01.Review your cover
Last year we compared health insurance policies from 20 open membership funds in Australia and made recommendations based on the best value policies to suit a variety of people in different life stages.
Our review found health insurance policies are increasing your out-of-pocket expenses while restricting the items you are covered for.
As of 1 April, health insurance premiums increase by 6.2% on average. So now’s a good time to check that the amount you’re paying is justified by what you’re getting in return.
Please note: this information was current as of June 2013 but is still a useful guide to today's market. We are currently working on an updated review for 2014.
Higher premiums aren’t the only source of pain. In the financial year 2013/14, Australians who earn more than $88,000 (single) or $176,000 (couple/family) aren't eligible for the full 30% Private Health Insurance Rebate.
Fortunately, we've identified some steps you can take to cut your health insurance premium back to a reasonable level:
Also check out our Jargon buster, to help decode the industry jargon.
Review your extras cover
Unlike with hospital cover, the Medicare Levy Surcharge (MLS) and Lifetime Health Cover (LHC) don’t apply to extras cover, so you can cancel it without any impact on your tax or having to pay more if you wish to take it up again later. Be aware, though, that waiting periods will apply, and you may lose accumulated benefits, such as for orthodontics, should you take it up later.
Extras cover normally provides benefits for services such as dental check-ups, braces, new spectacles or a visit to the chiropractor or physio, but doesn’t fully cover you for any treatments you receive.
For example, according to an IBISWorld report, dental benefits received covered less than half the costs for those with extras insurance in 2010-11.So it’s important to check the premium you pay against the benefits you receive. If the premiums are higher, find out whether another policy would cover your needs better, then consider ditching extras cover altogether.
Take a look at your hospital cover
Ask yourself why you have it – is it to protect your LHC so that you don’t need to pay a surcharge, or is it to avoid paying the MLS? Or are you wanting to be protected just in case you end up in hospital? If your only reason relates to the LHC or MLS, you could take the least expensive policy you can find and upgrade later. But if you want to be protected, you need to check how your policy matches up.
Tip: Check for a discount – some funds provide a four per cent discount for paying by direct debit or by prepaying your annual premium.
If you can’t afford hospital cover for the moment, there is a way to drop it for a while without incurring any damage to your LHC.
Your health fund may allow you to suspend your membership if, for example, you go overseas or become unemployed. This means you no longer pay a premium and are not covered, but your LHC stays in place, so later on, when you can afford to take up hospital cover again, you won’t have to pay a surcharge. (The MLS can still apply depending on your income.)
You can also use what are known as your LHC “days of absence”. If you’re aged 31 years or older and have hospital cover, you can cancel it and be without cover for 1094 days in total (three years minus one day) without having to pay a surcharge when you take it up again. From the 1095th day you’ll pay a two per cent surcharge; another two per cent applies for every year after up to a maximum of 70%.
Private Health Insurance Rebate
|Paid by the government on your hospital and extras cover premiums; means tested since 1 July 2012. In the financial year 2013/14, if you earn up to $88,000 (single) or 176,000 (couple, family), the full 30% rebate applies; up to $102,000 (single) and $204,000 (couple, family), a 20% rebate applies; up to $136,000 (single) and $272,000 (couple, family), a 10% rebate applies. If you’re aged between 65 and 69 you receive a five per cent higher rebate, or a 10% higher rebate if you’re aged 70 or older. If you earn more than $136,000 (single) and $276,000 (couple, family), you don’t qualify for a rebate
Lifetime Health Cover (LHC)
|A surcharge that adds two per cent 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.
Medicare Levy Surcharge (MLS)
|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). Since 1 July 2012 a stepped rate of 1-1.5% has applied; the steps are the same as for the Private Health Insurance Rebate. That’s why it usually costs less to take out hospital cover than paying the MLS – see our report.
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