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Are you insured? We can tell you how to avoid extra costs.
Published 17/04/2006
'Simplicity' and 'insurance' are two words that do not sit easily in the same sentence. Add the word 'health' before 'insurance', and words like bamboozlement, nightmare and despair spring readily to mind.
Just ask anyone who has contemplated taking out health insurance. With 40-odd insurers in the marketplace, a raft of ever-changing government incentives, and a two-tiered heath system (public and private), it's little wonder that the decision to insure (or not) with a particular insurer (or another) is a based more on blind faith than on logic.
Fortunately, Health Matters is here to help. So before you do your dough, let us take you through the dos and don'ts of health insurance. Then at least you can say you were warned...
There are two types of private health insurance cover. 'Hospital' cover covers your costs as an in-patient in a hospital, and 'ancillary' (or extras) cover is for the cost of other health services such as dental, optical, physiotherapy and a range of other therapies.
Hospital cover is designed to cover the costs of a stay in hospital as a private patient. This could be in a public hospital (as a private patient) but is more likely to be in a private hospital. About 80 per cent of people claiming on a hospital fund are treated in a private hospital.
The fund will cover all or some of your accommodation costs while in hospital. If you are undergoing elective surgery, this has some distinct advantages. The accommodation tends to be more comfortable in a private hospital; you usually get a private room, for example, which is rare in a public hospital.
It also covers part – sometimes all – of the medical fees charged by your doctor(s). This means you can afford to get the doctor of your choice to treat you in hospital. In elective surgery this can be quite reassuring, because it means that you're able (theoretically anyway) to choose the doctor you think is most experienced, qualified and competent for the job. In practice, your GP usually makes this decision for you.
Of course, it's possible to undergo elective treatment in a public hospital. However you usually won't have the doctor of your choice, and the procedure might be undertaken by a senior trainee specialist rather than an accredited specialist.
There is absolutely no evidence that you'll get any better treatment in a private hospital than in a public hospital. However, you may have to wait longer for treatment in a public hospital – months, in the case of some procedures. This may not matter much, if the procedure is a cosmetic one such as the removal of a cyst.
However many conditions requiring surgery are painful and uncomfortable, even if they're not immediately life-threatening – gallstones or kidney stones for example. If you have private health cover there is little or no wait. Your doctor can operate on you as soon as he or she can book you in, which will be days or weeks at the most.
So, for most people the choice is one of convenience and comfort. Private hospital cover will give you the doctor of your choice, in a comfy private hospital, without waiting in pain. But for this comfort factor, expect to pay more, and not just in monthly insurance premiums.
On top of this you will probably have to pay some expenses out of your own pocket. Many people who take out private hospital cover don't realise this until they are actually booking into hospital when the fees and charges and any expected out-of-pocket expenses are explained to them.
Hospital cover will only pay 100 per cent of accommodation costs if you stay in an 'approved' hospital. These are hospitals with which the fund has struck an agreement to keep its costs down, in order that its inpatients can be fully covered. Most hospitals have struck agreements with most funds. But there are no funds that have agreements with every hospital. If a hospital is not on your fund's list, the fund will only pay a percentage of the hospital's charges and leave you to cover the rest. Depending on how long you need to stay in hospital, this remaining cost could be considerable (sometimes thousands of dollars). So finding out whether the hospital is 'approved' is very important.
If you've purchased a hospital cover that has an excess you will also have to pay the excess (even if you go to an 'approved' hospital). Excess amounts are usually between $100 and $1000. With most policies you only have to pay the excess for your first hospital admission in any year but some funds offer policies that have an excess or 'copayment' for each admission. This is something to check on when choosing a hospital cover. You may also be out of pocket when it comes to the fees charged by doctors for medical services they provide in hospital.
Medicare will cover 75 per cent of what is known as the 'schedule fee'. This is the fee the Department of Health recommends a doctor should charge for a particular service. Your health fund will cover the remaining 25 per cent of the schedule fee. But in practice, most specialists charge much more than the schedule fee, and professional bodies such as the Australian Medical Association (AMA) openly recommend that they do so.
The difference between the schedule fee and what the doctor charges is known as the 'gap'. Until recently, health funds were prevented by law from covering the gap; it all had to be met out of the patient's pocket. Recent developments in the health insurance industry have changed things for the better, at least from the consumer's point of view.
As part of the conditions for a fund to be able to offer the Federal Government 30 per cent rebate on health insurance premiums (see 'Carrots and sticks', below), health funds are now obliged to offer 'gap insurance'. If its members are to be eligible for the rebate, every health fund must offer at least one 'no gap' or 'known gap' policy; that is, a policy that covers all or most of the gap between the schedule fee and what the doctor actually charges.
