Know Risk is a community education program designed by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) to improve our understanding of insurance and how it relates to managing the many risks we all face in life.
Health Insurance 101
Health insurance explained
What is private health cover?
Private Health insurance can provide financial compensation and assistance for when you either go into hospital, or when you need to have general treatments (eg dental, physiotherapy).
Hospital visits and general treatments can be expensive, so private health cover provides a level of relief from this expense.
Why would I want health insurance?
There are a number of reasons why you would consider getting health insurance.
You have a non-urgent medical condition
Firstly, the Medicare system covers many medical, hospital and pharmaceutical costs. It allows you to be treated as a public patient, at no charge, in a public hospital by a doctor appointed by the hospital. So if you’re in need of urgent emergency treatment, you’ll be ok.
But if you need surgery for something like a knee injury or a kidney stone, while very painful, these types of conditions are classed as non-urgent. If you needed to have non-urgent or elective surgery, as a public patient, you will need to go on a public waiting list, some of which have lengthy waiting times. Private health insurance gives you have a much shorter wait for some forms of elective (non-urgent) surgery.
You get a greater choice of doctor and better hospital conditions
Wait times aside, another major benefit of private health insurance is being able to choose which doctor or surgeon you want to use, rather than who is rostered on the day you are scheduled for surgery. You also have the opportunity to access a private hospital and often a private room with wifi and cable television.
You’re able to claim rebates on a range of other health services
The Medicare system will cover you for treatment as a public patient in hospitals or bulk-billing clinics, however it doesn’t cover you for many health services outside of hospital, such as dental examinations and treatment, physiotherapy or acupuncture.
Depending on your policy and the level of cover you take, you can often receive substantial rebates, on a range of non-urgent medical treatments including:
- Hospital expenses (theatre fees or accommodation) in a private hospital
- Ambulance fees
- Chiropractic treatment
- Home nursing
- Physiotherapy, occupational, speech and eye therapy
- 'Complementary' therapies such as acupuncture
- Glasses and contact lenses
- Dental care
- Pharmaceutical costs
Some policies may even allow you to claim part of your gym membership joining fee, pharmacy prescription costs or remedial massage costs.
Almost anyone can get some form of private health cover, even those with pre pre-existing medical conditions. If you have a pre-existing condition, contact the insurer to see if you’re covered and what conditions there may be on your coverage.
There are six main categories of membership that provide cover for individuals and different family groups.
Number of people covered
2 adults and dependant(s) - includes child/student dependants
1 adult and dependant(s) - includes child/student dependants
Single parent family
1 adult and any dependant(s) - includes child/student/young adult dependants
Single parent extension
2 adults and any dependant(s) - includes child/student/young adult dependants
Dependants only (no adults)
Generally a dependant is considered an unmarried person under the age of 18, however some health funds can choose to consider a person between the ages of 18 and 24 as a dependant. They may have to meet certain conditions however, such as being a full-time student. Be sure to contact your chosen health fund for more information.
How health insurance works
As with any type of insurance, there are different levels of cover to choose from. There are however, three basic types of cover — ambulance cover, hospital cover or general treatment (extras) cover.
Many health funds offer separate ambulance cover, or emergency ambulance cover. Emergency ambulance cover gives you access to unlimited emergency ambulance trips including air services and on-the-spot treatment. Emergency situations covered incude:
- sudden collapse
- severe chest pains
- acute breathing difficulties
- fractured bones
- uncontrollable bleeding.
However, as with all types of cover, there are certain exclusions you need to be aware of. Ambulance cover generally will not cover you for:
- Non-emergency medical transport or treatment such as transportation from a hospital to your home
- Where your state government provides ambulance coverage or when you hold a subscription with your state ambulance provider
- Air and road transport services that are not operated by a state or territory government or an organisation recognised by the chosen health fund.
Some funds offer Premium Ambulance cover which is similar to emergency ambulance cover but also allows for an additional value of non-emergency road and air ambulance trips.
