It's time to give your health fund a check-up, writes David Potts.
PRIVATE health fund premiums will be hit by a double whammy next year as a result of last week's budget.
Means testing of the 30 per cent tax rebate on premiums will increase costs for health funds already under pressure from the ageing population.
The more fund members cut back on ancillary benefits or drop out altogether, the greater the pressure on premiums.
The lower health insurance rebate on incomes greater than $75,000 kicks in on July 1, 2010.
The funds lifted their premiums an average 6 per cent last month, as usual by more than double the inflation rate.
It seems next year will be worse: the biggest fund, Medibank Private, says its increase in claims payouts is running at almost 9 per cent.
But budget-imposed funding cuts to some Medicare benefits will also increase hospital costs, which will be passed to health funds.
And as unemployment reaches 8.5 per cent, the young and healthy are more likely to drop out of health funds, thereby putting extra pressure on premiums.
The Government's claim that the number of people taking out private health insurance will not drop thanks to its pincer squeeze of rebates and surcharges is as critical as it is debatable.
"There are real questions about how you can make that claim," says the group managing director of Australian Unity, Rohan Mead. "It's fiendishly difficult to model. That forecast is hard enough for one fund to do. I would never project four years away to my board."
In any case, when it comes to premiums, who is covered is as important as how many..
There's no polite way of saying this but ageing policyholders are a drag on the system.
In the December quarter, the proportion of aged policyholders increased after two years of little change thanks to new, younger entrants taking out cover.
Mead warns this will put pressure on premiums.
So why have they been rising so fast anyway?
Well, the funds blame us for getting sicker ("an increase in utilisation", is how one fund put it), as well as older, and even hospitals for upgrading technology ("people want the latest surgery method").
But Mead suggests more fundamental reasons. One is that private insurance is transparent, whereas the inflation in the health care sector - and Government spending - is hidden.
"These outlays won't go away. They'll bulge somewhere," he says.
Also health care has been built around sudden illness or emergencies. Thanks to longevity (a pat on the back for the system) and advances in anaesthetics (making surgery on the elderly safer) the problem now is chronic, drawn-out diseases such as diabetes type 2.
No wonder the Government has covered all bases in coraling us into health insurance. There's the lifetime cover premium for the young (where the policy is "no insurance now and we'll get you later when you do sign up"), the higher Medicare surcharge of 1.25 per cent or 1.5 per cent for higher income earners, and the rebate, which stays at 30 per cent for low and middle income earners.
Even so the option of at least part self-insuring is becoming more attractive, especially since in an apparent oversight the Government has retained the 20 per cent rebate on medical expenses over $1500. No, forget I said that - don't want to give it ideas.
One way of minimising the cost is to insure only the breadwinner for basic hospital cover, which then avoids the surcharge.
You could set aside money in a special account for medical expenses or, better still, put it in an offset account on your mortgage.
That way if you don't need it you're paying the mortgage off faster.
And shop around. Luckily there's a proliferation of health broker websites such as iselect.com.au, ozecover.com.au, www.choice.com.au and moneytime.com.au.
None of them charge for using the website but they don't cover all corporate funds.
The Federal Government even has one, privatehealth.gov.au, which has all the details of every fund's benefits and costs.
To avoid the Medicare surcharge you have to take out basic hospital cover and the excess can't be more than $500 for singles or $1000 for couples or families.
But you can get decent surcharge-avoiding hospital cover for about $60 a month or $720 a year, says the director of health brokers Ozecover, Peter Carroll.
Ultra-cheap cover means you're insured as a private patient in a public hospital, which is often what happens anyway.
The surcharge kicks in at $70,000 (for a single) or $140,000 for couples or families.
On lower incomes the only benefit in joining a health fund is getting a doctor of your choice, a nicer room and a shorter waiting time for elective surgery.
Even then in an emergency you're more likely to end up at a public hospital anyway, where stories of private health fund patients covering up their cover so as not to be up for greater expenses are legion.
Financial adviser Louise Biti of Strategy Steps had a recent stay in hospital, expecting her own room from her health insurance. Instead she was in a public hospital with four to a room and the bathroom down the corridor. But worst of all the experience cost her $250. If she hadn't said she had insurance it would have been free.
From July 1 next year the surcharge will rise to 1.25 per cent on incomes of $90,000-$180,000 and 1.5 per cent at $120,000-$240,000.
At the same time the 30 per cent rebate phases down, for some inexplicable reason at different thresholds to the surcharge.
It drops to 20 per cent on a single income over $75,000 or $150,000 for a couple, or 10 per cent above $90,000-$180,000 and disappears altogether above $120,000-$240,000.
If you're over 65 the rebate is higher but drops away in the same-size bites.
"A single person earning between $90,000 and $120,000 will face an average increase on combined hospital and extras cover of 28.6 per cent per annum, or $371 a year," says Damien Waller of iSelect.
Even so advisers warn against scrapping hospital insurance altogether and not just because of the surcharge.
Hospitalisation can run into tens of thousands of dollars and then there's the so-called lifetime health premium where those over 31 who don't have health insurance will be slugged an extra 2 per cent a year when they do take it out. As they will eventually - and the Government will be counting.
So if you join a hospital fund when you're 45 you'll be paying 30 per cent more than somebody who joined at 30. (If it's any consolation the penalty lasts for 10 years.)
Regardless, there are a lot of things you can do to slash premiums. Foregoing extras cover such as physiotherapy and dental cover is one.
Consumer group Choice says it can be cheaper to split your policy between two insurers - one for hospital cover and the other for extras.
Shopping around can produce surprisingly big savings.
For example, there's a $134 gap between the cheapest and dearest fund offering top cover with no excess, according to privatehealth.gov.au.
Although it's clunkier to use than the private websites, the big advantage of the site is that it tells you which private hospitals a fund has an arrangement with.
These agreements make a huge difference to the value your fund offers. Or doesn't.
If your fund has signed up with a hospital where you're being treated, you'll pay no medical or accommodation costs except for any excess or co-payment.
Or to put it another way, if your hospital or specialist doesn't have an agreement with your fund, it's a stretch to call it insurance.
Come to that, some treatments may be excluded from your policy altogether, or only pay a limited benefit.
Unfortunately having chosen a fund you can't set and forget either because agreements with private hospitals can change over time.
There's a widespread but erroneous belief that by switching you'll face a waiting period before you can claim.
But if you're already insured for a procedure with one fund, it transfers automatically to another.
One of the only complications can be if the new fund offers a higher benefit, in which case you keep your old level.
Or if you switched from a higher to a lower excess.
It's also worth bearing in mind that the funds options can change over time with new policies.
"I just reviewed mine," Biti says. "I had full cover and wasn't getting value. I stayed with the same fund but looked at other options.
"My new plan would only cost more if I went to hospital every year. By changing my excess to $250 I'm saving myself $60 a month."
