How to make the most of your health cover
Top tips to save you money and optimise your private health insurance in 2016.
People with private health insurance will be hit from April 1 with another round of big premium rises, but Rochelle Franks and her husband Gavin are not going to sit back and take it.
"It's difficult when there is such an increase in fees when you are not getting a comparable increase in your pay," Rochelle says.
They switched their health fund a few years ago and are looking at switching again, this time to another policy by the same insurer.
"We've been reviewing our policy to see if it is the best one for our needs," Rochelle says.
While private health insurance companies have lifted premiums by a cumulative 72 per cent over the past decade – almost three times the inflation rate – consumers also have more options than ever to tailor their cover.
The key is to exclude cover that is unlikely to be needed, and remember that you can mix and match insurers for extras or hospital cover, or for different members of a family.
Rochelle, 34, and Gavin, 38, both physiotherapists, are looking to see if there are any areas of cover they can do without to reduce the premium.
"We have not yet removed any services but are considering doing so before the April price rise," Rochelle says.
The couple have a four-month-old son, Raphael, and they would like to have another child, so they will not exclude birth-related services, which would lower the premium substantially.
However, they are considering trimming some of the yearly caps on their extras cover, also known as general treatment or ancillary cover, which includes cover for dental.
They are also considering pre-paying the full year's premium before April 1 and locking in today's premium.
Health funds expect us to be grateful that this year's rise of 5.59 per cent is less than previous years, but it is still three times the inflation rate.
That is the typical increase. Some funds are hiking their prices by much more.
CUA Health Fund policies, on average, will rise by 8.95 per cent. Health.com.au will increase prices by 8.81 per cent and Health Partners by 7.14 per cent.
The biggest fund of all, Medibank Private, will increase its premiums by an average of 5.64 per cent from April 1.
According to One Big Switch, a group-buying service, premium rises over the past decade have resulted in a cumulative increase of 72 per cent. This is almost three times the rise in inflation at 25 per cent.
Individual policies of an insurer can have much higher price hikes than the average it reports across its policies.
And the increases in the costs of health insurance are really more for most people than the premium rises alone, because the private health rebate is becoming worth less to more policyholders.
The original 30 per cent private health insurance rebate has been reduced over the years and cuts out at lower income thresholds.
About one in three people said they had only used their health insurance, whether hospital or extras cover, once or twice, in a survey of 1200 people by comparison website comparethemarket.com.au.
"It's astonishing that so many people pay hand over fist for policies they never use," says Abigail Koch, a spokeswoman for comparethemarket.com.au.
"If you do not see value in your policy then it's time to switch to one that better suits your needs," she says.
Despite the ever-rising costs of health insurance, there are still many ways for consumers to ease the strain on the hip pocket.
Private health insurance policies are the most baffling of all financial products to understand.
That puts many people off from going into the market and looking for a better policy.
Laura Crowden, a spokeswoman for comparison site iSelect, says many consumers are likely to be reluctant to consider switching insurers because they believe they would have to serve another waiting period before they can claim.
However, policyholders are protected by rules that say they have already served out their waiting period and will not have to serve another with the new insurer, provided the cover is at the same level or less than what they previously held.
If the new hospital policy includes new or higher benefits that were not part of the old policy, the policyholder will have to wait to be covered for those benefits, Crowden says.
The waiting period protection is for hospital cover only and does not extend to extras cover.
Nevertheless, most insurers waive waiting periods already served on their extras cover, Crowden says.
Policies can be designed in ways that make it hard to drop a particular area of cover that you are unlikely to use.
One way to drastically reduce premiums for those who are not intending to have any more children is to remove birth-related services.
The premium on top hospital cover can be up to a third more expensive with some policies if birth-related services are included, says Koch.
She says some policies have packaged inclusions so that it is generally not possible to drop one area of cover without also dropping another area that may be needed.
It tends to be higher-level policies that have birth-related services as a fixed inclusion of the cover, Koch says.