In New Zealand, anyone who suffers a personal injury and requires emergency medical care is eligible to have the costs of ambulance transport covered by the ACC, provided the transport takes place within the first 24 hours of the injury’s occurrence. So, ambulance cover may be something you consider having in case any ambulance transport you receive doesn’t fit within this time frame or scenario.
In Australia, both the Queensland and Tasmanian state governments fund emergency ambulance transport, but bear in mind that even though you may be a resident of one of those states, if you happen to be in another state and you require ambulance transport, without ambulance cover, you will have to pay the entire fee yourself.
Hospital cover helps cover the cost of in-hospital treatment by your doctor and hospital costs such as accommodation and theatre fees. Generally, any medical services listed under the Medicare Benefits Schedule (MBS) can also be covered on some form of private hospital insurance.
You can opt for 'top' or ‘full’ hospital cover that covers most things hospital related including pharmaceuticals, versus cheaper hospital cover that doesn’t include things such as joint replacements.
Hospital cover falls into four categories:
- Top Private Hospital Cover - must cover all services where Medicare pays a benefit.
- Medium Private Hospital Cover - excludes or restricts one or more of the following but includes any services in the basic classification: Pregnancy and birth related services, Assisted reproductive services, Cataract and eye lens procedures, Joint replacements i.e. shoulder, knee, hip and elbow including revisions, Hip and knee replacements, Hip replacements, Dialysis for chronic renal failure and Sterilisation.
- Basic Private Hospital Cover - excludes or restricts one or more of the following: Cardiac and cardiac related services, Non-cosmetic plastic surgery, Rehabilitation, Psychiatric services, Palliative care;
- Public Hospital Cover - covers default benefits for treatment in public hospital only.
When choosing the level of cover, think about what you really need. If you’re not planning on having any more kids or kids at all, don’t get birth or pregnancy related cover.
However, be aware that if you are planning on having kids – that there is, in most cases a waiting period of 12 months or more before you can claim benefits.
In fact, any kind of private hospital stay may have a waiting period – it is important to be aware of this when selecting your health insurance.
If you're in your 20s, you probably won’t need coverage for a hip replacement. It’s always a good idea to talk to your doctor before you choose, to make sure you don’t get cover that excludes something you may need.
Partial hospital cover covers you for a certain percentage of your medical treatment. You might be treated as a private patient in a public hospital, and you may have to meet any charges that exceed the Medicare schedule. You might also not get cover for pharmaceuticals.
Again, as with any insurance, you can get a cheaper premium on hospital cover choosing a higher excess. An excess is the amount that you agree to pay towards the cost of hospital treatment, in exchange for lower premiums. Be aware that you may be need to pay an excess every time you go to hospital, or only the first time, depending on the private health insurance policy you take out. You might opt for a co-payment, where you agree to pay a set amount for each day you are in hospital, in exchange for lower premiums - for example, you agree to pay the first $50 per day in hospital. It’s all about weighing up how often you think you might be in hospital and how often you might need to pay the excess.
An excess is the upfront payment that you agree to pay before the health fund benefits are payable. The excess is applied on each admission into hospital for the year, however, it could be capped at a total amount that you would have to pay in a year.
In exchange for a lower premium, you may elect to go with a co-payment option in terms of your hospital cover. This means that there will be a specific amount you will have to pay for each day you are in hospital should you need to be admitted. Like an excess, the co-payment that you pay in a year is generally limited to a set amount. Some hospital policies do not require a co-payment to be paid for day surgery.
While hospital or ‘basic’ cover helps you out with surgery or hospital stays, ancillary or 'extras' cover is optional and as you’d expect, will cost more. Extras cover can include a wide range of services such as physiotherapy and dental and optical benefits, alternative therapies, health club memberships and much more.
When getting extras cover, be mindful that waiting periods often apply so if you need a root canal, it’s better to get in early, otherwise you could be in for some pain.
Take the time to think about what cover you need before buying extras cover. If you play a lot of sport and need physio regularly it might be worthwhile, or if you wear glasses and like changing your look regularly, you should definitely consider it.
