insurance annual increase rate slowing down, and the general cost of living steadily rising, financial barriers are the primary reason why some Australians opt to cut back on their private cover.

There are a number of hidden costs that are sprinkled through the private health system, including out-of-pocket expenses such as treatment costs that are not covered.

Another reason is a change of circumstances. If say, you’ve decided not to have kids, you may downgrade your cover to exclude the benefits associated with pregnancy.

When to consider re-evaluating your cover

As with the private health insurance annual cost review, experts encourage individuals to evaluate their cover every year, especially when changes to income present.

"If you pre-pay the annual premium before the premium increase comes into effect, you can delay paying the higher rate by 12 to 18 months," says Mihm. "The longer the period you can prepay, the more savings you can make."

The experts also recommend using this time to compare providers to find the best value for money for your needs.

This year, Medibank will increase premiums on June 1. HCF and NIB will increase their premiums in September. And Bupa customers will see their increase come October 1.

Originally published as With price hikes ahead, is private health cover worth it?