Premium power: Will you join the Aussies quitting private health?

THE cost of private health insurance is about to go up way more than inflation, yet again. Are you better off not having it at all?

Get ready to pay even more for your private health insurance.

“REMIND me: Why in heck am I paying for this?!” wondered millions of Aussies last month, as they heard health insurance premiums were rising again.

That wasn’t you? Well, you might be among the group smiling quietly because they aren’t paying premiums any more. Aussies are ditching private health insurance in droves.

Private health insurance’s market share was growing strongly for a while, but that has gone into reverse. The share of Australians who have private hospital cover insurance is now at its lowest level since 2012, as this next chart shows.

Private health insurance can be seriously expensive. The history of price rises has been hectic and the costs can easily mount to thousands of dollars a year. That feels like a lot if you are not claiming much.

If you’re going to get on the bandwagon and ditch your cover, now is a pretty good time. Prices are rising fast. According to official data, the lowest average premium hike in 2017 is 2.98 per cent from CBHS Corporate Health Pty Ltd and the biggest is 8.53 per cent from health.com.au.

The overall average in 2017 is a hefty 4.84 per cent, which is way above inflation

The reasons cited by insurers include the rising cost of health care and more patients claiming as they get older. But profits are also in good shape, and some of that may be due to a confusing market that prevents people shopping round.

The Private Health Insurance Administration Council put out a report in 2015 which said “full and unbridled competition is not yet in place.” Which only makes the premiums sting even more.

ONLY 90S KIDS WILL GET THIS

Is insurance even a good idea for you? It probably depends on how old you are. If you’re under 30, you could be paying a lot of money into a scheme you don’t see any benefit from.

Health costs tend to rise a lot over your lifetime, as this next graph shows.

If you are in an insurance scheme alongside a bunch of old people, they’re probably soaking up a lot of the money you’re putting in.

There’s a reason young people pay cheaper premiums, and why the Government wants you to join private health before you’re 30.

Once you’re over 30, meanwhile, the government tries to tempt you in there with its lifetime loading. It promises to make insurance more expensive for you for the rest of your life if you don’t join now!

Sounds frightening, but I’ve done the maths on this before and found that waiting to buy the policy often pays off. If you don’t expect to get value before the incentive, you probably can’t expect to get it afterwards.

INCENTIVES

The real sting in the tail is the Medicare Levy Surcharge, which kicks in if you earn more than $90,000 a year. That is enough to get you to buy a cheap policy, just to avoid the extra tax you’d have to pay. You can normally buy a very basic policy and pocket a small saving.

The problem is, you end up on an insurance company website and start comparing the cheap policy to the expensive policy. Once you’re there, it is very hard to not end up spending a motza on one with all the bells and whistles, which will cost more than you save on tax.

There is also the private health insurance rebate, where part of your private health insurance costs are reimbursed, but it is shrinking slightly this year.

INSURANCE: WORRY ABOUT THE BIG STUFF

If you’re insuring yourself against an unlikely outcome you could actually afford, it doesn’t make much sense. The only reason to buy insurance in that case is that it is like forced saving. (The risk if you promise to self-insure, i.e. socking money away for a rainy day, is you might end up spending that money while the sun is still shining …)

But we love to buy insurance for relatively small expenses. As we saw in the graph above, Aussies are more inclined to get private extras cover — dental, physio, optical, etc, than full hospital cover. Does that make sense? Everyone likes to tell you they get more value out than they put in, but if that was true, insurance companies would lose money and go broke.

Insurance is like gambling, and making lots of little bets to win little amounts is a good way to lose money overall. The house always wins.

GOOD, OLD, MEDICARE TO THE RESCUE.

Of course, the reason slightly more than half of us don’t have private hospital cover is our public health system does a good job. Every citizen and most permanent residents are covered by Medicare.

If you go to a public hospital, almost all your costs are covered by Medicare. You don’t pay much at all. (In fact, because insurance policies require you to pay an excess, going into the private system can cost some patients with private health insurance more than going into the public system!)

Some people say opting out of Medicare frees up public hospital resources, and they are right, but only in the short term. In the long run, the more people that don’t use Medicare, the easier it becomes for the government to gut it. Think of public high schools — as richer and more influential people move to the private system, politicians get more leeway to cut the public system, and the cycle repeats.

The increase in the number of Aussies relying on Medicare that we saw above might actually tempt politicians to protect it for the long run. If you’re already inclined to drop your Private Health Insurance and rely on good, old Medicare, I say get around it.

Jason Murphy is an economist. He publishes the blog Thomas The Thinkengine. Follow Jason on Twitter @Jasemurphy