Health insurance – To cover or not to cover?
Private health insurance – it can be a minefield to navigate and a big decision for many people. Hospital, extras or both? Which fund? What do all the rebates, thresholds and surcharges mean? Here we look at what the future holds for the industry, recent legislative changes, and how you can make the most out of this important investment into health and wellbeing.
A question of money?
Jean is 56, single, and has limited private health cover. She has always enjoyed good health, pays special attention to her fitness and prides herself on rarely needing to see a doctor. However, in the past year Jean’s teeth have been causing her problems and one of her knees needs to be replaced following years of running, limiting her active lifestyle.
Cost does tend to be the biggest factor for most people considering taking out private health insurance and, according to the National Health Survey 58 per cent of Australians who don’t have cover say it’s because they can’t afford it3. However, more than 57 per cent of the population aged 18 or over have chosen to take out private health insurance of some kind4. More than 51 per cent of those people cited ‘security, protection and peace of mind’ as their primary reason for having private health insurance, followed by ‘allows treatment as private patient in hospital’ (28.5 per cent) 4.
Unfortunately, Jean suddenly discovered all of those reasons applied to her situation. She has received quotes for major dental work that run into thousands of dollars, much of which her health insurance won’t cover. Her limited health cover also means she faces a long wait before she is able to have the knee surgery.
An unsustainable model
Driven by an ageing population and increasingly expensive healthcare products and services, in less than four decades a projected 46 per cent of all Australian government spending will be on health and ageing5, meaning health inflation is rising consistently faster than the rest of the economy. And annual private health insurance premium increases, which are controlled by the Australian Government, have failed to keep pace with health inflation over the past seven years.
The recent National Commission of Audit acknowledged this problem, saying, ‘Health care spending represents the Commonwealth’s single largest fiscal challenge over the long-run, with expenditure on all major health programs expected to grow strongly to 2023/24 and beyond. At a practical level, increased health spending reduces resources for other key areas 6.
The Commission also concluded that significant opportunities exist to improve the operation of Australia’s private health insurance system, which could help rein in health spending.
Understanding recent changes
One thing that does help with the rising cost of health insurance is the Australian Government rebate on private health insurance, although that assistance has been whittled away in recent years. On 1 July 2012 this rebate became income tested, meaning it was affected by a variety of factors—including your age, income and the number of children covered under the policy.
Since then, the rebate increased by the same proportion as the price of the cover. However, on 1 April 2014 new calculations were introduced and the rebate is now linked to the rate of inflation and the industry average price increase, rather than being a fixed percentage. This change applies to all Australian health funds and means the value of the rebate will actually decrease over time. Your rebate entitlement will continue to be based on your age and income.
The Government’s updated private health insurance rebate and Medicare levy surcharge thresholds, took effect as of 1 July 2014. However, as part of this year’s Federal Budget, the Government proposed that the rebate and thresholds be frozen for three years from 1 July 2015. This would likely see the thresholds adjusted again on 1 July 2015 and then fixed for three years and rebate adjusted on 1 April 20157 and then fixed for the following three years. But stay tuned… as with many Federal Budget measures, these changes are yet to receive support from the Senate.
Knowledge is power
Private health insurance can get complicated but here are some tips to get the most out of health insurance:
· Review your policy. If you’ve had the same policy for many years, chances are you’re paying for things you don’t need. You might find you’re still covered for pregnancy when your kids have all moved out of home! There are also some legacy health covers still in the market that may mean older people in particular can be paying more than they need to—for example, they may be charged a daily levy for each night spent in hospital on top of their excess.
· Make sure you’ve registered the correct income threshold. To receive the maximum government rebate on private health insurance, you need to nominate an income threshold, or tier, based on the amount you earn. Avoid a nasty surprise at tax time by ensuring your selected tier reflects your current income.
· Check your ambulance cover. Many people fall into the trap of believing private health insurance covers all ambulance travel but, in fact it will often only apply to an emergency ambulance—and that depends on how the state ambulance service categorises your medical condition. Cover also varies from state to state, including where the accident or emergency occurs as well as where you are insured.
· Consider your excess. If you’re looking to save money, there are options to pay a higher excess to reduce your premium. Just remember you’ll need to be prepared to pay the excess if you do go to hospital.
· The longer you wait, the more you’ll pay. The Government’s Lifetime Health Cover is a two percent loading on private health insurance premiums for every year that a person over the age of 30 is without private hospital cover (up to a maximum of 70 percent). If you are a high income earner, you’ll also pay the Medicare levy surcharge for every day you don’t have private health insurance.
The hope, of course, is that people live a long and healthy life and won’t need the protection that private health insurance provides. But the reality is that almost everyone will benefit from health cover—be it sooner or later.