What you should know about Health Insurance
What members should know about private health insurance.
The vast majority of patients who take out “extras” insurance to fund dental, optical, physio, chiro and podiatry services would be financially better off not to pay for this insurance.
Policies fall into broadly three categories;
- Hospital cover. Dependent on policy, this covers hospital admissions and may or may not include obstetrics and joint surgeries.
- Extras cover for dental etc.
- Bundled cover for both hospital and extras.
Health funds generate big profit margins from extras cover as they can ration benefits to members. Have you noticed that over the years your rebates are dwindling against the cost of treatment? Health funds make far lower margins on hospital cover because of their inability to ration hospitalization.
- 500000 health insurance policies were cancelled or downgraded last year (2015), according to Consumer Health ForumOne in four health fund members have had claims rejected.
- One in five do not know what their policy covers and only one in four find it easy to compare policies. Overall only half of those insured think their policies adequately cover their needs.
- For those that insure to avoid paying the Medicare surcharge, hospital cover alone will achieve this. This is the more rational choice because it covers the big ticket items like hip replacement and heart surgery. If you’re beyond child bearing age don’t pay for related obstetrics.
- The ADA has ascertained that extras policies only pay out 78 cents in the dollar. As the funds’ administrative costs average around 8.5 cents per dollar, the remaining 13.5 cents in the dollar is pure profit out of extras policies.
- The big three ‘for profit’ insurers are BUPA, Medibank Private and NIB. BUPA remits profits to its British parent, while Medibank Private (including its subsidiary AHM) and NIB are public companies required to pay dividends to shareholders. Other funds use profits from extras cover to top up the reserves backing their hospital insurance policies.
- Health funds heavily advertise extras cover because that’s the most profitable for them, and therefore the least beneficial to policy holders.
- The Medibank Private Ltd prospectus offer to potential shareholders prior to their listing on the stock market showed that 96% of hospital related expenses are covered, but on average only 52% of extras cover expenses are paid out.
Hospital cover is usually a rational choice for those who would otherwise pay the Medicare surcharge. For the vast majority of fund members, extras cover is a blatant rip-off.
Long-term, the best value for most will be in insuring with one of the smaller mutual funds and limiting insurance cover to hospital only cover. My wife and I have hospital cover only through a mutual fund.