Unless you're confident you'll receive more in benefits than you're paying in premiums, you should consider dropping your extras insurance. Our analysis of extras cover shows low average payout rates and savings of up to 45% available to consumers who drop it.
And before you say, "But what about cover for my glasses? And dental bills? And massage?", have you ever stopped to work out how much of your extras cover you're actually using? According to our research, only around $370 on average was paid out in extras benefits per person in 2013/14.
Our analysis of top cover health insurance in 2016 from the two largest health insurance funds, Bupa and Medibank Private, showed that you can save between 30 and 45% of your health insurance premium by dropping extras insurance.
For example, dropping your extras insurance saves your family per year:
- Medibank Private: from about $2200 in NSW/ACT to $1400 in the NT (with Top Hospital – $1000 excess and Top Extras 85%)
- Bupa: from about $2000 in NSW/ACT to $1300 in the NT (with Top Hospital – $1000 excess and Gold Extras)
- Premiums vary depending on the state you live. Savings for the other states are somewhere in between with savings in SA, Victoria and Queensland of about $1800 and more (with Bupa and Medibank Private). For many funds, premiums and therefore savings are smaller in WA, TAS and NT. We deducted the government rebate from the premiums in our analysis. Premiums valid February 2016.
The extras policies in our example are top-of-the-range family policies including cover for major dental and orthodontics; if you have a medium or basic extras policy or a single's policy your savings will be smaller.
Will I be penalised if I drop extras cover?
Perhaps you signed up for health insurance to avoid the government's Medicare Levy Surcharge (MLS) and the Lifetime Health Cover (LHC) loading? Well, perhaps your insurer 'forgot' to tell you that government surcharges only apply if you don't have private hospital insurance – you don't need extras also to avoid the charges.
Families win, couples lose out
Extras health insurance works differently to other types of insurance:
- hospital, home, travel and car insurance cover you for unexpected events that may otherwise cost you thousands
- extras insurance works more like a budgeting tool. It's meant to help with smaller ongoing costs, such as a dental check-up, pharmacy costs, physiotherapy, going to the osteopath or a new pair of spectacles.
There are two groups of consumer that get good value from extras insurance:
- Good value for families: Families pay the same health insurance premium as couples – or double the singles premium – so children are insured for free. Tip: Some health funds offer no-gap cover for kids, for example for dental.
- Good value for people aged 55–74: Of all the age groups, this one makes the most claims on their extras cover benefits and therefore receives a much larger average benefit per person than other age groups.
- Couples can lose out: A couples policy normally costs exactly the same as two single policies. So if a basic policy suits you best and a medium policy suits your partner best, go for two different extras cover policies rather than a medium-cover couple policy.
Work out if your extras health insurance is offering you value for money:
- Request an annual claims statement from your fund, which shows the total benefits you received in the last financial year.
- Compare your premium with your extras benefits. Are you paying more than you're getting in return?
- If, like many people, you have a combined extras and hospital policy, a bit of maths will come in handy. Select a standalone hospital insurance policy from your fund that's comparable to the hospital cover in your combined policy (with the same excess and cover level), then deduct its price from the premium you pay. The difference will be the amount you pay for extras health insurance.
If you find your premium is substantially higher than the benefits you receive and you don't anticipate your health needs will change any time soon, consider switching to a less expensive policy or cancelling extras health insurance altogether. See our guide on switching health insurance.
But note that you'll be subjected to waiting periods before you can make a claim if you take up extras again.
CHOICE tip: Health insurers often have specials that allow new members to claim straight away for many health services (although usually not the more expensive ones).
Look for percentage benefits
Rather than simply paying a fixed amount for a service, such as up to $30 for a physiotherapy session, some policies cover a percentage of your bill, usually from 60% up to 100%. This can be useful if you go to a dentist or other healthcare provider who charges above-average prices. Where these types of benefits apply, it's worth checking and comparing your annual limits for the particular services with those of other policies.
Look for funds with provider schemes
A number of health funds offer provider schemes or even their own optical or dental centres. The fund will have negotiated a price (usually lower than the normal price) with, for example, the dentist or optical store, and will also pay a higher benefit to you. Full cover is sometimes available.
Check for loyalty bonuses
Some health funds pay higher benefits to loyal members. While this is good for you if you've been with them for a long time, it can be a disadvantage for new members since your time with another fund is not counted towards these bonuses.
Have you used your lifestyle cover?
Some extras policies offer services such as massage or gym classes and even sunscreen.