Gap cover is only available if your doctor has agreed to participate in this arrangement with the fund. Hence you lose one of the big pluses of private cover – unlimited choice of doctor. You can still choose your own doctor, but the pool of doctors you can choose from is smaller. Doctors must agree to cap their fees to be included in a gap scheme, so many specialist doctors don't participate.
For instance, according to the AMA, only 10 per cent of anaesthetists in Australia are in the gap cover scheme of one major fund. Even if they have signed up to participate in your fund's gap scheme, it's up to the doctor in each case to decide whether to use the scheme for that patient. For example, some doctors may use the gap scheme for pensioners but not other patients. You need to check with the doctor or the doctor's staff if you will be covered under your fund's gap scheme arrangement for your treatment.
Under Medicare, all Australian residents who decide to be admitted as public patients are entitled to free treatment in a public hospital. Even if you have private hospital insurance you can still be treated as a public patient (for free) if you want to.
When you book in or are admitted to a public hospital and you have private health insurance, you will be asked if you want to be treated as a public or private patient. You will be asked to sign a 'patient election form' to indicate this. It's your choice and the hospital is required to explain the implications of that choice for you.
As a public patient you will be treated by a doctor (or doctors) appointed by the hospital. You don't get your choice of doctor. But often that won't matter. When you need urgent care – you're involved in a motor vehicle accident or you suffer a heart attack, for example – you're not going to be too worried about your choice of doctor (assuming you're in a position to make that choice). The important thing is to get to a major hospital and get treatment, quickly.
Chances are you will be taken by ambulance to a public hospital and treated there. Regardless of whether you have private insurance, you'll be given the best treatment the public hospital system has to offer. As soon as practical (when you're able) you'll also be asked whether you want to be treated as a private or public patient. If you elect to be treated as a public patient there will be no cost for your treatment. If you decide to be treated as a private patient, your health fund will pay the hospital cost but you might still be left with some bills to pay. Why?
Again, the 'gap'. If you're admitted as a private patient you'll be charged medical fees. Medicare will cover 75 per cent of the schedule fee and your health fund will cover the other 25 per cent, but neither will cover what the doctor(s) charge over and above this. Any hospital admission can involve several different types of medico's services – surgeons, anaesthetists etc – all of whom charge separately. You might also have extra paramedical costs like physiotherapy and speech therapy. When all these costs are added up it can run into thousands of dollars.
Not all specialists will charge a gap. In fact, according to the Private Health Insurance Administration Council, the Government regulator of private health insurance, most medical services in hospital are gap-free. But even if you have gap insurance, many of the doctors who treat you may not have a gap arrangement with your insurer.
So the likelihood is that if you're admitted as a private patient, you'll end up with some costs to meet yourself. But if you decide to be treated as a public patient, the entire tab will be picked up by the hospital. So even if you have private health cover, it may be better to be admitted as a public patient.
Whether you're treated in a private hospital or as a private patient in a public hospital, it's your right to be provided with information about the costs you'll need to meet before you agree to the treatment, if at all possible. If it's not possible to give you this information in advance (say, because its an emergency situation) you should be told about any charges as soon as it is practical to do so.
If the hospital has an agreement with your health fund, and/or your doctor will treat you under your fund's gap scheme, the law requires that you be given information about fees and your likely out-of-pocket costs in writing. And you should be asked to sign an acknowledgement that you've received that information. Even where there is no hospital agreement or gap scheme involved, it's your right to get information about the likely costs and it's a good idea to get this information in writing.
In all cases, the information you're given in advance is an estimate. There can be extra charges if there are complications or unexpected developments and additional or different treatment is required.
Once you have been given an estimate of costs and know what your health fund will cover, you can decide whether to go ahead as planned, change hospitals, change doctors or seek treatment as a public patient.
As well as hospital-related costs, private health insurance may also cover all or part of the cost of a huge range of health expenses that aren't covered by Medicare – physiotherapists, dental visits, psychologists, speech therapists, ambulance travel, home nursing and spectacles. It will also cover part of the cost of some medicines that are not on the pharmaceutical benefits scheme.
Extras or 'ancillary' cover may be offered as a stand-alone policy or as part of a package with hospital cover. Whether it makes sense to take out ancillary cover depends on how much you're going to use these sorts of services, and how well you've matched the cover to what you think you'll need. Here the devil is in the detail. Each scheme pays a different benefit for a different service, with a different range of exclusions, caps and waiting periods that apply before you can make a claim.
Most of the larger health funds have special deals with 'approved providers'. You get a higher benefit if you use these providers. Use these services a lot, and you may find it worthwhile to be covered. If you don't intend to, you'll get much less value from this type of cover.
