Post in collaboration with Health Insurance Comparison
If you are like me, you will have already received your notice of a premium increase from your private health insurance fund.
I must confess I sometimes contemplate giving private health insurance away to save some much needed money, given the constant increases to premiums. And this option is particularly attractive now that all of my son’s therapies are covered by the NDIS. I now find myself relying less on my health fund to subside costs and, as a result, I’ve found myself questioning the ongoing value of this cover.
However, there are a few things to consider before going through with this impulse and I’m happy to have Health Insurance Comparison here today to explore the ramifications of giving your hospital cover away. Apart from the very logical points listed below, I’ve been convinced to keep my policy as the rest of our family still need to be protected – it’s not just about my son.
Besides, accidents like rupturing your ACL, will sometimes occur. And when they do, you’ll be relieved to have that policy to protect you and get you treated sooner. I know I was!
The annual health insurance premium increases can encourage many families to look at dropping their cover to free up some extra room in their budget. On paper, this might seem like the best option but in reality, it can actually have a negative effect on your finances. Many people don’t realise this and are then caught out after cancelling their Hospital cover.
Potential Impact #1: The Medicare Levy Surcharge
Depending on your family’s income, you may be obliged to pay the Medicare Levy Surcharge (MLS) if your household earnings are above the income threshold. For MLS and rebate purposes, the income thresholds will stay the same across for 2015-16, 2016-17 and 2017-18.
Families and single parents earning $180 000 or less don’t need to worry about paying the MLS. For income above this base tier, the thresholds are:
Tier I – $180 001 – $210 000 = 1% extra tax
Tier 2 – $210 001 – $280 000 = 1.25% extra tax
Tier 3 – $280 0001 and above = 1.5% extra tax
If your family’s income falls into Tiers 1-3 or is likely to do so over the next couple of financial years, you’ll need to pay the MLS if you drop your Hospital cover but you can continue to exempt yourself by holding at least a basic level of Hospital cover with a registered health fund. This needs to be a Hospital policy with an excess of $1000 or less for couples and families.
Having even low level Hospital cover can actually be cheaper than paying the MLS and can therefore be the most cost effective option for your budget. It also means that your family can be private patients in either a public or private hospital in the event of an admission to hospital.
Potential Impact #2: Lifetime Health Cover Loading
The Australian government’s Lifetime Health Cover (LHC) initiative is intended to encourage you to buy Hospital cover when you’re relatively young and to maintain it as you get older.
If you drop your Hospital cover and later decide to be covered again, Lifetime Health Cover loading fees can come into play and raise the cost of your premiums. You can get away with dropping your Hospital cover for a total of 1094 days and this is known as your maximum “permitted days without Hospital cover” before loadings start to apply.
There is a 2 per cent loading fee added to Hospital premiums for every year that you are over the age of 30 and over time, this can really add up and put a dent in your budget.
Tips for Getting More From Your Hospital Cover
For many families, it can make a lot more financial sense to keep Hospital cover and take steps to try to reduce the cost of premiums:
Review Your Situation. You need some degree of Hospital cover to avoid the MLS and LHC loading but the level of cover is up to you. Some health funds do budget friendly Hospital cover aimed at families, which tends to include many of the in-hospital services that will be important to the average family. This can be a good option if you need to cut premiums but still want to be covered for key services. If you no longer want to be covered for pregnancy and birth services, some health funds do Family cover that excludes this to keep costs down.
Shop Around. It may be better for you not to drop your Hospital cover but that doesn’t mean that you need to keep the same policy. As long as you have eligible cover with an excess of less than $1000 (for a family), there’s no reason why you can’t shop around to see if you can get better value for money with another health fund. At www.HealthInsuranceComparison.com.au, we compare a range of health funds to help you see what kind of cover you could get for your budget by switching to a different insurer.
Look for Member Benefits. Some health funds have member incentives that can help to cut costs further. For example, some don’t charge an excess if your kids need to go to hospital.
I hope this information has informed your decision regarding hospital cover and private health insurance. I know it helped me and I thank Health Insurance Comparison for sharing this today.
What are your thoughts on retaining your hospital cover and health insurance policies?
Disclaimer: I received monetary compensation in return for publishing this post.