What to do before private health insurance premiums rise on April 1

There’s a price increase looming that could affect nearly 14 million Aussies. This is what you can do to reduce the hit to your budget.

Something weird happened with health insurance at the end of last year, it became popular.

Motivated by the ever-increasing wait times for surgery in the public system, more than 30,000 Australians signed up for private health cover in December alone.

But, with almost 14 million Australians about to be hit with a private health price hike that could set the average household back hundreds of dollars per year, those numbers could take a nose dive.

One April 1, private health insurance prices will rise by an average of 2.74 per cent, costing the average family $127 and individuals $59.

Although this year’s increase has been heralded as the lowest in 20 years. it’s the second one in just six months after a Covid-delayed increase of almost three per cent hit in October.

After an “unprecedented” year, many might feel the pinch when this latest price rise kicks in and consider cancelling altogether.

However, it’s precisely because of the events of 2020 that experts are advising Aussies hold onto their private health. But do you really have to pay more? The short answer is, not necessarily.

WHY ARE HEALTH INSURANCE PREMIUMS INCREASING?

In the past 10 years, private health insurance premiums have increased on average by 57 per cent and this latest increase is well above the rate of inflation (0.7 per cent in December 2020).

The reason for this increase, according to Private Healthcare Australia (the private health insurance industry’s peak representative body) is because health funds are paying out record benefits for its members.

Aussies could save hundreds of dollars and avoid the private health insurance price hike by shopping around.

By its calculations, for the 12 months to September 2020, Australian health funds paid $22 billion in benefits on behalf of members for 90.3 million subsidised hospital and extras services.

“Health funds don’t want to increase premiums by a single dollar, but it is necessary to ensure health funds remain financially viable, meet statutory prudential requirements and most importantly, continue to be in a position to provide members with access to quality and timely healthcare,” says Private Healthcare Australia CEO, Dr Rachel David.

“The only reason premiums go up at all is because health funds are paying for more healthcare.”

Still, an increase is an increase and many families may already be struggling with the cost of living as it is. If you’re looking for ways to save money, putting health cover on the chopping block may seem like a sensible decision, but it’s not one to be taken lightly.

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SHOULD YOU DITCH YOUR PRIVATE HEALTH INSURANCE?

If you ditch your fund and re-join later you’ll have to re-serve waiting periods on most things, which could be up to 12 months. Also, if the unexpected happens, you and/or your family won’t have as much choice over when and where you’ll be treated, including choice of hospital and doctor and shorter waiting times for elective surgery.

Instead of cancelling outright, you could switch to a different fund that can offer a similar level of cover for a cheaper price. You could also downgrade your policy, but this could cause more problems than its worth in the long run.

“It’s important customers who choose to downgrade are fully aware of what they are no longer covered for, otherwise they may be caught out if they decide to make a claim,” advises iSelect spokesperson Laura Crowden.

Crowden also points out that downgrading your level of cover – even temporarily – might be a better option than simply cancelling altogether due to Lifetime Health Cover Loading (LHC).

“If you haven’t maintained private patient hospital cover from the year you turn 31, you pay a two per cent LHC loading on top of your premium for every year you were without hospital cover over the age of 31.

“That means that if you do cancel your hospital cover and then decide to take it back out down the track it could cost significantly more.”

RELATED: Why do health insurers have waiting periods?

HOW MUCH MONEY CAN YOU SAVE BY SWITCHING INSURERS?

According to a recent survey of health insurance policy holders by iSelect, 36 per cent said they were paying less as a result of making a change to their policy or provider and 47 per cent said they were saving $300 or more a year off their premiums.

And, policy costs provided by the Private Health Insurance Ombudsman in Jan 2021 show that some policy holders could be saving even more.

For example, in NSW, there can be as much as $1800 per year difference between some gold family policies, and up to $840 difference between some gold singles policies.

HOW TO GET BETTER VALUE ON PRIVATE HEALTH INSURANCE

1. Opt for a higher excess and save up to $350 a year

• If you think you’re unlikely to be admitted into hospital in the near future, increasing the excess on a family policy from $1000 to $1500 could save up to $350 a year
• Higher excess fees will reduce how much you pay each month or fortnight

2. Look for payment discounts and freebies

• Some funds offer a discount if you pay by direct debit rather than credit card, while others have special introductory offers such as waiving some extras waiting periods or offering several weeks free
• Check what kind of ‘preventive’ health benefits your fund offers, some offer discounts on things like swimming lessons, weight loss courses, gym memberships and even hats and sunscreen

3. Pre-pay and save

• If you can afford it, pre-paying your annual premium upfront for the full year before April 1 will lock in your current rate and help you avoid the 2021 premium increase for another 12 months

4. Don’t pay for things you don’t need

• Don’t set and forget! Regularly review your policy to make sure it still suits your needs and budget, especially if your circumstances or life stage has changed (i.e. starting a family, kids leaving home, growing older)
• If you don’t regularly review your policy, you could be paying for things you don’t need or you might not covered for things you do – for example retirees still paying for pregnancy, young people covered for cataracts or families without orthodontics cover when they have teenagers that need braces

5. Review your extras

• Seriously ask yourself if you’ll use them, if you won’t, why pay for them?
• Consider flexible extras products that combine your separate extras limits into a single annual limit for you to use across different services, enabling you to get more back on the services you use the most

6. Split your cover

You may be able to save money and better tailor your cover by splitting your cover from a couples policy into two singles. For example, a couple could save by splitting to two singles policies if they have different health needs such as a woman needing pregnancy cover (but remember to switch a family policy before bub arrives to ensure you’re all covered)

7. Waiting periods are protected

Many people think that by changing policy or provider they’ll lose their hospital waiting periods but in many cases this simply isn’t true, any hospital benefit waiting periods you have already served are protected by law if you switch to an equivalent or lower level of hospital cover with another insurer

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