Choosing the right excess on your health insurance policy in Australia can significantly impact your premiums and out-of-pocket expenses. This decision requires careful consideration of your individual circumstances, risk tolerance, and financial situation. This guide provides a comprehensive overview of understanding excess options, evaluating the trade-offs, and ultimately selecting the excess that best suits your needs.
Understanding the Excess: A Foundation for Informed Decision-Making
The “excess,” sometimes also called “deductible,” in health insurance is the amount you agree to pay upfront towards a claim before your health fund starts contributing. In essence, it’s your contribution to the cost of your hospital treatment. A higher excess generally translates to lower premiums, as you’re taking on more of the initial financial burden. Conversely, a lower excess means higher premiums, but less out-of-pocket expense when you need to make a claim. Understanding this fundamental relationship is the cornerstone of making an informed decision. The excess typically applies to hospital cover and not extras or ancillary cover. When considering your excess, keep in mind that some policies do have an option for a “no excess” policy that is a higher premium but may be beneficial for those who prefer predictable costs.
The Interplay Between Excess and Premiums: A Cost-Benefit Analysis
The core decision revolves around how much risk you’re willing to shoulder versus how much you’re willing to pay regularly in premiums. Financial prudence often dictates opting for a higher excess to reduce monthly premiums, but this approach should align with your capacity to pay the excess when an unexpected hospital visit arises. Consider this scenario: a policy with a $750 excess might have a monthly premium of $150, while the same policy with a $250 excess could cost $180 per month. Over a year, the higher excess saves you $360 in premiums ($30 x 12). However, if you need to claim, you’ll pay an extra $500 upfront. This is where a risk assessment becomes crucial. Ask yourself how likely you are to need hospital treatment within the next year. A young and healthy individual might consider a higher excess a sensible bet, whereas someone with a chronic condition or a family history of certain illnesses may prefer the lower excess.
Assessing Your Health Needs and Risk Profile
A key factor in choosing your excess is honestly assessing your health needs and risk profile. Do you have any pre-existing conditions? Are you planning any elective surgeries? Do you participate in high-risk activities that could lead to injury? These factors should heavily influence your decision. For instance, if you know you’ll require knee surgery in the coming year, choosing a low or no excess policy could save you significant money, even with the higher premiums. However, be mindful of waiting periods for pre-existing conditions. If you are young, healthy and don’t require many medical appointments and only need hospital only coverage consider a high excess because it may be suitable. This will reduce the premium costs of your health insurance significantly.
Family vs. Individual Excess: Understanding the Differences
If you have a family health insurance policy, it’s important to understand how the excess applies. Typically, a family policy will have an individual excess and a family excess. The individual excess applies per person covered under the policy, per hospital visit, up to the limit of the family excess. Once the family excess is reached within a calendar year, no further excess is payable for any family member for subsequent hospital admissions. Example:
Individual excess: $500
Family excess: $1000
If two family members each require hospital treatment in the same year, and both have excesses of $500, the family excess is reached, and no further excess is payable for any other family member treated in that year. Conversely, if only one family member uses insurance cover during the year and pays their individual excess, cover for other family members may still exist and depending on the policy, other family members may still need to pay their respective excess amount if they are admitted at a later date.
No Excess Policies: Weighing the Pros and Cons
Some health funds offer policies with no excess. These policies come with the highest premiums but provide the peace of mind of knowing you won’t have any out-of-pocket expenses for hospital admissions (excluding any co-payments or other charges your doctor or hospital may charge). This option is particularly attractive to individuals who are risk-averse or have a history of frequent hospital visits. However, it’s essential to compare the cost difference between a policy with no excess and one with a higher excess to determine if the added premium is justified, you need to consider your own specific risk factors. Remember to consider:
- The difference in premiums between a no-excess policy and a higher-excess policy.
- Your personal risk profile and likelihood of needing hospital treatment.
- Your tolerance for unexpected out-of-pocket expenses.
Strategies for Managing Your Excess
Even with a higher excess, there are strategies you can employ to manage your potential out-of-pocket costs. One such strategy is establishing a dedicated savings account specifically for healthcare expenses. Regularly contributing to this account ensures you have funds readily available to cover your excess if needed. Another strategy is to carefully review your policy details to understand exactly what is covered and what is not. This will help you avoid unexpected bills and plan for any potential co-payments or other out-of-pocket expenses. Consider saving the amount of the excess that you have chosen to have readily available, so that it does not become a financial burden if you require to be admitted to hospital.