However, there are some top-level policies that do not have pregnancy cover or allow the pregnancy cover to be removed.
These include Frank Health Insurance – Best Hospital No Pregnancy cover; NIB – Advantage Hospital, which is a high level hospital cover without the added cost of pregnancy, and GMHBA – Gold Hospital, where pregnancy cover can be removed.
Koch says care needs to be taken not to overdo the exclusions.
"Policies that have lots of exclusions or cover accident only can catch people out when they are searching for private health insurance," Koch says.
"Consumers are often attracted by the low premiums but don't realise that these policies offer very limited benefits," she says.
"They can be useful for consumers wishing to avoid paying the Medicare Levy Surcharge who don't plan on using their private health insurance," Koch says.
"However, for consumers wanting protection for their health or peace of mind then they offer little to no value," Koch says.
Crowden says there is no reason someone has to use the same insurer for their hospital and extras cover.
"Dividing hospital and extras cover between different providers could also help bring premiums down," says Crowden.
She also says there is usually no discount from the insurer for a couple on a joint policy.
"Couples could save by splitting their cover into two singles policies, especially if they have different health needs," Crowden says.
Another way to reduce premiums for those who are unlikely to make a claim is to increase the excess, policyholders' out-of-pocket costs before the insurance kicks in.
And more funds are offering flexible ancillary cover where there is a global cap on annual cover rather than having individual caps for each type of service, such as optical, dental, physiotherapy or chiropractic treatment.
Flexible extras cover combines separate extra limits into a single annual limit for policyholders to use across different services.
Crowden says the benefit is that policyholders are more likely to use the full cap rather than having some unused after the 12 months are up.
Consumers can compare all health policies at the government-run www.privatehealth.gov.au/. The site is also very good at explaining how the rebate and the surcharge works.
Consumer advocate Choice says consumers should be careful using comparison shopping sites to buy health insurance.
Some only offer a limited selection of insurers and receive commissions from insurers where the higher the premium paid for the insurance, the higher the commission for the comparison site.
Both iSelect and comparethemarket.com.au receive commissions from insurers and do not cover all of Australia's 33 health funds.
Penalties for not going private
It seems that private health cover gives many people peace of mind, but the government wields a couple of sticks to encourage people to take out private cover.
Firstly, anyone who starts private cover after the age of 30 must pay a loading, called the lifetime health cover loading, on the basic premium, regardless of their income.
The loading increases by 2 per cent for each year after the age of 30. There is a cap of 70 per cent and the loading is removed after 10 years.
Then there is the Medicare Levy Surcharge for those over certain income levels who do not take out basic hospital cover.
For families with annual incomes of $180,001 and over, plus $1500 for each child after the first, the surcharge starts at 1 per cent then increases in income bands to a maximum of 1.5 per cent of their taxable income.
For singles the surcharge applies to those earning more than $90,001 at 1 per cent and then is tiered in income bands to a maximum 1.5 per cent.
Tips and traps
* Don't be afraid to switch health insurers if you find a better deal, as legislation now makes this easy to do with hospital cover without penalty.
* There is no law that says you must have your insurance through one provider. If you find better deals on hospital and extras cover with two different insurers, take out two independent policies.
* The most effective way to lower your premium is to increase your excess, but make sure that you will be able to pay the excess if needed.
* Higher-income earners have to be careful. To avoid being hit by the Medicare Levy Surcharge, they are required to have basic hospital cover with an excess of $500 or less.
* Higher-earning couples or families must have an excess of $1000 or less in their hospital cover to avoid the surcharge.
* Avoid policies that require an excess and a co-payment, or you'll be paying twice over.
*Make sure your insurer has agreements with your preferred doctor and hospital, otherwise you could end up paying gap fees.
* Several insurers offer discounts of up to 4 per cent for payment by direct debit rather than paying by credit card.
Source: Comparethemarket.com.au and Fairfax Media