Insurance

■ Survey part 2: Best health fund extras packages

Every year for the past 10 years, on the first of April, private health insurers have had permission from the federal health minister to put their premiums up. But if you think sky-high premiums may be scaring households away from private health cover, think again. More than 700,000 people have taken out health insurance since 2007 and 10.1 million people are now covered.

Pay less tax

The reason most people continue to pay for private hospital cover is peace of mind. Private health insurance means you don’t join public waiting lists for elective surgery and you can usually have the doctor you want in the hospital of your choice.

The other main reason many people elect to keep paying for private health cover is the Medicare levy surcharge. If you don’t have private health cover, you’re single and you earn more than $77,000, in 2010-11 you’ll have to pay 1 percentage point extra on top of the 1.5 per cent Medicare levy.

You can avoid the Medicare levy surcharge by taking out eligible private hospital cover. For a policy to be “exempt” from the surcharge it cannot have an excess – the amount you stump up before your health insurance kicks in – of greater than $500 a year for individuals or $1000 for families.

There are policies available with premiums that cost less than the extra 1 percentage point you’d have to pay in tax otherwise, but the drawback is they usually offer limited cover.

How much should you pay?

Buying the right private health insurance is a trade-off between price and coverage. A policy may not necessarily the cheapest available but it may provide comprehensive coverage for a reasonable price.

There are substantial price differences to be found when shopping around. A young, single person can pay as little as $58 a month for basic hospital cover or as much as almost $200 a month for comprehensive hospital insurance.

If your sole reason for taking out private cover is to avoid the Medicare surcharge, it makes sense to look for an exempt policy with the cheapest possible premium.

If you ever intend to use the cover for a trip to hospital, though, you should make sure it provides adequate cover for your needs.

Many cheap policies come with a list of exclusions and limitations for common and unexpected ailments such as eye lens surgery, non-cosmetic plastic surgery and cardiac procedures.

We think you’re better off looking for a higher level of cover and then taking other steps to reduce your premiums.

How to save

There are a few ways, apart from simply choosing the cheapest available policy, to bring down the cost of your private insurance. The first is to elect to pay the highest possible excess, in exchange for a lower monthly premium.

The usual choices are $250 or $500 a person, per hospital admission. Check that the plan does cap the excess, so you know that if you have multiple trips to hospital in a particular year, the total excess payable will be capped at, say, $500 or $1000.

Some policies also come with co-payments instead of, or in addition to, the excess. A co-payment is an amount you’ll pay each day, say, $70, when you’re in hospital. The co-payment will vary depending on whether you’re in a private or shared room. Again, check that there’s a cap – some plans have open-ended co-payment arrangements.

Know what’s covered

It’s dangerous to think all hospital insurance plans are the same. There are big differences in the coverage various insurers offer, even in similar price brackets. For example: cosmetic surgery and surgery by podiatrists are excluded or limited in most hospital insurance plans we compared.

If you’re planning a family, you need to be sure the hospital plan covers obstetrics and assisted reproduction. Some policies exclude pregnancy and birth-related benefits, restrict cover or impose benefit limitation periods, which keep you from making a claim of this kind for 24 months.

A number of basic and mid-level hospital insurance plans either exclude or limit payment of claims for cardiac care, dialysis, eye lens surgery, joint replacement, rehabilitation and psychiatric care. If you can afford it, it’s worth having coverage for cardiac, eye lens and renal procedures because while you may think you’re not likely to need this sort of care, such ailments can be difficult to predict.

Not all policies come with comprehensive ambulance cover. This doesn’t matter in Queensland and Tasmania, where ambulance transport is paid for by the state government, but check it out in other states. Some policies have waiting periods or provide only partial ambulance cover; others include ambulance indemnity as a part of their extras policies but not in their hospital plans.

Waiting periods for different types of cover are standard across all of the policies we looked at this year but some products do have benefit limitation periods, so it’s worth checking what, if any, limitations apply before taking out insurance.

Gap cover improving

While there may be fewer funds with big gaps, it’s still important, where possible, to discuss costs with all of your carers before entering a private hospital for any procedure.

Ask your surgeon what out-of-pocket expenses you’ll incur and call your health fund to find out exactly how much of your stay and treatment will be met by Medicare and your fund.

Added extras

Prevention is the new private health fund mantra. A growing number of funds are trying to attract new members (and keep claim costs down) by adding preventative health programs to their services.

These range from antenatal care and pregnancy advice services to information on conditions such as diabetes and high blood pressure. If you’re in good health, using these added benefits could mean you get a return on your investment in health insurance without having to be admitted to hospital.