How to rort health fund rules and save $200,000 over a lifetime
Rules that encourage people to join health funds at age 30 are having the opposite effect, and if you ignore them you could save $200,000 over a lifetime and still get cover when you need it.
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Exclusive: People in their seventies are gaming health insurance saving hundreds of thousands of dollars by waiting until they need surgery before they join and it’s driving up premiums in what has effectively been described as “a Ponzi scheme.”
The Australian Medical Association has found a program that was originally designed to encourage people to join a health fund when they turned 30 has had the opposite effect.
The leading medical body is calling for older people who delay joining a health fund to face bigger penalty payments while the under 35’s would get a better deal under sweeping reforms.
It’s one of seven major reforms the top medical body says are needed to stop private health insurance being killed off by COVID-19.
Other changes include:
* Raising the government tax subsidy for health insurance from 24 to 30 per cent.
* Allowing people aged up to 30 to be covered by their parents insurance.
* Legislating to require health funds to return 90 per cent of premium revenue to members.
* Raising the incomes thresholds at which a tax penalty applies if you don’t have health cover.
* Making health funds publish the rebates they provide for each surgery.
* Setting up an independent regulator.
Under the government’s Lifetime Health Cover policy people who delay joining a health fund after the age of 30 have to pay health fund premiums that are two per cent higher for each year they delay.
But instead of encouraging people to join the program has had the opposite effect.
If a person does not join a health fund until they need hip and knee replacements in old age they can avoid premiums of $5,000 a year for over 40 years potentially saving hundreds of thousands of dollars.
When they finally do join a health fund the 70 per cent penalty they pay costs them only $3,700 a year on top of the $5,000 bill for a Gold policy.
“If somebody decides to join a Health Fund, wait their 12 month waiting period and then claim repeatedly for joint replacements cataract procedures, then the Health Fund will be losing huge amounts of money on that individual because if they’re paying a $5 to 6,000, a year premium but getting $30 to 40,000 a year in claims, then that’s clearly unaffordable,” AMA president Dr Omar Khorshid said.
“It is literally a little bit like a Ponzi scheme,” he said.
“So, yes, the one of the possible policy levers that could be pulled is to increase the penalties for those who have not been members through their life,” he said.
In February the government’s financial regulator predicted only three of the nation’s 38 health funds would survive past 2022 as premiums become unaffordable and a five year membership slide gathers pace.
Fuelling the death spiral is a large reduction in younger health fund members who are less likely to use their cover while older Australians who use it more are joining up.
Falling incomes as a result of COVID-19 is expected to hasten the demise of private health insurance unless there is speedy intervention in the October federal budget.
A key problem is the number of Australians aged 75 and older joining health funds has surged by three per cent.
Those 85 and older have increased their membership by two per cent and the regulator predicts an additional 298,000 new members aged 70 to 84 age cohort are expected to join by 2025.
These older members are sicker and cost health funds a fortune.
AMA analysis shows those aged 65 to 74 received around 160 per cent of the average health fund benefits, those aged 75 to 84 received 260 per cent, those aged 85 years or older received 310 per cent of the average benefit.