It is always going to hurt, but you can reduce your health insurance bills
While health insurers are in a fight with private hospitals, it’s a good time to review your own cover. Here’s how you can cut your bills.
If your expensive private health insurance now won’t get you access to some private hospitals, is it worth the money?
Healthscope, one of the big private hospital operators, has dramatically ripped up its contracts with Bupa and the AHSA group (which represents 26 of the smaller health insurers); the move is expected to affect about six million people in the coming months.
With hospitals openly fighting with health insurers over funding, a major review of the whole area is under way and prices are set to surge.
Against this backdrop, the question looms large: Should you have health insurance and, if so, how much should you pay?
Private health insurance is not mandatory, but if you have a medium to high income you will be penalised sharply by the tax system if you choose to go it alone.
Moreover, most people want to be insured. As a result, the broader question may be: Do you have the appropriate private health cover for your circumstances?
The outstanding financial trend in our health system is the downgrading of cover by private individuals, especially younger consumers.
Australians generally are not quitting the system; rather, they are paying less inside the system.
The government-approved standard menu inside private health insurance is a four-level offering: gold, silver, bronze and basic. Consumers have been shifting from the gold level and moving down the ladder to reduce costs, and bronze level cover is growing fast.
In fact, an estimated 400,000 Australians dropped their level of private cover down a notch from the top-tier gold level during the past four years.
You may call it the wisdom of crowds.
Many other Australians do only the absolute minimum to avoid paying the tax penalties for not having private insurance and take out basic hospital cover (more on that later).
For now, keep in mind that private health insurance is more than likely required for you (with some exceptions). The trick is to get a grip on the system and do your best to win the best deal.
Before you start, there are a few things really worth knowing about the wider system inside which you will be making your choices.
The health system is stressed for sure, but it is not broken. We have the Medicare public health system and that is paid for by every taxpayer through the Medicare levy. The existence of Medicare underpins the private health insurance system, which to some extent sits on top.
There are regular tensions between the two sides of the system at all levels. Earlier this year, at state level, the NSW government blasted the health insurers, including Bupa, Medibank and NIB, for exploiting the system by paying only about half what had been asked of them for the use of public hospital beds.
In recent weeks, insurer HCF has conceded on this point and agreed to pay the NSW government almost double the rate of previous payments. The Minns government has threatened to introduce new taxes on the funds that still hold out against “volunteering” to pay higher charges.
Then there is the issue of consolidation across the national market. Eight out of 10 Australians with health insurance are inside one of the top five funds yet there are dozens of funds from which to choose.
Some concentration of the market is to be expected in any area of commercial activity; after all, we have four big banks and two big supermarket groups. However, this domination of the health insurance sector by a few players does distort the lens regularly. For example, when the government tells us healthcare premiums went up 3 per cent in a year, that is an average figure between all the funds in the market. But, in reality, all that matters to most people is how much extra their own fund charges.
As Uta Mihm of consumer advocacy group Choice puts it, the biggest mistake consumers make in the health insurance system is relying on the names they already know. Industry surveys show consumers can save anywhere from $300 to more than $1500 a year changing products.
“You just have to shop around,” Mihm says.
The absolute minimum
Among the private health insurers there are standardised choices of health cover created by government decree back in 2020. For those who want the absolute minimum there is basic hospital cover, which essentially covers for accidents. Having this cover allows you an exemption from the Medicare levy surcharge. If you don’t have cover and you earn more than $97,000 a year as a single person then you are charged the Medicare levy surcharge rate of between 1 cent and 2 per cent extra on your taxable income each year.
Beyond the absolute minimum, there is extras cover, which is divided into gold, silver and bronze. Along with that – just to complicate things – there is also combined cover that has a bit of both hospital and extras cover.
Many people do not want to pay the extra tax for not having private cover so they get the absolute minimum – the basic health cover – to avoid the extra charges.
The Australian asked comparison site Canstar to run the numbers on basic hospital cover for a range of Australians. As it turns out, your age doesn’t always matter that much to insurers. (Huh? Yes, it’s an anomaly of the community-rated system.) Though it’s worth noting that under the tax system, once you turn 31, if you are not covered, then you are liable for the lifetime health cover loading, which is an extra 2 per cent on your premium every year.
When a researcher such as Canstar runs an exercise in this fashion it does not allow for circumstance, nor does it take rebates into account. In fact it may well be that another operator could cost a single dollar more and would have been better value, but that will not come up in the results. To make the averages even more unreliable, they vary from state to state.
Still, we had to try, so we chose the most populous state, NSW, as the test case. NSW is very much the battleground in health insurance with the Minns government taking a more interventionist stance than other state administrations.
The researchers looked at categories such as single, family and couples, although there are variations inside these categories such as whether the fund excludes basics or whether a family has a 21-year-old in the house.
Phoenix Health Fund regularly appears as the absolute cheapest, while AHM health insurance is a winner when you move a little higher up the scale to the so-called bronze level. (AHM is a branch of the giant ASX-listed Medibank Private.)
Looking across the funds that appear in the top tables, there are also regular appearances from Bupa, Frank Health and See-u by HBF.
After an initial trawl through private health products, you may find that although basic hospital cover avoids the tax penalties, it is not sufficient for your purposes. Having said that, it’s also true that if you look at many health insurance extras products there is often a range of services included that you may never want.
In fact, there may be services you could never access. Let’s say you are a couple with adult children, why would you pay for the prospect of fertility services?
Industry analysts suggest one of the weaknesses of our system is that people don’t review what they pay for. But slowly this is changing, as witnessed by the huge numbers downgrading their level of cover after reviewing the products.
As Canstar insights director Sally Tindall suggests: “Consumers need to compare and they need to read the fine print.
“It’s important to know what is covered – and what is not covered – and that you are happy with the choice because when you go to use it you might be in quite a rush.”
Making your move
By now you may have come to the conclusion you need to review your cover. Here’s a checklist of what to do if you want to cut your health insurance bills.
First, review your current arrangements. If you stick with the same insurer year after year there is little evidence that you get any reward for your loyalty. On the other hand, there are always new offers. As NIB’s outgoing chief executive Mark Fitzgibbon said recently, “There is a healthy level of competition.”
Second, compare policies using one of the comparison services. The main commercial websites are Compare the Market, Canstar, Finder and iSelect. These are public commercial services and their strength is that they can pinpoint and recommend good offers; their weakness is that they have links with insurers and can give preferential treatment to some over others, nor do they cover every single player in the sector.
The not-for-profit consumer service Choice also is an option; it is a comprehensive comparison service and presents its data without interpretation. The service offers generic information for free; for specific products you need to subscribe to Choice. Subscriptions offer coverage on all sorts of products, not just insurance, and start around $30 for three months
The federal government also runs a little known but useful free comparison service at privatehealth.gov.au that anyone can access.
Keep in mind that you need make a decision for only one year. You can downgrade your policy and pay less one year, but you can always go back up the ladder and pay more when you think it is necessary.
Be warned, however; some insurers have waiting periods. If so, watch the dates closely – you don’t want to be uninsured even for a short period.
Price and value are very different when it comes to health insurance and in the end you will often have out-of-pocket expenses, especially outside the gold category, so choose carefully.