However, if you only go to the dentist twice a year, don't wear glasses and never visit a chiropractor, you might want to reconsider paying for extras cover. Think about how much your occasional visits would cost and then work out whether it’s more beneficial to you to pay for the additional premium of having extras cover.
Some funds also cover alternative therapies such as iridology, aromatherapy, acupuncture and homeopathy, as well as therapies for quitting smoking and gym memberships. Check with the insurer to see if these are covered.
If you have children, some funds cover 100% of their treatment if they are treated by one of their nominated services providers.
For each extra, there is a set amount your insurer will reimburse you per year — the annual limit. Once you hit this limit, you will have to pay for any services or treatment related to that particular extra out of your own pocket until the year is over and your annual limits are re-set.
Annual limits can be tricky, though, in that sometimes a “combined limit” applies. This is where some services (for example, physiotherapy, chiropractic and natural therapies) are grouped together, so each time you claim for one of those services, you reduce the amount you can claim for any of the other services under the combined annual limit.
Most health insurance funds have a network of health service providers, such as dentists, physiohtherapists or optometrists that are considered 'preferred providers'. When using one of your chosen health fund's preferred providers, you will receive a larger rebate and will have a lower gap payment. In some cases, you can get between 60% - 100% back depending on your level of cover. When choosing a health fund, do some research into who their preferred providers are and whether it's worth changing your regular health service provider if they're not part of the network.
Often health insurance policies will have some limitations on hospital treatment, which might include:
- Exclusions - specific services that are not covered at all.
- Restrictions - services that are covered to a limited extent, which means you will have greater out-of-pocket expenses.
- Benefit limitation periods - which pay reduced benefits on one or more services for a set period of time after the waiting period, then pay full benefits after this period.
- Surgery or hospital treatment that Medicare does not pay a benefit for - Medicare pays a benefit on all medical services necessary to maintain your health, but does not cover optional treatments such as elective cosmetic surgery.
- Long stay patients - If you are in hospital for more than 35 days in succession, you will be regarded as a long stay or nursing home type patient, unless your doctor specifies otherwise. This means you will have to pay more for the cost of hospital accommodation after the initial period. The Health InsuranceAct 1973 does not allow health funds to insure for this cost.
- Single vs shared rooms – some hospital policies cover the full cost of a shared room, but not a single room. Depending on your policy, this limitation can apply in a private hospital, or a public hospital, or both. If you are admitted to a single room and your policy does not fully cover the cost, the hospital should inform you that you will need to pay the difference between the fund’s benefit and the hospital’s charge. Your health fund can also provide more information about your cover.
It’s important to know that when you get health cover for the first time waiting periods will apply.
Health funds use these waiting periods to stop people from getting cover only once they realise that they will need to pay for treatment of an existing condition.
These waiting periods can vary, so check with the insurer before you join the fund. If you're switching from one provider to another, ask your new fund if it will honour the completion of waiting periods from your previous fund.
The most typical waiting periods are:
- 12 months for a pre-existing condition.
- 12 months for birth or pregnancy related services.
- Two months for general hospital.
When getting cover, you’ll generally have to wait 12 months before you can claim for any treatment if you have a pre-existing condition.
One thing to be mindful of, a pre-existing condition isn't necessarily something officially diagnosed in the six months before getting cover – you may only need to have experienced symptoms that a doctor chosen by your provider attributes to your current condition. Avoiding getting a proper diagnosis doesn’t necessarily mean a pre-existing condition can't be declared. It’s always better to be honest otherwise your provider may not pay your claim.
Unlike a phone contract, you can switch providers any time you like. Usually, if you’re switching from a similar level of cover form one fund to another, any waiting periods you’ve already served will be transferred meaning you should be able to claim for treatments straight away.
To switch funds, all you have to do is sign up with your new provider and ask your old fund for a clearance certificate. This certificate sets out your claims history.
Just remember, if you do switch funds make sure you cancel your direct debit payment to your old provider. There’s no point in paying twice.
One thing you should really be aware of is that even with top hospital cover you might still need to pay the difference between what your specialist charges and the rebate from Medicare and your private health insurer.
