Finance Finance News Should you drop extras health insurance?
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Should you drop extras health insurance?

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With the announcement of a health insurance premium increase of 5.6 per cent (on average), consumers could consider dropping extras cover and possibly save thousands of dollars a year on their policy.

The federal government’s decision to sign off on a 5.59 per cent average premium increase will see consumers slugged with a 48.3 per cent cumulative increase since 2009 and comes two weeks after Medibank announced a 58 per cent jump in net profit.

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How much premiums will go up differs across the funds, from policy to policy, and even across the states for the same policy. Members of CUA and Health.com.au (GMHBA) have been hardest hit with increases of 8.95 per cent and 8.81per cent respectively. Lowest increase figures came from Doctor’s Health Fund (3.76 per cent), Grand United Corporate (4.26 per cent) and Peoplecare (4.38 per cent).

And the worst thing is, since the increase is above the CPI, the dwindling so called 30 per cent Health Insurance Rebate will drop another percentage point from 27.8 per cent last year to 26.8 per cent this year. So you’ll not only pay more, but also get back less. So in real terms you are paying 7.1 per cent more on average.

But don’t I need extras cover?

Unless you’re confident of receiving more in benefits than you’re paying in premiums, you should consider dropping your extras insurance. Our analysis of extras cover shows low average payout rates and savings of up to 45 per cent available to consumers who drop it.

And before you say: “But what about cover for my glasses? And dental bills? And massage?”, have you ever stopped to work out how much of your extras cover you’re actually using?

You could be paying more to your health insurance fund for the cover than you’re getting back in benefits. Only around $370 on average was paid out in extras benefits per person in 2013/14.

Won’t I be penalised if I drop extras cover?

Perhaps you signed up for health insurance to avoid the government’s Medicare Levy Surcharge (MLS) and the Lifetime Health Cover (LHC) loading? Well, perhaps your insurer ‘forgot’ to tell you that government surcharges only apply if you don’t have private hospital insurance – you don’t need extras also to avoid the charges.

So, should I drop my extras health insurance?

If you’d like to know if you’d be better off without extras health cover, read on for:

• our analysis: how much can be saved by dropping extras cover

who gets the best value out of extras insurance

how to work out if your extras cover is worth it

tips for getting more out of extras health insurance

How to save on Medibank Private and Bupa health insurance

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Check to find out how much of your extras cover you’re actually using. Photo: Getty

Our analysis of top cover health insurance from the two largest health insurance funds, Bupa and Medibank Private, shows that you can save between 30 and 45 per cent of your health insurance premium by dropping extras insurance.

For example, dropping your extras insurance saves your family per year:

• Medibank Private: from about $2200 in NSW/ACT to $1400 in the NT (with Top Hospital – $1000 excess and Top Extras 85 per cent)

• Bupa: from about $2000 in NSW/ACT to $1300 in the NT (with Top Hospital – $1000 excess and Gold Extras)

• Premiums vary depending on the state you live. Savings for the other states are somewhere in between with savings in SA, Victoria and Queensland of about $1800 and more (with Bupa and Medibank Private). For many funds, premiums and therefore savings are smaller in WA, TAS and NT. We deducted the government rebate from the premiums in our analysis. Premiums valid February 2016.

The extras policies in our example are top-of-the-range family policies including cover for major dental and orthodontics; if you have a medium or basic extras policy or a single’s policy your savings will be smaller. For more information about cover options see our Extras insurance buying guide.

Who is extras cover best for?

Families win, couples lose out

Extras health insurance works differently to other types of insurance:

hospital, home, travel and car insurance cover you for unexpected events that may otherwise cost you thousands

extras health insurance works more like a budgeting tool. It’s meant to help with smaller ongoing costs, such as a dental check-up, pharmacy costs, physiotherapy, going to the osteopath or a new pair of spectacles.

There are two groups of consumer that get good value from extras insurance:

• Good value for families: Families pay the same health insurance premium as couples – or double the singles premium – so children are insured for free. Tip: Some health funds offer no-gap cover for kids, for example for dental.

• Good value for people aged 55–74: Of all the age groups, this one makes the most claims on their extras cover benefits and therefore receives a much larger average benefit per person than other age groups.

• Couples can lose out: A couples policy normally costs exactly the same as two single policies. So if a basic policy suits you best and a medium policy suits your partner best, go for two different extras cover policies rather than a medium-cover couple policy.

How to work out if your extras health cover is worth it

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Value for money? Photo: Getty

Work out if your extras health insurance is offering you value for money:

• Request an annual claims statement from your fund, which shows the total benefits you received in the last financial year.

• Compare your premium with your extras benefits. Are you paying more than you’re getting in return?

• If, like many people, you have a combined extras and hospital policy, a bit of maths will come in handy. Select a standalone hospital insurance policy from your fund that’s comparable to the hospital cover in your combined policy (with the same excess and cover level), then deduct its price from the premium you pay. The difference will be the amount you pay for extras health insurance.

If you find your premium is substantially higher than the benefits you receive and you don’t anticipate your health needs will change any time soon, consider switching to a less expensive policy or cancelling extras health insurance altogether. See our guide on switching health insurance.

But note that you’ll be subjected to waiting periods before you can make a claim if you take up extras again.

Tip: Health insurers often have specials that allow new members to claim straight away for many health services (although usually not the more expensive ones).

Tips and tricks with extras health insurance

Look for percentage benefits

Rather than simply paying a fixed amount for a service, such as up to $30 for a physiotherapy session, some policies cover a percentage of your bill, usually from 60 per cent up to 100 per cent. This can be useful if you go to a dentist or other healthcare provider who charges above-average prices. Where these types of benefits apply, it’s worth checking and comparing your annual limits for the particular services with those of other policies.

Look for funds with provider schemes

A number of health funds offer provider schemes or even their own optical or dental centres. The fund will have negotiated a price (usually lower than the normal price) with, for example, the dentist or optical store, and will also pay a higher benefit to you. Full cover is sometimes available.

Check for loyalty bonuses

Some health funds pay higher benefits to loyal members. While this is good for you if you’ve been with them for a long time, it can be a disadvantage for new members since your time with another fund is not counted towards these bonuses.

Have you used your lifestyle cover?

Some extras policies offer services such as massage or gym classes and even sunscreen.

Uta Mihm is a senior content producer and investigative journalist with Choice.com.au

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