How to tell if you’re paying too much for your health insurance

More than 14 million Australians pay thousands of dollars every year for private health insurance and there is a common mistake many of us make.

Leading consumer advocacy group CHOICE is urging Aussies to review their private health insurance after it revealed significant inconsistencies in price and cover across a range of policies.

Comparing hospital policies across the Gold, Silver and Bronze tiers, which were introduced by the Federal Government in 2019 to make private health insurance simpler, the group found 288 policies were charging top dollar for bottom-level cover.

With thousands of private health insurance policies to choose from, it’s not surprising that consumers are confused says Uta Mihm, CHOICE’s health insurance expert.

“As every policy in the same tier has essentially the same cover, this should, in theory, make it easy to compare policies,” she says.

“But then the government allowed health insurers to introduce some ‘in-between’ policies, called Plus policies. While Plus policies allow you to tailor your health insurance, they also make it much harder to compare policies.”

RELATED: Key to finding cheap hospital insurance

The CHOICE survey found 73 Bronze and Bronze-Plus hospital insurance policies cost more and provided less cover than some Silver policies.

Meanwhile, there were 215 Silver policies, with restrictions, that cost more – in some cases $1650 more – than the cheapest Gold with full cover.

The government regulation of private health insurance can also add an extra layer of complexity for consumers, says Ms Mihm.

“Health insurance is highly regulated with many traps for consumers. A good example of this is the Medicare Levy Surcharge. You need hospital cover, not extras, to avoid paying it,” she said.

“Plus, it’s not every hospital policy but one with a maximum excess of $750 single and $1500 family. We recently had a case of somebody who paid good money for a top cover Gold health insurance policy but still had to pay the extra tax as his policy had a $1000 excess.”

RELATED: Clever tricks to ditch pesky bill hike

Almost all Australians pay 2 per cent of their taxable income as the Medicare Levy Surcharge (MLS). This money goes towards funding parts of the public health care system.

And if you earn above $90,000 for singles and $180,000 for families and don’t have private hospital cover, you have to pay an extra 1 to 1.5 per cent of your taxable income too.

Although many people are motivated to invest in health insurance so they can save on this tax – regardless of whether the policy is any good – this works only if you never intend to use the insurance, if you do, then you could be caught out.

“Basic (junk) insurance policies do not really cover you for much,” says Ms Mihm. “It’s very unlikely that you would be able to use them, so the only thing they are good for is to avoid tax and surcharges. If you take one out, make sure it’s the cheapest.

As private health insurance prices went up across the board from April 1, Ms Mihm says this is the perfect time to review your current policy and offers the following quick tips to ensure you get value for money.

RELATED: Tax break you need to know about

“Check a claims statement to make sure you are not just paying for extras insurance without getting much benefit for it,” she advises.

“If you have a Plus policy, you might be paying more than for a policy in a higher tier. Check the policies identified by Choice as bad value for Bronze Plus and Silver Plus.

“Look beyond the big funds, especially if you want a Gold policy. Small and restricted membership funds often have the best value for money top tier policies.”

Originally published as How to tell if you’re paying too much for your health insurance