With health funds set to lift the price of cover within days, we asked an expert in the field how to minimise the damage.
With the 1 April deadline for the annual increase in health insurance premiums just days away, we asked an industry expert to explain the steps we should take to make sure we’re not paying more than we should for our health cover. On YourLifeChoices’ weekly podcast, Mind Your Own Retirement, Compare Club CEO Andrew Davis, a former health industry executive, shared his knowledge with co-hosts John Deeks and Janelle Ward. This is an edited transcript.
John Deeks: Private health insurance is very important for the majority of YourLifeChoices members, but every April the costs go up and ramp up the pressure on retiree budgets. What should they know?
Andrew Davis: The key thing is for people to look at their private health cover from time to time and make sure what they are paying for is meeting their needs and delivering value.
JD: How do we know if it’s delivering value? It seems very complex.
AD: It is complex, and health insurance products can be difficult to understand. It’s really about having a discussion with someone who understands the way the product works and the way health insurance works, and using that knowledge to make sure that it's working for you. The most obvious thing we find is people who are covered for something that was relevant for them 15 or 20 years ago, and sometimes they are not covered for things that become really important as you get older, such as heart procedures and joint replacements.
JD: So, older Australians don’t need pregnancy insurance.
AD: That's a good example. And certainly a male is not going to need cover for pregnancy regardless of their age. That alone could save $300 to $400 a year.
Janelle Ward: How do we navigate the health insurance maze?
AD: Well, there are two parts to health insurance – the hospital cover, which is really the most important part. You really need to be covered for the things that could happen to you, because the costs can be huge, and the alternative of waiting on a public hospital waiting list is not a great one. A heart procedure could be $20,000, $30,000 even $50,000. With private insurance these hospital costs are paid directly by the insurer.
JD: A friend of mine was put into an induced coma after an operation. The cost was $350,000.
AD: Yes, so that’s the hospital side of health cover – you just want to be covered for the conditions that you know about and those that are possible given your stage of life. So, for a male or a 65-year-old woman to have pregnancy removed from the cover is sensible. Someone at 55 might like to have joint replacements included, if they can afford it. At an older age it becomes really important. In short, people need to talk to someone every couple of years to do a check. Even if people have the right services included, there can be significant differences in price between different health funds and these change from year to year.
JD: So, are health insurance companies sympathetic to those of us who are approaching 70, but who go to the gym very regularly, who keep very fit, don't smoke, drink very little and are feeling very fine about themselves?
AD: Health insurers like those people very much. But they are not allowed to discriminate based on health or age – because of the government’s Community Rating principle. So, there’s no reward for being fit and healthy in pricing.
JD: But they ask if you're a smoker or not, can’t they?
AD: No, they can’t. They can't penalise someone for being a smoker. That's part of the deal with the government. Having said that, the government provides a higher rebate for people over the age of 65 and then slightly higher again over 70. So, you actually pay a little bit less when you're older. Importantly, health insurers must accept you with pre-existing conditions. And if you're covered for that pre-existing condition on your old policy and you’ve held the old policy for more than 12 months, they have to cover you from day one. It’s very different to travel insurance and other life insurance – very different. And the system is regulated in this way, so that people have maximum flexibility to move around and not overpay. Many of the people who at this time of the year review and change their cover are older people, and we help tens of thousands of them.
JW: So, what happens on 1 April?
AD: Rather than health insurance going up at ad hoc times throughout the year – because funds have to get government approval for a price increase – it happens just once a year on 1 April. The advantage in looking at your cover prior to that is that, first, all the new pricing is in, so you know essentially what it's going to be like for the next 12 months. And second, if you make a decision prior to 1 April and you pay prior to 1 April, you actually pay the 2019 price.
So, anyone with money sitting in bank accounts, not earning much interest, it’s in their interest to prepay – they might save five per cent and it doesn't lock them in. If something changes and they become unhappy, they can always switch and they’ll get a pro-rata refund.
JW: What size are the increases this year?
AD: The published average is 2.95 per cent, but lots and lots of policies will be well above that. On the flip side, we’ve seen some policies that have no increase.
JD: What advice do you give folks who are, say, in their mid-60s?
AD: Make sure that you have a good high quality hospital cover, and then make sure you have the extras cover that works for you. Most older people wear glasses, and glasses have become more expensive with multifocals. So, let's get back $300 on new glasses rather than a $100. And preventative dental is always important. So, get cover that has no gap or only a minimal gap when, for instance, you get your teeth cleaned.
If you need regular podiatry, then make sure you have that cover. The benefits you get back on some of those extras can vary markedly between providers.
It's really worth looking at least every few years, if not every year. You can do better by several hundred dollars each year just in the benefits you receive back for the services you're using.
Do you examine your health cover every year or two to make sure you are getting the best deal possible?
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Andrew Davis is CEO of Compare Club, which operates Health Insurance Comparison. Compare Club is the owner of YourLifeChoices.