Depending on which headlines you read, the 1 April private health insurance increase is either the lowest for 20 years or another money grab by greedy insurance companies. So which is true?
Health insurance is one of the biggest expenses for older Australians and in YourLifeChoices’ 2020 Peace of Mind Survey, 78.3 per cent of 3261 respondents said health insurance was not affordable. Sowe’ve taken a closer look at the cost of private healthcare and the impact the April increase will have on your budget.
From the big funds adding a little bit extra, to a reduction in rebates and an increase in gap fee costs, the picture is a little different from the one painted by the government.
The lowest health insurance increase since 2001?
The federal government’s media release in December triumphantly highlighted that the 2021 health premium increase was the lowest since 2001, when premiums actually went down, on average.
But the 2.74 per cent figure doesn’t quite tell the whole story.
First, April’s average price rise is unusual as it’s only six months since the last increase. Normally, policy holders get a whole year before their premiums go up, but the 2020 increase was delayed until October due to the pandemic.
That means health insurance holders are facing a combined average increase of 5.66 per cent in a six-month period.
To be fair to the health funds, moving around the annual premium increase would probably be unhelpful to a lot of parties, including you, the customer.
Industry research suggests that as many as 40 per cent of people are unaware there is a rate rise coming in April – and this is an annual event – moving the dates would probably provide an unwelcome dose of shock for a lot of policy holders.
Again, to give funds their dues, the increase is designed to help them offset the rising cost of healthcare, such as new, expensive advancements in treatments and operations. And federal health minister Greg Hunt and the Australian Prudential Regulation Authority (APRA) have the power to reject fund increases if they think they’re unreasonable. A little more transparency probably wouldn’t go amiss though.
A health insurance increase that’s anything but average
The 2.74 per cent average increase is thrown around a lot. This is the average premium increase across all insurers. That means there are funds with a higher average increase – and funds with lower increases.
Australia’s four biggest health funds – Bupa, Medibank, HCF and nib – are all raising their average premiums by more than the government average. That’s a large percentage of policy holders who will see their premiums go up by more than the national average.
HCF’s average rise of 2.95 per cent is the closest to the overall average figure, while nib comes in at a fairly hefty average increase of 4.36 per cent. Overall, HBF has the lowest average increase at 0.5 per cent and CBHS Corporate Health the highest average at 5.47 per cent.
But wait, there are more averages. These percentages are the average increase for that particular fund’s customer base. So some customers will be paying more than the average and some will be paying less.
You can see the disparity in our Meeting Place comments and elsewhere. YourLifeChoices member Jem, for example, has seen a $150 annual increase on her CUA policy, which would appear to be less than the fund’s 2.99 per cent average increase. But we’ve also seen posts on social media where people are suggesting their premiums are increasing by 6 per cent.
Read more: Private health rebates levels are dropping
Andrew Davis, CEO of price comparator Compare Club, says that the cost of these increases can start to add up for people who’ve not moved health funds recently.
“Our research has shown that the over 55s are much less likely to switch their health cover. That can mean they’re also the most likely age group to be overpaying for their cover, as they’ll have had years, or even decades, of annual premium increases.”
The main takeaway is to read the letter from your health fund and work out your price increase. If you think you’ll be paying too much, take a few moments to compare policies.
Rebates are also down
There’s another change that, on the surface, would appear to have a big impact on the over 65s. As well as premiums going up on 1 April, the government health insurance rebate is going down.
A 66-year-old couple, for example, will see their rebate drop from 29.24 per cent to 28.71 per cent. That might not sound like much, but the rebate has been steadily dropping over the past decade, so people in their 70s are much more likely to notice they’re getting less back from the taxman.
But it’s not quite doom and gloom for everyone. The rebate may be dropping, but with premiums going up, the net effect might not be quite as bad.
Here’s a hypothetical example. Take a working couple under 65 who earn $130,000 a year and currently pay $200 a month in premiums, with the net payment coming in at $149.88 after the rebate is applied.
Now let’s assume their gross premium increases by the national average of 2.74 per cent. That’s a monthly increase to $205.48, but once you apply the reduced rebate, they’re paying $154.91 a month, with their overall monthly rebate dropping from $50.56 to $50.19.
Don’t worry if you’re a bit confused – the health insurance industry tends to have that effect on people.
Read more: What you said about health insurance
A shorter summary is that people who have the lowest increases will be hit harder by the rebate reduction. So, really, it’s still an increase for most of us, whichever way you cut it.
The hidden cost for older Australians – gap fees
There is one increase that both the government and the health funds are less likely to be publicising – out-of-pocket expenses for private hospital treatment rose by 13 per cent last year, according to APRA.
This is a number that is much more likely to affect older Australians. Plastic and reconstructive surgery has the highest out-of-pocket expenses – an average of 40 per cent of the cost of treatment to be precise – but other areas such as orthopaedics, urology and ear nose and throat all have average gap fees of more than 20 per cent of the final cost of treatment. General surgery and anaesthetists aren’t far behind at 18 per cent.
This means it’s vital to check if your insurer has an access gap scheme, whether they have agreements with medical professionals in your preferred hospital, and how much they’ll cover above the set Medicare Benefits Schedule for treatment.
If you’re concerned, then it’s a good idea to see how your fund matches up with other funds. This information isn’t particularly easy to come by or to compare like for like.
That’s when it can be worth speaking on the phone to an adviser from a health insurance comparison site. At the very least, you’ll get a sense of whether you’re likely to incur high out-of-pocket expenses and if there are any alternatives.
Do you have private health insurance? When did you last compare? Have you saved money by switching policies?
Read more: Health insurance changes leave many surprised
YourLifeChoices and Health Insurance Comparison are owned by Compare Club.
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