Understanding the ins and outs of your private health insurance policy in Australia can feel like navigating a maze. Two key elements often causing confusion are excess and co-payments. This article aims to demystify these terms, explain how they impact your out-of-pocket expenses, and provide practical tips for choosing a policy that best suits your needs and budget.
What are Excess and Co-Payments?
Let’s start with the basics. Both excess and co-payments are ways private health insurers share the cost of your healthcare with you. They represent the portion of the bill you’re responsible for paying.
Excess: Think of excess as a deductible. It’s a one-off fixed amount you pay when you make a claim for hospital treatment. This amount is typically charged per hospital admission. For example, if your policy has an excess of $500, you’ll pay this amount directly to the hospital for your stay, and the insurer covers the remaining eligible costs (subject to any other limitations in your policy). Choosing a policy with a higher excess usually results in lower premiums (the amount you pay regularly for your insurance), while lower or no excess policies have higher premiums.
Co-Payments: A co-payment, on the other hand, is a smaller, fixed amount you pay towards certain services, such as a visit to a physiotherapist or a chiropractor. It’s usually a set dollar amount (e.g., $20) per service, rather than a larger one-off payment like an excess. Co-payments are more common with extras cover (also known as ancillary cover), which covers services not covered by Medicare.
Hospital Excess: Digging Deeper
Hospital excess is a key consideration when choosing hospital cover. Policies often offer different excess levels, ranging from $0 to $750 or even higher. Here’s a breakdown of what to consider:
- Premium Costs vs. Potential Hospital Admissions: A policy with a higher excess will generally have a lower premium. The trade-off is that you’ll pay more out-of-pocket if you’re admitted to hospital. Consider how often you’re likely to need hospital treatment. If you’re young, healthy, and rarely require hospital care, a higher excess might be a cost-effective option. If you have a chronic condition or are older and more likely to need hospital treatment, a lower excess might be preferable, even with the higher premiums.
- Age-Based Considerations: Many insurers offer age-based discounts or reduced excess options for younger people, to encourage them to take out private health insurance. This can make a policy with a lower excess more affordable for younger Australians.
- Family Policies: It’s important to understand how excess applies to family policies. Often, the excess applies per person admitted to hospital, up to a maximum amount per policy year. For instance, if your policy has a $500 excess and two family members are admitted to hospital in the same year, you might pay $500 for each admission, up to a limit, such as $1000 for the year. Some policies may have specific rules for children on family policies – for example, no excess is payable if a child is admitted. Check your policy details carefully.
- Emergency Admissions: Excess typically applies to emergency admissions as well. Don’t assume that because your hospital visit was unplanned, you won’t need to pay the excess.
- Day Surgery: Excess often applies to day surgery procedures as well as overnight hospital stays. Check the wording of your policy to confirm.
Practical Example: Let’s say you’re considering two hospital cover options. Option A has a $250 excess and a premium of $200 per month. Option B has a $750 excess and a premium of $160 per month. The difference in premium is $40 per month, or $480 per year. If you’re admitted to hospital once in a year, Option A will cost you $200 (premium) x 12 (months) + $250 (excess) = $2650. Option B will cost you $160 (premium) x 12 (months) + $750 (excess) = $2670. In this scenario, if you’re only admitted once, Option A is slightly cheaper. However, if you’re not admitted to hospital, you will pay $480 more for Option A. You need to assess your individual health needs and risk tolerance to decide which is most suitable.
Extras Cover and Co-Payments: Fine-Tuning Your Coverage
Extras cover provides benefits for services not covered by Medicare, such as dental, optical, physiotherapy, and other allied health services. Co-payments are a common feature of extras cover. Here’s what you need to know:
- Understanding Benefit Limits: Extras policies typically have annual benefit limits for each service. For example, your policy might cover $500 per year for dental services or $300 per year for physiotherapy. The co-payment is your contribution towards the cost of each service, and the insurer covers the rest, up to the annual limit. Once you reach the limit, you’re responsible for the full cost.
- Percentage vs. Fixed Co-Payments: Some policies use a percentage-based co-payment (e.g., you pay 20% of the cost), while others use a fixed co-payment (e.g., you pay $20 per visit). It’s important to understand which type of co-payment your policy uses, as it can significantly impact your out-of-pocket expenses. A percentage-based co-payment might be more expensive for high-cost services.
