| Publication: | The Sydney Morning Herald |
|---|---|
| Date: | 27 May 2009 |
| Section: | Money |
If you shop around you should be able to pay less for private health insurance and avoid the Medicare surcharge.
When the Medicare levy surcharge was introduced it was described as the tax no one should pay.
The idea was that, rather than pay the surcharge, middle- and high-income earners would buy private health insurance, relieving the burden on the public health system.
The surcharge is levied on single people with a taxable income above $70,000 or families with an income of $140,000 (adjusted higher for the number of children) if they don't have private hospital cover.
It's calculated at the rate of 1 per cent of taxable income and is on top of the Medicare levy of 1.5 per cent that most Australians pay.
From July 1 next year, if changes announced in the federal budget are approved, the rate will increase to 1.25per cent for people earning $90,000 ($180,000 for a family) and 1.5 per cent once you earn $120,000 ($240,000).
To avoid the surcharge, you must have an "appropriate" level of hospital cover, according to the Government website privatehealth.gov.au.
In other words, an ultra-cheap policy with a high "excess" the amount you pay before your insurer starts to pick up the tab won't cut it because in reality you'd never use it.
So, policies with excesses beyond $500 for a single or $1000 for a family aren't eligible.
The question is, should you take out private health insurance to avoid the surcharge or would you be better off, financially, just paying the surcharge?
Peter Carroll, an actuary and director of Ozecover, did some sums using the cheapest policies the health insurance portal would suggest from the available "open" funds in NSW and Victoria.
He found that under the existing rules you should be able to pay less for private health insurance than you'd pay in the surcharge, as long as you keep your premium down by choosing a $500 excess or by restricting your private cover to public hospitals.
Of course, you need to shop around to get the best rate - remember that Carroll used the cheapest premiums on the Ozecover database. And the sums would change again if you're affected by the Lifetime Health Cover penalty, which adds a 2 per cent loading for each year someone delays buying insurance after turning 31.
Generally speaking, the more you earn, the better insurance looks compared with the surcharge. However, those at the bottom end of the threshold who choose full cover with no excess will pay more than they would face in the surcharge.
"But you would only buy full cover if you thought you were going to go into hospital in the next 18 months or so," Carroll says.
"If your only goal was simply to avoid the surcharge and you were in good health, Ozecover would suggest a cheaper hospital cover."
However, the maths changes when Ozecover uses next year's proposed surcharge rates and lower private health insurance tax rebate - now 30 per cent for everybody but soon to be means tested and phased out at higherincomes.
Ozecover found that from July 1 next year, a single person earning between $70,000 and $90,000 or a family earning $140,000 to $180,000 could end up paying more for health cover than they'd face with the surcharge.
For instance, a NSW family with a household income of $150,000 would face a surcharge of $1500 but, in Ozecover's best-case scenario, pay $1844 for a policy with a $500 excess when the rebate falls to 20 per cent next year. Under the 30 per cent rebate, the best premium Ozecover found was $1613.
In Victoria, where Ozecover found cheaper premiums than in NSW, a similar family would pay $60 more than the surcharge for hospital cover with an excess from July next year, when today they'd pay $135 less than the surcharge.
Yet if health insurance will cost more than the surcharge, the answer isn't necessarily to pay the surcharge.
"If you pay the surcharge, you get nothing whatsoever, whereas insurance buys you something," Carroll says.
"You should still make a rational decision about whether private health cover has value in providing the sort of care you might not readily access in the public health system."
And if you're paying for health insurance, you may as well buy a policy with benefits you'll actually use.
The private health insurance ombudsman has warned that basing an insurance purchase on price alone can be dangerous.
"You [may be] getting a cheaper premium but the reason is you're trading off something that you could need access to," Ombudsman Samantha Gavel told Money last month.
Less-expensive hospital policies may not cover common services such as obstetrics, for example. Such an "exclusion" could be a good way to economise if you're a single male but it may not be such a good option for younger couples.
Quick access and choice of doctor
In Australia, if you choose to be a public patient you'll be treated, at no charge, in a public hospital by a doctor appointed by the hospital. You cannot choose your own doctor and may have to wait for treatment.
Even if you have health insurance you can still choose to be treated in a public hospital as a public patient at no charge.
An alternative is to be treated as a private patient in a public hospital. In this case you can choose your own doctor but will need to pay for hospital services out of your insurance.
Most people pay for health insurance so they can afford care in a private hospital, choose their own doctor and get treatment sooner.
More information is available at the website of the Private Health Insurance Administration Council of Australia (phiac.gov.au).
At last count, 44.6 per cent of Australians were covered by private health insurance.