The Impact of Lifetime Health Cover Loading on Your Decision
Lifetime Health Cover (LHC) loading can influence your excess selection. LHC is a government initiative designed to encourage people to take out private health insurance earlier in life. If you don’t have private hospital cover by July 1 following your 31st birthday, you’ll pay a 2% loading on top of your premium for every year you delay taking out cover. This loading can make premiums significantly more expensive, especially as you get older. Therefore, younger individuals should think long term to assess the overall cost and potential for an LHC loading penalty and excess level. An individual may choose to pay more in premiums now to avoid paying more significantly later due to penalties. This loading can have a big impact on both younger and older people.
Navigating Waiting Periods: A Crucial Consideration
Before you can claim on your health insurance, you’ll typically need to serve waiting periods. These waiting periods vary depending on the health fund and the service being claimed. For example, there’s usually a 12-month waiting period for pre-existing conditions and pregnancy-related services. If you switch health funds, you may need to re-serve waiting periods, although some funds may waive them depending on your previous cover. Understanding waiting periods is crucial when choosing your excess, as it can affect when you’re able to access benefits and potentially influence your decision to opt for a lower or higher excess depending on your anticipated needs. Pay attention to waiting periods when you switch health providers to make sure that you will be covered when you require certain services.
Case Study: Sarah’s Decision-Making Process
Let’s consider Sarah, a 28-year-old, healthy individual. She’s considering two health insurance policies: Policy A with a $750 excess and a monthly premium of $140, and Policy B with a $250 excess and a monthly premium of $170. Over a year, Policy A would cost her $1,680 in premiums, while Policy B would cost $2,040. Sarah is in good health, does not have any ongoing medical conditions and does not plan to start a family within the next three years. Sarah also has $3,000 readily available in a separate account for medical expenses, should she ever require the money. She is employed as a registered nurse with a hospital and therefore can get discounted hospital rates if she were to utilise the hospital and pay out of pocket. After weighing the risks and cost differences, she decides that Policy A with a higher excess serves her best because she is willing to take the risk to pay the higher excess amount should she require hospital admission, as the likelihood of her admission is minimal within the next few months. She feels confident because she has sufficient savings for any excess amount that might be necessary. This example emphasizes the assessment of individual circumstances and how a higher excess can pay off even if admission to hospital becomes necessary, so long as sufficient funds exist to pay for any excess amount.
Case Study: John’s Decision-Making Process
John is a 68-year-old retiree who has several ongoing medical conditions including arthritis, diabetes and high blood pressure. John has had a few hospital admissions within the past five years due to unforeseen circumstances. John may require the occasional surgery every few years to manage his painful arthritis condition. John is quite risk adverse, but also considers the long term costs of having health insurance with a hefty premium and his capacity to meet his monthly expenses on his age pension. His best option is to go premium free as he expects to require hospital admissions within the next few years, despite the higher premium. John is also a grandfather and regularly looks after his grandchildren, the likelihood of an injury to anyone is moderate and not in John’s control. Choosing a no excess policy helps him avoid unexpected costs and better manage his healthcare expenses.
Leveraging Comparison Websites and Expert Advice
Choosing the right excess can be overwhelming, especially with the multitude of policies and options available. Comparison websites like PrivateHealth.gov.au, operated by the Australian government, is a useful resource for comparing health insurance policies based on your specific needs. It lets you compare health insurance based on a variety of factors, including price, cover, and excess payment amounts. These websites allow you to compare different policies side-by-side, making it easier to identify the best fit for your budget and healthcare requirements. It’s wise to also seek advice from a qualified financial advisor expert. A registered financial advisor can provide personalized recommendations and guidance based on your financial situation and health needs, helping you make a more informed decision. Many health funds also have customer service representatives who can help you understand your policy options and answer your questions about excess payments and other policy features.
Understanding Other Out-of-Pocket Costs: Gaps and Co-Payments
While the excess is a significant factor, it’s not the only out-of-pocket cost to consider. You should also be aware of potential gaps and co-payments that may apply to your hospital treatment. A “gap” is the difference between what your doctor charges and what Medicare and your health fund pay. Doctors can charge above the Medicare Benefits Schedule (MBS) fee, and this may results in gaps. A “co-payment” is a set fee you pay for each day you’re in hospital, in addition to your excess. Understanding these potential costs is crucial for accurately estimating your total out-of-pocket expenses and making an informed decision about your excess level. Ask your health fund about gap schemes and whether your doctors participate in those schemes, so that you can be aware if a gap exists for any hospital admissions. Ask your doctor about potential out of pocket costs if you are admitted to a hospital. Most private health funds also have a gap scheme that covers doctors. The fund may contact the doctor on your behalf to identify where the gap exists. If the doctor agrees to participate with the health fund and not charge any gap, then the fund will pay the doctor so you do not have any gaps or out of pocket costs.