- Network Providers: Many insurers have agreements with “network providers,” such as dentists and physiotherapists. Using a network provider often results in lower out-of-pocket expenses, as the insurer has negotiated lower fees with these providers. In some cases, the co-payment might be waived altogether if you use a network provider.
- Waiting Periods: Be aware of waiting periods for extras cover. You might need to wait several months before you can claim benefits for certain services, such as major dental work. The Australian Government’s PrivateHealth.gov.au website has comprehensive information about waiting periods.
- Comparing Policies: When comparing extras policies, don’t just focus on the premium. Look closely at the benefit limits, co-payments, and network provider arrangements. Consider which services you’re most likely to use and choose a policy that offers good value for those services.
Practical Example: Imagine you’re choosing between two extras policies. Policy A has a lower premium but a $30 co-payment for physiotherapy, and a $400 annual limit. Policy B has a higher premium but a $20 co-payment for physiotherapy, and a $600 annual limit. If you anticipate needing 10 physiotherapy sessions per year, Policy A will cost you $300 in co-payments (10 x $30). Policy B will cost you $200 in co-payments (10 x $20). Considering benefit limits and how much you use each service before choosing a plan is important.
Strategies for Minimising Out-of-Pocket Costs
While excess and co-payments are unavoidable features of many health insurance policies, there are several strategies you can use to minimise your out-of-pocket expenses:
- Review Your Policy Regularly: Your health needs and financial circumstances can change over time. Review your health insurance policy annually to ensure it still meets your needs and that you’re not paying for features you don’t use. Websites like CHOICE offer independent reviews and comparisons of health insurance policies.
- Shop Around and Compare Policies: Don’t simply renew your existing policy without comparing it to other options. Use online comparison tools or speak to a health insurance broker to find the best deal.
- Consider a Higher Excess: If you’re generally healthy and rarely need hospital treatment, consider increasing your excess to lower your premiums. Just make sure you can afford to pay the excess if you do need to go to hospital.
- Use Network Providers: Take advantage of network provider arrangements to reduce your co-payments for extras services.
- Maximise Your Benefits: Use your extras cover benefits regularly to get the most value from your policy. For example, if your policy includes dental cover, schedule regular check-ups and cleanings.
- Understand Exclusions and Limitations: Be aware of any exclusions or limitations in your policy. For example, some policies might exclude certain pre-existing conditions or have waiting periods for specific treatments.
- Check for Government Rebates: The Australian Government offers a rebate on private health insurance premiums, which can help to reduce your overall costs. The amount of the rebate depends on your income. You can learn more about the rebate at the Australian Taxation Office (ATO) website.
- Consider Gap Cover: “Gap cover” or “medical gap scheme” attempts to minimize or eliminate out-of-pocket costs for specialist consultations and hospital treatments. This usually involves the doctor charging an amount above what Medicare and your private health insurance will cover. If your doctor participates in the insurer’s gap scheme, and you’ve agreed to be treated under that scheme, the insurer will cover all or a greater portion of the gap.
Case Studies: Real-World Examples
To illustrate the impact of excess and co-payments, let’s look at a few case studies:
- Case Study 1: Sarah, 28, Single Sarah is young and healthy and rarely needs medical treatment. She chooses a hospital cover policy with a high excess ($750) to minimise her premiums. She also opts for a basic extras cover policy with limited benefits and a moderate co-payment for physiotherapy. In one year, Sarah needs a minor surgical procedure, requiring her to pay the $750 excess. However, because her premiums are significantly lower due to the high excess, she still saves money compared to a lower-excess policy.
- Case Study 2: John, 65, Retired John has a history of heart problems and requires regular medical check-ups and procedures. He chooses a hospital cover policy with a low excess ($250) and comprehensive extras cover with generous benefits for dental and optical services. While his premiums are higher, he avoids large out-of-pocket expenses when he needs hospital treatment. The more comprehensive extras cover saves him significant money on dental and optical costs which are common for people his age.
