Comparing private health funds

The cost of private health insurance keeps going up, with the federal government approving an average price rise of 6.2 per cent for private health cover from this month, on the back of a 5.6 per cent rise in 2013.

Given those steep price increases, it’s worth getting a feel for which policies provide the best level of cover, and what you really need.

Money has investigated how to choose the right policy to cover you and keep your health care costs in check.

Making a choice

Just how to choose the right cover for your needs? Andy Sheats, chief executive of private health insurer health.com.au, says that across the industry, health insurers have created really complex products that make it hard to figure out exactly how much you can claim.

”There are all sorts of ways the industry controls claims costs, including dollar limits for specific items and family limits,” says Sheats.

”For the most part, a lower-priced health insurance policy is highly correlated to lower coverage; it’s almost always the case that you get what you pay for. But a low price is great if the product provides what you need, so the key is to find a health insurer that makes you feel confident you understand exactly what you are getting,”he says.

When it comes to making a choice, Danny Saksida, chief sales and marketing officer at private health fund HCF, says consumers should think about finding the best value, rather than simply the lowest cost private health insurance. This means it’s important to weigh up the cost of the insurance with the level of cover you receive.

But as Grant Waldeck, spokesperson at comparison site comparethemarket.com.au notes, value for money means something different to each person, depending on their circumstances. Cover that means you get a substantial amount back for, say, the cost of orthodontic work will be more valuable to a young family than cover that gives a great payout after a hip replacement.

When weighing up if a policy offers good value, Waldeck recommends making a list of the top five things you want your insurance to include, and then working out whether the policies you’re considering cover those things.

Then decide how much excess you’re willing to pay and whether you’ll end up paying tax as a result of not having hospital cover.

”More extras don’t always mean the most comprehensive policy,” he says. ”Make a list of the extras that would have the most value to you and evaluate from there. Don’t consider a policy unless at least 80 per cent of your wants and needs are ticked off.”

According to Waldeck, if you’re single, under 30 and aren’t expecting any hospital visits in the near future, you might consider an extras-only fund. If you’re a couple starting a family, look for a policy that includes obstetrics. Families should keep an eye out for policies that cover not just orthodontics, but also speech therapy and accident cover. If you’re over 55, look out for policies with added value such as home nursing and chronic illness management.

Chief executive of Teachers Health Fund Brad Joyce says that all health funds have websites with product information available to allow you to compare services and benefits.

”The Federal Government also runs a great site, privatehealth.gov.au, to help consumers choose the right fund,” he says.

Teachers Health Fund is one of the industry-based funds that offers cover to members of a specific industry or employee group and their families. Most are not-for-profit, so any surplus generated from premiums is generally reinvested back into the fund. This is in contrast to for-profit funds, which distribute profits to shareholders as dividends.

It’s worth remembering this when making your choice. It doesn’t necessarily mean industry funds are cheaper – and sometimes membership is restricted – but it’s worth keeping in mind.

Leaving the value debate aside, research by the consumer group Choice suggests that the cheapest hospital covers to avoid the Medicare levy surcharge and lifetime health cover charges (on a per-month basis, based on 2013 figures and not taking into account rebates) are GMHBA’s Frank basic hospital cover ($66 in Queensland; $67 in South Australia, Tasmania and Victoria) and NIB public hospital cover with $400 excess ($72 in ACT and NSW; $65 in Tas).

Choice also rates GMHBA’s Bronze Extras as the best basic extras cover ($26 in ACT, NSW, Qld and WA; $29 in SA, Tas and Vic).

It says the top hospital cover with a $1000 excess is Latrobe X3 Top Hospital CoverWise ($270 in Qld, SA, Tas and Vic).

The best hospital covers, without excess or co-payment, are AHM’s Top Hospital ($243 but only in the Northern Territory) and HCF’s Top Plus (which costs $313 in WA, but more in other states), followed by Medibank Private’s Top Hospital ($347 in ACT and NSW; $214 in NT).

Choice has named Peoplecare Gold Extras ($135 in all states) as the top extras cover, along with St Lukes’ Super Extras, which costs $106 in all states.

Aside from checking Choice’s website, HCF’s Saksida recommends reading the annual State of the Health Funds report from the Private Health Insurance Ombudsman, a government agency set up to protect the interests of private health insurance consumers.

”A good objective indicator of value is the proportion of the insurance premium returned to members as benefits, which can be found in the report,” Saksida says.

It’s also worth remembering that it’s not hard to switch insurers and usually, if you do switch, any waiting periods are waived.

Keeping costs down

One way to help reduce your premium without sacrificing your level of cover is by taking on an excess or increasing your existing excess if you already have a policy in place.

You can also manage the amount you spend on private health insurance by buying cover with exclusions.

So if you’re not planning on having any more children you could look for a policy without obstetrics cover.

It’s also possible to reduce your premiums by downgrading your extras cover without sacrificing your hospital cover.

When you’re making your choice, Teachers Health’s Joyce says it’s a good idea to understand whether the fund is prepared to waive any waiting periods.

He also says it’s worth finding out if you can choose your own practitioner to receive the full benefits of the cover, or whether you’re limited to a list of the fund’s preferred providers.

Whatever you decide: Before you make the move and switch to a different provider, make sure that you fully understand how your cover will change, and seek confirmation from the health fund you are switching to that they will indeed waive waiting periods.

It’s in their interests to do so to encourage people to move funds.

Private clinic and rehab

In December 2009, at the age of 43, school liaison officer Christine Hawkins from Sydney’s northern beaches found herself in need of a total hip replacement. “It was absolutely necessary,” she says. A member of Teachers Health Fund, she was able to choose her surgeon, stay at the private hospital of her choice and spend two weeks in rehab.

The operation and its associated costs would have cost a total of $27,000, but with the fund’s coverage the cost dropped to just $3000.

Hawkins moved across to Teachers Health Fund from another provider after seeing the greater benefits for teachers early in her career. The return on medical services is just one of the reasons she has stayed with the fund. She says it provides good value for fees, and better returns for its members as it was designed for teachers and their families.

Understanding the limits of your policy

Sports physiotherapist Andrew Darcey, of Leading Edge Physical Therapy, says it is important people understand the limits of their cover, for example the total amount a health fund will pay for the calendar year.

”Even if you see [your health fund’s] preferred provider, you won’t usually receive a higher limit of cover,” he says.

Need to know: Rebate and surcharge

There are three government policies it pays to understand when deciding on health cover. The basic message these policies send to consumers is: take out cover or pay the price.

The Medicare Levy Surcharge is a tax payable by high income earners. It is usually cheaper to take out hospital cover with an excess of $500 for singles or $1000 for couples or families than pay the surcharge.

The Private Health Insurance Rebate is a contribution the federal government makes to hospitals and extra cover up to 38.72 per cent of the cost of premiums. The amount the government pays reduces once a single income hits $80,000 a year and when families and couples earn $176,000.

Lifetime Health Cover adds 2 per cent to the cost of your hospital cover for every year over the age of 30 you don’t have cover, and can add up to 70 per cent to the cost of your premium.