It goes without saying that private health insurance can be confusing. With research* showing 1 in 3 Australians are ignorant as to how private health insurance works, comparethemarket.com.au has debunked the most common myths to help people better understand their health insurance options.
“Medicare levies, surcharges and health cover loading are terms that people frequently hear but don’t necessarily understand. For some, it can seem like a different language altogether. We’re here to separate fact from fiction, and help people maximise the value and minimise the costs of their private health insurance,” said Abigail Koch, spokesperson for comparethemarket.com.au.
- FICTION: You’ve missed out on tax benefits if you purchase health insurance after 30 June.
FACT: You can purchase health insurance during any month of the year and still benefit at tax time.
The ‘tax’ that health insurance can help you avoid is the Medicare Levy Surcharge (MLS). If you earned more than $88,000 as a single or $176,000 as a couple over the last financial year, then you will be taxed a minimum of 1% in this year’s (FY 13/14) tax return. However, people with private hospital cover don’t have to pay the MLS. “It’s a prorated system, meaning if you purchased hospital cover on 29 June, then you’ll still pay 364 day’s worth of the MLS for the 13/14 financial year. However, come 30 June next year, as you’ll have had hospital cover for the full financial year, you won’t have to pay any MLS at all. The new tax year has just begun, so the earlier you take out hospital cover, the less you’ll have to pay in surcharges next year,” said Abigail.
- FICTION: Once you get health insurance you’re stuck with that provider until your contract is up.
FACT: Health insurance policies are contract-free; meaning you can switch at any time.
Many people don’t know that you’re not tied into your health insurance policy for a set amount of time. You can switch whenever you want, and your old policy will refund any premiums paid in advance. Your new policy will start the day after your old policy ceases. “Some health insurance funds also give you a 30-day cooling off period. Meaning if you change your mind in the first 30 days after joining, and you haven’t made a claim then you may be able to get a refund on any contributions you’ve paid,” said Abigail.
- FICTION: Elderly people with pre-existing medical conditions find it hard to get health insurance.
FACT: Health insurance is ‘community rated’. This means a health insurer must sell you a policy no matter how likely you are to claim.
“As health insurance is community rated, pre-existing medical conditions have no impact whatsoever on people looking for health insurance. The only thing that could make it more difficult for an older person to afford health insurance is Lifetime Health Cover (LHC). LHC is a 2% loading on hospital cover for every year people delay taking out health insurance after they turn 31 years old. This loading can go as high as 70%, which obviously could make hospital cover much more expensive for an elderly person trying to get it for the first time,” said Abigail.
- FICTION: Once you’ve got health insurance, all your health-related expenses are covered.
FACT: Health insurance does not cover all health-related expenses. Medicare may cover some costs but you may also have to pay out of your own pocket as well.
“It’s a common misconception. People think once they have health insurance, all of their health-related expenses will be covered. It’d be nice if that was the case but unfortunately it doesn’t work out that way,” said Abigail. “It depends on the policy and level of cover you have, but typically health insurance policies have limitations on hospital treatment. This means that some services will be restricted or excluded altogether. Extras cover, which includes ancillary services such as dental and optical, are also generally only covered up to a certain limit.”
- FICTION: I’m healthy; private health insurance would be a waste of money. I’ll wait until I’m sick before I get it.
FACT: New members to health funds have to serve ‘waiting periods’ on certain benefits before they’re able to claim. If you’re switching funds, then you don’t have to re-serve waiting periods if your new policy is at the same or a lower level of benefit.
“It might seem like a clever idea to wait until you’re sick before taking out health insurance but due to waiting periods for pre-existing conditions, you’ll be waiting for up to 12 months before you can start claiming on some treatments,” said Abigail. “At certain stages of life, like when planning for a family, it’s also best to plan ahead and make sure you’ve served all waiting periods so you know where you stand in terms of claimable treatment and services.”
Waiting periods protect other members of the fund against people buying a policy in order to make a large claim and then cancelling this policy once they’ve got their money. If people could get away with this kind of behaviour then premiums would increase for all.
*Survey of an independent panel of 622 aged 18+ years conducted by Pure Profile in February 2014. Questions answered online by approximately 40 per cent males, 60 per cent females across all Australian states (80% in NSW, Vic and Qld). Respondents are an equal split of singles without kids, young couples preparing for a family, families with young kids, families with older kids and empty nesters.