- Case Study 3: The Smith Family, with Two Children The Smith family chooses a mid-range hospital cover policy with a $500 excess and family-friendly extras cover with good dental benefits for their children. Their policy has a maximum excess of $1000 per year, regardless of how many family members are admitted to hospital. This provides them with peace of mind knowing they won’t face excessive hospital costs. They use the dental benefits regularly for their children’s check-ups and orthodontic treatments, saving them a substantial amount on dental care.
Understanding Lifetime Health Cover Loading
The Lifetime Health Cover (LHC) loading is a government initiative designed to encourage people to take out private hospital insurance earlier in life. If you don’t have private hospital insurance by 1 July following your 31st birthday, you’ll pay a 2% loading on top of your premium for every year you’re over 30 when you take out cover. The loading applies for 10 years of continuous cover, after which it’s removed. For example, if you take out private hospital insurance at age 40, you’ll pay a 20% loading for 10 years. Understanding LHC is crucial for long-term financial planning.
Private Health Insurance and the Medicare Levy Surcharge
The Medicare Levy Surcharge (MLS) is an additional tax you may have to pay if you don’t have private hospital insurance and your income is above a certain threshold. The surcharge is designed to encourage higher-income earners to take out private hospital insurance, reducing the strain on the public health system. If your income is above the threshold (which varies depending on your family situation), you’ll pay the MLS, which ranges from 1% to 1.5% of your taxable income. Carefully consider Medicare Levy Surcharge thresholds when making your decisions.
Making Informed Decisions: Resources and Tools
Numerous resources are available to help you make informed decisions about private health insurance:
- PrivateHealth.gov.au: This Australian Government website provides comprehensive information about private health insurance, including policy comparisons, waiting periods, and the government rebate.
- CHOICE: As mentioned earlier, CHOICE provides independent reviews and comparisons of health insurance policies.
- Health Insurance Brokers: A health insurance broker can help you compare policies from different insurers and find the best cover for your needs and budget. They are experts who can provide tailored advice and guidance.
- Insurers’ Websites: Review detailed product disclosure statements and benefit brochures to understand what’s covered and not covered.
FAQ Section
What happens if I don’t pay my excess when I’m admitted to hospital?
If you don’t pay the excess, the hospital may refuse to admit you or may discharge you earlier than planned. Your insurer might not pay the balance amount unless the excess is paid. It’s essential to understand the hospital’s payment policy and discuss options with them if you have difficulty paying the excess.
Are co-payments tax-deductible?
Generally, co-payments for health services aren’t tax-deductible unless they meet specific criteria. You should consult with a tax professional for personalised advice.
Can I change my excess level after I’ve taken out a policy?
Yes, you can usually change your excess level, but it may be subject to waiting periods or changes in your premium. Contact your insurer to discuss your options.
What is the difference between “out-of-pocket expenses” and “gap fees?”
Out-of-pocket expenses are the amounts you pay towards healthcare that aren’t covered by Medicare or your private health insurance, including excess, co-payments, and non-covered services. Gap fees are the difference between what a doctor charges and what Medicare and your private health insurance cover, which can be minimised using gap cover schemes.
If I have ambulance cover, will I still have to pay an excess or co-payment?
It depends on your ambulance cover policy. Some policies may cover the entire cost of ambulance services, while others may have an excess or co-payment. Check your policy details for specific information.
How does the annual reset affect my extras benefits?
Most extras benefits reset at the beginning of each calendar year (January 1st) or financial year (July 1st), depending on your policy. This means any unused benefit limits from the previous year don’t roll over, and you have a fresh allowance for the new year. Plan your treatments carefully throughout the year to fully utilise your benefits.
References
Australian Taxation Office. (n.d.). Private health insurance rebate. Retrieved from Australian Taxation Office website.
CHOICE. (n.d.). Health insurance. Retrieved from CHOICE website.
PrivateHealth.gov.au. (n.d.). Retrieved from PrivateHealth.gov.au website.
Take Action Today!
Understanding excess and co-payments is essential for making informed decisions about your private health insurance. Do not wait to review your policy and how it aligns with your current lifestyle and health needs. Contact your health insurance provider to better understand your options and receive the most appropriate plans. Take control of your health expenses – review, compare, and secure the best cover for a healthier future!
