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Guide to switching health insurers

Have you been slugged by the recent rise in premiums? It might be time to review your cover, switch and save.
 
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01 .Review your cover

Switching health insurers

Every year on 1 April health insurance premiums go up. So now’s a good time to check that the amount you’re paying is justified by what you’re getting in return.

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:

We’ve also compiled a list of consistent top performers from the last five years of our health insurance Best Buys. These are a good benchmark to compare your policy against, to decide if you need to switch.

Also check out our Jargon buster, to help decode the industry jargon.


Review your cover

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.

LHC bonuses

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%.

Jargon Buster
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 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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Health funds provide a one-page fact sheet called the Standard Information Sheet (SIS) for each policy, which allows you to compare your cover. You can review these at privatehealth.gov.au.

Extras

For extras cover, consider the services you use most, such as dental, and check the annual limit per person and per family. Sometimes the family limit is only twice the per-person limit, while with other policies it’s four times the per-person limit.

Benefit limits

Next, look at the benefit limits for specific services. They’re usually a fixed amount. Benefit limits are usually listed as a dollar amount, but occasionally you may see a benefit limit listed as a percentage on the SIS. This means the fund will give you that percentage of the actual cost of the service (for example, 50% of your dental bills). However, if you see a benefit listed as a percentage in a fund’s marketing material it may mean something else, so always go by the SIS.

Lifetime limits

Beware of lifetime limits (some funds have them for orthodontics) and combined annual limits for a range of services, such as $400 for physiotherapy, natural therapies and chiropractic. This means that once you’ve claimed $400 for physiotherapy (for example), you won’t receive anything for the other therapies during that 12-month period.

Policy types

  • Top-cover hospital policies cover you for all conditions that Medicare covers.
  • Basic- and medium-cover policies commonly restrict or exclude one or more conditions – this means you can’t jump elective surgery waiting lists and you may be treated the same as someone without insurance. Commonly restricted treatments are joint replacements, heart surgery, cataract eye surgery, dialysis, gastric banding, obstetrics and IVF, rehabilitation, psychiatric, non-cosmetic plastic surgery, palliative care and sterilisation.

Excess

By choosing an excess or co-payment, you can save on the premium. The highest excess you can choose without becoming liable for the MLS is $500 for singles or $1000 for couples and families, but there is no restriction on co-payments.

Tip: Check whether you qualify to join a restricted membership fund – for example, for people working in the education or defence industry. They often offer good policies at a lower premium than open membership funds.
Before changing policies, check any waiting periods. For extras cover, they’re usually two months for most services, 12 months for major dental and 36 months for hearing aids. Funds often waive the shorter waiting periods and may even waive all waiting periods.

Some funds have loyalty bonuses that you’ll usually lose should you switch to a new fund, though you can always try negotiating with the new fund to maintain the bonus.

Once you’ve had hospital cover for 12 months you generally don’t need to worry about waiting periods so long as you change to a comparable policy. But if you change to a policy with a lower excess or higher cover, you’ll have to serve a waiting period for up to 12 months for extra services or savings.

Some policies also have benefit limitation periods (BLPs)– for example, they only cover you for rehabilitation in a public but not private hospital for the first 24 months. If you’ve already been covered for rehabilitation for 24 months or longer by another policy, the BLP won’t apply to you as it only applies the first time you take up cover.

Once you’re ready to switch, there are some steps you’ll need to take:

Health-insurance-switching-infographic
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