Health insurance satisfaction survey

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01 .New rules on health insurance

Health-insurance-satisfaction-survey-lead

From 1 July this year, health insurance premiums will increase substantially for high-income earners, and this comes on the heels of an industry-average annual premium increase of more than five per cent since April 1. If this affcts you, you can prepay your annual premium before the end of June 2012 to cover the next 12 months (some funds even allow you to prepay for a longer period), and any rebate reductions will only apply to premiums you pay after 1 July 2012.

CHOICE has crunched the numbers and cleared up one thing – keeping your hospital cover is probably a good move, even if you’re a reasonably high earner. The proposed increase to the Medicare Levy Surcharge (MLS) means you’ll likely still end up ahead by keeping your hospital cover, even with the reduced rebate.

For hospital cover policies with an excess of up to $500 (single) or $1000 (family), we found:

  • It will normally cost less for you to take out a basic hospital cover policy than pay the MLS for incomes $84,001-97,000 for singles and $168,001-194,000 for couples/families.
  • Even if you take out full hospital cover it will still normally cost you less than MLS if you earn more, or are aged 65 and older and therefore eligible for a higher rebate. The more you earn, the more you save.

 

Confusion around health insurance – our survey

Our survey of 2558 CHOICE members revealed confusion around health insurance.

  • Only 37% knew the government rebate applies to both hospital and extras insurance.
  • Only 38% knew that LHC surcharges only apply to hospital insurance.
  • While most respondents knew that some form of hospital insurance is needed to avoid paying the MLS, only eight per cent correctly nominated policies with an annual excess of up to $500 (single) or $1000 (family).
  • Only three per cent nominated the income level at which the MLS was applied last financial year – $76,000 for singles and $152,000 for families.

 

Rebate and Medicare changes

In a move to rein in about $5 billion a year in health insurance rebates, means testing will apply from 1 July this year, saving the government about $2.4 billion over the next three years.

Australians who earn more than $84,000 (single) or $168,000 (couple/ family) in the next financial year will pay much more for hospital and extras insurance, as their rebate will be reduced from 1 July. 

At the same time, the Medicare Levy Surcharge (MLS) will be increased for higher income earners who don’t have hospital insurance – an additional tax of up to 1.5% of your income will apply.

Private cover primer

Our calculations found that most high income earners are still likely to save if they pay for private hospital cover rather than dropping it and paying the extra MLS instead. The more you earn, the more you can save.

You can prepay your annual premium before the end of June 2012 to cover the next 12 months, and any rebate reductions will only apply to premiums you pay after 1 July 2012.

Three regulations affect how much health insurance costs you:

The Private Health Insurance Rebate applies to extras and hospital insurance, so your premium will go up for both if your rebate is reduced. However, MLS and LHC depend on whether you have hospital insurance.

So if you drop your extras insurance, there won’t be a tax penalty or surcharge. But you’ll have to wait if you take up extras again later, as waiting periods of two to 12 months usually apply for most therapies (three years for hearing aids).

Extras health insurance

While extras cover attracts the Private Health Insurance Rebate, some consumers are finding they’re not getting value for money. Check how much you’ve received in extras claims over the past year against what your new premium will be after means testing kicks in from 1 July.

If the benefit is substantially smaller than the premium you pay, consider dropping it. One consumer, Jennifer, was on the money when she told us: “As an infrequent user of extras, I’d probably be ahead if I didn’t have extras cover and simply paid for the total amount of any claim.”

Health-Insurance-infographic

Notes All figures including ages are valid from 1 July 2012. Income levels are for the financial year 2012-13. To calculate your savings we used 2011 CHOICE Best Buy policies with an excess of up to $500 (single) and $1000 (family/couple) for basic and full hospital cover. We added the average increase (5.06%) that came into effect on 1 April. We then reduced the premium by the rebate applicable for each income level and compared the amount against the MLS payable for each income/age group. The graphic shows average results only, and you need to consider your personal circumstances. Health insurance premiums vary depending on the insurance company, cover level and where you live. MLS is a percentage of your income, so if your income is just above the cut-off and/or you use a more expensive hospital policy, you may pay more for it than if you paid the MLS instead.

1 Percentage based on your annual household income.

2 Consider your age and health issues when taking only basic health cover.

Jargon buster

Private Health Insurance Rebate paid by the government on your hospital and extras cover premiums will be means tested from 1 July.

Lifetime Health Cover (LHC) is a surcharge that adds 2% to your premium for every year you don’t have hospital insurance after age 31. It can add up to 70% and applies for the first 10 years of your hospital cover, but doesn’t apply if you were born on or before 1 July 1934. Once you take out hospital insurance you can drop it for up to 1094 days without penalty.

Basic hospital cover limits and excludes all, or a range, of services such as heart or eye surgery, IVF, obstetrics and hip/knee replacements. You usually can’t jump public hospital waiting lists and may be treated the same as someone without private hospital insurance, so it may not be suitable for your needs. However, it will help you avoid MLS and LHC surcharges.

Full hospital cover includes all services in a private or public hospital, and allows you to jump waiting lists.

Medicare Levy is a 1.5% tax paid by everyone, regardless of whether they have private health insurance (unless they’re able to qualify for an exemption or reduction).

Medicare Levy Surcharge (MLS) is an extra tax for high-income earners on top of the Medicare Levy that you can avoid by taking out hospital cover. You can choose cover with an annual excess of up to $500 (single) or $1000 (family). It was 1% for everyone above the cut-off, but from 1 July a stepped rate of 1-1.5% will apply.

 
 

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Some of the best health care funds for customer satisfaction are closed ones.

When we asked 2558 CHOICE members to rate their health fund, closed membership funds – those that restrict their membership to specific industries such as police, doctors, transport, electricity, forestry, timber and paper industries and contractors – performed significantly better as a group than open funds. The trouble is, not everyone is eligible. 

The most popular closed membership funds with survey respondents were, in order of popularity:
  1. Teachers Health Fund – education union members
  2. Defence Health – Australian Defence Force or Reserve and defence-related government departments and businesses
  3. CBHS Health – current and former employees of the Commonwealth Bank 
All three rated significantly better than average for overall satisfaction in hospital and extras cover. Closed funds usually score highly in our health insurance analyses too, due to their low premiums and high benefits. If you’re eligible to join one, it’s well worth thinking about. 

At the other end of the scale, Medibank Private and BUPA scored significantly worse than average for overall satisfaction for hospital and extras cover, and NIB scored significantly worse for hospital cover (Australian Unity also performed poorly but had comparatively fewer responses). 

Health-insurance-satisfaction-survey-results2

Using the table Highlighted results are significantly better (green) or worse (red) than average results.
NOTES * Percentage of respondents answering “excellent” or “very good” when asked how satisfied they are with their health insurer. We only used results for companies where we had at least 30 responses. ^ Performed poorly but had comparatively fewer responses and so is not significantly different.

Poor value for money 

Our survey reveals a potential reason why the government needs the carrot and stick approach to keep Australians in private health cover. When it comes to rating value for money, only 37% of respondents indicated their hospital cover offers excellent or very good value for money. Only 32% said the same for their extras cover. 

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