Health insurance

health insurance

In Australia, we are lucky in that most of our health is provided free through an extensive Government scheme which includes Medicare. In this section we'll cover what you need to know about health insurance in Australia and how to choose the right cover for you.

There are a number of items that are not generally covered by Medicare; dental, glasses, ambulance services and most ancillary health services such as Chiropractic. There can also be extensive waiting periods for non-emergency treatment.

Medicare generally doesn’t cover medical expenses overseas, although there are reciprocal arrangements with some countries. Overseas medical treatment can be expensive, particularly in the US and Canada. Travel Insurance is designed to cover this. It's a good idea to take out travel insurance whenever you go overseas - for business or holidays.

WHY SHOULD I CARE?

Medical treatment can be ruinously expensive making illness one of the three major causes of defaults on loans along with unemployment and marital breakdown.

The Government has a policy that encourages people (who can afford it) to take out health Insurance.

Key Benefits of Health Insurance:

You pay more tax without it

If you don't have hospital cover and you earn over a certain threshold, your Medicare levy (expense) is higher. In most cases, this additional levy is more than the cost of a qualifying policy. So it makes good sense to take out a policy if you:

• are single and earn more than $90 000 per year
  
• are married and as a family, earn more than $180 000

Your Health Fund premiums go up if you wait

If you are over 30, the premium increases by 2% each year that you delay taking out your health insurance (from 1 July following your 31st birthday). So if you were born on 5 June 1983 and wait till 2 July 2015 before you take out health cover, you will pay 2% extra on your premiums for the rest of your life. If you wait till after you turn 40, the surcharge is 20% and rises to a maximum of 70% if you don’t take it out before age 65!

At today’s rates, this amounts to $20 per year for a single person if you delay beyond your 31st birthday and $200 per year if you wait until your 40th birthday.

The Government pays some of your premium

There is a subsidy scheme whereby the Government will pay up to 38.72% of your premium, depending on your age and income. For those under 65 the rebate is:

• 29.04% for singles that earn up to $90 000
• 19.26% for singles that earn more than $90 000 but less than $105 000
• 9.68% for singles that earn more than $105 000 but less than $140 000
• Couples get double these limits

HOW DOES IT WORK?

Like any insurance product, you pay a monthly premium, and you get a benefit in light of certain events. The 'benefit' is part payment of medical expenses that are covered by your policy.

The three types of Health Insurance policies available in Australia:

• Ambulance Cover
• Hospital Cover
• Extras Cover

Depending on what cover you buy, the Health Fund will pay some of the cost of the medical service not already covered by Medicare. The part of the bill not covered by your Fund is called the 'Gap' and must be paid by you. A number of funds have arrangements with doctors and hospitals so that there is no Gap.

Ambulance Cover

Generally, the person who receives the Ambulance treatment is the one required to pay for the service; not the person who calls the Ambulance. The fee varies from State to State; it depends on the nature of the call-out and how far you travel.

In NSW this starts from $275, and can go up to $5 715 depending on how far you travel. In Queensland and Tasmania it is provided free by the State Government to residents.

Concession card holders (Health Care Concession Card, Pensioner Concession Card, Department of Veterans Affairs Card and Commonwealth Seniors Health Card) generally get it free. Work related injuries are generally covered by Work Cover.

For everyone else, Ambulance Cover is cheap; as little as $50 per year for standalone ambulance policy for a NSW single under 65 who earns less than $90 000. 

Ambulance cover doesn’t include costs which are covered by Insurance such as motor accidents or work related incidents. Some policies also don’t cover the call out fee if an ambulance is called and you are not taken to hospital.

Hospital Cover

This is the one you need if you want to avoid the Medicare Levy Surcharge. It covers the cost of treatment when you are admitted to hospital.

Health funds are prohibited by law from providing benefits for medical treatment outside hospital (i.e. not admitted to hospital), and which come with a Medicare benefit.

The Medical Benefits Schedule (MBS) is a list of treatments and services for which a Medicare benefit is payable and the corresponding benefit (the MBS Fee). It stretches to some 887 pages!

Where you are a private patient in either a public or private hospital, Medicare will pay 75% of the MBS fee for the services you receive. Your Health funds then pay you the remaining 25%.  Some doctors and some hospitals may charge more than the MBS fee, so there will be a shortfall or Gap which you are required to pay. Many funds have No Gap arrangements for some services. This is an important feature when comparing funds.

The key benefit of Hospital Cover is that it covers the cost of being a private patient in a public or private hospital. This means you can choose your doctor (as long as they have rights to practice in the relevant hospital) and you may even avoid the waiting list for non-emergency treatment. If you go with a private hospital, you can choose which one you want. Private hospitals usually have private rooms and better amenities, which can make your hospital stay less stressful.

Even if you have private hospital cover you can choose to attend as a public patient.

Hospital Cover includes Ambulance Services in States other than Queensland and Tasmania. Cover for singles is available from about $50 to $110 per month.

When comparing policies, look at what services are covered; cheaper policies generally don’t cover obstetrics, assisted reproduction (IVF), heart, kidney dialysis, mental illnesses and hip and knee replacements.

You can reduce your premium by choosing a higher excess (the amount of the claim you have to pay yourself). This is limited to $500 per person for policies where you don't pay the Medicare Levy Surcharge.

Extras Cover

This is the one most people think about when it comes to health cover. It covers optical, dental, physio and chiropractic. Many also provide benefits for massage, gym membership and other healthy activities.

Extras Cover is possibly the most complex of the lot because it consists of a number of independent limits on what is covered. Cover for a 30 year old single in NSW ranges from $60 to $110 per month.

If you wear glasses, visit the dentist and use the fitness or ancillary benefits you will usually recover the cost of your premium.

HOW TO CHOOSE YOUR FUND

About half our population has health cover and more than 1 in 5 policies are bought online, many through online comparison sites.

Comparison sites do not include all your options, they display their own products and encourage people to pay for cover they don't really need.

Most comparison sites do not cover all of the providers in the market. In fact most of them leave out about half the funds that make up the market. Why Comparison Sites are bad for your wealth.

Think about what you really need

If you have 3 kids it's probably unnecessary to pay extra for the obstetrics or IVF cover that's included in most top tier products. On the other hand, most of the policies aimed at younger people exclude knee reconstructions and hip replacements. If you play footy, you might want to include that type of cover.

Consider a higher excess

If you choose a $500 excess instead of $250, this could save you nearly $200 a year. So if you don't think you'll claim every year, you are better off with a higher excess. Remember the excess only applies to the hospital cover.

Consider the motivation behind the product being sold

When you buy direct from the provider, the interests they support are their own. They want you to buy their product, and usually the most expensive one they can sell you.

Did you know that comparison sites get a commission of up to $800 when you take out a policy?

Not all providers pay the same commission, others don’t pay any commissions. For this reason, it really helps to talk to a financial Adviser or Broker licensed to provide personal advice and who by law, acts in your best interests. A good Broker can help source the best-fit for your needs and ensure a good deal. For some things, it really does help to talk to an expert.

I hope you feel empowered now to choose your own health fund, and the type of cover that suits your needs. If you would like some help sourcing the right fund or have any questions about Health Insurance, AskMySherpa.