One out-of-hospital service that is not paid for by ancillary cover is the service provided by GPs. If your GP bulk-bills – which 75 per cent do in metropolitan areas – this isn't a problem. But if the GP charges more – the full schedule fee or the AMA-recommended fee, for example – you'll have to pay the gap.
However, to make matters even more confusing, insurers can offer some ancillary services within their hospital cover. They can cover private hospital outpatient services; out-of-hospital visits to dentists, psychologists, and podiatrists; fitness and smoking cessation programs; and treatment for chronic conditions like asthma and diabetes.
The aim of this, says the government, is to broaden hospital cover to include preventative measures that will help keep people out of hospital, which will in turn save on hospital costs and keep premiums down. But as a general rule of thumb in the insurance industry, expanded cover means higher premiums.
Some people think that insurance is a way of saving money. It's not. The concept behind insurance is to cover you for unexpected large costs that might otherwise cause financial difficulty. For this, you pay a price. Health funds by and large, like any business, need to make a surplus to cover future expenses and investment. They generate more in premiums than they pay in claims – if they didn't, they'd soon go out of business.
Even non-profit funds generally pay only 85 to 90 per cent of premiums back to policy holders; the other 10 to 15 per cent covers administration and costs. In other words, for every hospital bill your fund covers, you are paying an additional 10 to 15 per cent in premiums. In the case of some funds it could be more.
What if, instead of paying these premiums to the health fund, you saved them and paid the costs of any hospital and medical treatment from these accumulated savings? This is the concept of self insurance – regularly putting aside an amount towards your own 'fund' to cover that unexpectedly large bill. Most people would be financially better off doing this, because not only would they be keeping the additional 15 per cent , they'd also be earning interest – of say, five or six per cent – on the balance of their account.
This would be an effective 20 per cent return on the amount that otherwise would have gone to a health fund. Another incentive for self-insuring is that you can claim a 20 per cent tax rebate on medical costs above $1500 in any financial year.
There is a risk that you might incur a large bill in the early years of self insurance when you won't have accumulated enough to cover the bill. And some people are just not good at saving. You would need to be prepared to use the public hospital system for emergency treatment, and even for major elective treatment (with a longer wait). But if you are disciplined about it, self insurance might make more sense for you.
If you do opt for insurance, there are ways of keeping your premiums low. One is to tailor the package to your needs so you aren't paying for what you don't need. Most health funds offer lower-risk policies – on which there is a lower likelihood of a claim being made – at a cheaper premium. Typically a fund will offer a package for young singles, a package for young couples with families, a package for couples with older children, and a package for seniors. A package for young singles probably won't cover expenses incurred in cataract surgery, or kidney dialysis.
So it's a matter of matching the your risk profile with the right cover. But it's important to understand exactly what's been excluded from your policy. The Private Health Insurance Ombudsman recommends that if you purchase one of these covers you should always check with your fund before arranging any hospital treatment in a private hospital or as a private patient in a public hospital. The Ombudsman also recommends that you reassess your health insurance needs at least annually.
Another way you can avoid paying too much for health insurance is to take out a policy with a higher excess. Like any insurance, the higher the excess, the cheaper the premium. Generally, if you don't make many hospital claims – no more than one every two years – you're better off with a high-excess policy, argues the Australian Consumers' Association. In this case, you need to make sure you have a little cash on hand to pay the excess if necessary.
Since universal heath care was introduced in 1972, Australians have come to see it as a right, and both sides of politics are publicly committed to maintaining it. But the costs to government are enormous. According to the Bureau of Statistics, Australia spends about $50 billion a year on health, about eight to nine per cent of its gross national product, and the revenue gained from the basic 1.5 per cent Medicare tax levy represents only about 11 per cent of this spending. Most of the rest comes from regular taxes.
In 1998, the percentage of Australians covered by private health care fell to an all-time low of 30 per cent. So over the past few years, the Federal Government, concerned about the growing costs of health, has introduced a series of measures designed to attract people back into the private health system:
The cost of these measures has been estimated at about $2.5 billion annually. Those who support these measures believe that maintaining a strong private health system takes some of the pressure off the public system and leads to more investment in health infrastructure overall. However, some critics argue the money would have been better put into Medicare and the public hospital system.
They claim that providing incentives to private health insurance doesn't help under-resourced casualty and intensive care units or improve hospital treatment for the chronically ill. They argue that the main beneficiaries have been the private health funds and the private hospitals. Meanwhile, private insurance premiums have risen about four times as fast as inflation in recent years, on average rising annually about 6-8 per cent. Hence, a good many Australians continue to be sceptical about private health insurance. Others consider the cost to be money well spent for the sake of peace of mind.
Whatever your choice, we hope we've have made your options clearer. Explore the links below for further information.