The Importance of Regularly Reviewing Your Policy
Your health needs and financial situation can change over time, so it’s essential to regularly review your health insurance policy and excess level. Significant life events, such as marriage, having children, or changing jobs, can impact your healthcare requirements and financial capacity. At least once a year, take the time to reassess your needs and compare your current policy with other options available in the market. This will ensure you’re always getting the best value for your money and that your policy continues to meet your evolving needs. Don’t forget to check that your level of private health insurance is still right for your life stage.
Tax Implications of Private Health Insurance
Private health insurance can also have tax implications in Australia. If you don’t have private hospital cover and your income exceeds a certain threshold, you may be required to pay the Medicare Levy Surcharge (MLS). The MLS is an additional tax designed to encourage individuals to take out private health insurance and reduce the burden on the public health system. The thresholds for the MLS vary depending on your family status and income level and are subject to change each year. As of the 2023-2024 financial year, the income thresholds for singles and families are respectively:
Singles: $93,000
Families: $186,000.
The amount of the surcharge is calculated as 1% to 1.5% of your income for singles, and 1% to 1.5% of your family income for families. Choosing a private health insurance policy, even with a higher excess, may help you avoid paying the MLS. In addition, if you are eligible for the Private Health Insurance Rebate, your premiums will be reduced. The rebate is income-tested and provides a percentage reduction in your premiums, depending on your income level. Be sure to check thresholds with the Australian Taxation Office; see www.ato.gov.au.
Negotiating with Your Health Fund
Don’t be afraid to negotiate with your health fund to get the best possible deal. Health insurance is a competitive market, and health funds are often willing to offer discounts or incentives to attract and retain customers. Ask about any available promotions, discounts for paying annually, or other benefits that may lower your premiums. You can also try bundling your health insurance with other insurance products, such as home or car insurance, to potentially receive a combined discount. It never hurts to ask!
Common Mistakes to Avoid:
- Not Reading the Product Disclosure Statement (PDS): The PDS contains all the essential information about your policy, including what’s covered, what’s excluded, and the terms and conditions.
- Focusing Solely on Price: While price is important, it shouldn’t be the only factor you consider. Make sure the policy provides adequate cover for your needs, even if it costs a bit more.
- Ignoring Waiting Periods: Be aware of the waiting periods before you can claim certain benefits.
- Assuming All Policies are the Same: Health insurance policies can vary significantly in terms of coverage, exclusions, and excess options.
- Not Reviewing Your Policy Regularly: Your health needs and financial situation can change over time, so it’s essential to review your policy at least once a year.
FAQ Section
What happens if I can’t afford to pay my excess when I need hospital treatment?
If you’re unable to pay the excess, the hospital may require you to make alternative payment arrangements or delay your admission. Contact your health fund as soon as possible to discuss your options. Some hospitals may have payment plans or hardship provisions. Also consider calling your hospital or hospital to see if they offer a payment. Your other option would be to consider being admitted as a public patient rather than a private patient.
Does the excess apply to every hospital visit?
Generally, yes, the excess applies to each separate hospital admission within a calendar year, up to the maximum family excess (if applicable). The exact conditions vary between health funds, so check your policy details.
Can I change my excess at any time?
Yes, you can usually change your excess. You may have to serve new waiting periods if you reduce your excess level. Contact your health fund to request a change. Keep in mind that any changes will typically take effect from your next premium payment date.
Is it better to have a higher or lower excess?
That depends on your individual circumstances. A higher excess means lower premiums but higher out-of-pocket costs when you need hospital treatment. A lower excess means higher premiums but lower out-of-pocket costs. Consider your risk profile, financial situation, and healthcare needs when making your decision.
Does the excess apply to extras cover?
No, the excess typically only applies to hospital cover, not extras or ancillary cover.
References
- PrivateHealth.gov.au
- Australian Taxation Office (ATO)
Choosing the right excess for your health insurance policy isn’t just about saving money today; it’s about securing your financial well-being and accessing quality healthcare when you need it most. By carefully considering your individual circumstances, understanding the trade-offs, and leveraging available resources, you can make an informed decision that provides peace of mind and protects your health. Don’t wait until you need to make a claim – take action now to review your policy and ensure it meets your needs. Compare options, speak to an expert, and secure your health future today! Start researching and comparing policies to find the perfect balance between premium cost and excess for your specific needs. Your health and your wallet will thank you.