Medicare pays 75 per cent of the Government Schedule Fee, while private insurance pays the other 25 per cent. If your doctor or specialist charges above the schedule fee, you will find yourself having to shell out some more coin. This is called the gap.
Many funds have 'gap' schemes that help with this. Prior to surgery or consultations, it’s always a good idea to check with your hospital, specialist and/or anaesthetist whether you'll have to make a gap payment.
A Product Disclosure Statement ( PDS) is a legal document, or sometimes a group of documents, that contains information aboutyour insurance policy. A PDS will typically include any significant benefits and risks, the cost of the policy and the fees and charges that the policy provider may receive. Supplementary PDSs may be issued from time to time and must be read in conjunction with the PDS to which they relate. A PDS will help you understand the insurance policy and give you the the information about the terms and conditions, policy benefits and exclusions that you can use to compare differet policies. You should be aware that a PDS doesn't take into account your individual needs or financial situation.
Reading the PDS will help you compare and make an informed choice about the policy and give you information on you how your insurer will respond if you need to make a claim. And most importantly, if you don’t fully understand the PDS contact your insurance company and ask for more information. It's always better to have more information than less.
Health funds are required by law to provide Standard Information Statements (SIS) so you can review your existing policy or compare private health insurance products. While a SIS only gives you a basic summary of the key features of the policy, it will give you a basic overview of what your policy covers and how it compares to other policies.
There are three types of Standard Information Statements:
- Hospital - describes the features and limitations of hospital cover, including the type of accommodation, which medical services are covered in full, part or not covered, waiting periods and additional payments (excesses, co-payments and gaps),
- General Treatment - describes the features and limitations of general treatment cover, including which services are covered, waiting periods, benefit limits and example benefits for each type of service, and
- Combined - describes the features and limitations of a combined hospital and general treatment cover, with details as above.
Claiming on your health insurance
When you need to make a claim, make sure you do it as quickly as you can as most funds won’t pay out if you don't claim within two years of the treatment.
Generally, most health providers will use the HICAPS system which allows you to claim on your health insurance while paying for treatment. For those providers without HICAPS, you may find you need to make a manual claim at a later date. You can do this by either claiming in person at your chosen health fund’s shop front or online via their website. Some providers even have apps you can use to lodge a claim.
Also be mindful that if you are able to claim from workers compensation, travel insurance or sports insurance, your health fund won’t pay anything out. You can’t double dip.
How to make a complaint against your health fund provider
Sometimes things go awry or you’re just not happy with the service you’re getting. If you need to make a complaint, do so with your health fund first. If the issue can’t be resolved then contact the Health Insurance Ombudsman.
One of the ways the government has made it more beneficial for people to get private health cover is the introduction of its 'lifetime health cover' provisions, which penalise people who don't take out private hospital cover until they turn 31.
So essentially, it rewards those who take out health insurance before they turn 31, and the longer you delay taking out health insurance, the more you are required to pay. People who delay taking out cover pay a 2 per cent loading on top of their premium for every year they are aged 31 or over, when they first take out hospital cover (up to the age of 65).
The loading remains for life. So if you're 40 when you first take out cover, you'll be charged 20 per cent more each year than a 40-year-old who took out their policy before they turned 31.
Lifetime health cover penalties only apply to hospital cover which means you can still get cover for other options (“extras”) such as dental, optical or any other optional therapies.
Check out this page for more information on lifetime health cover.
Another benefit is being able to save some serious money on tax. For most single people with a taxable income over $84,000 ($168,000 for couples, families and single parents) the government will charge an extra 1% in tax. This is called the Medicare Levy Surcharge (MLS) and occurs if you don't have private hospital cover. It goes up to 1.25% if you earn over $97,000 ($194,000 for couples, families and single parents) and 1.5% if you earn over $130,000 ($260,000 for couples, families and single parents).
So depending on your circumstances, you could very well get some basic hospital cover that is cheaper than the government surcharge and allows you access to hospital services ahead of the queue. So, look at it this way, you are basically spending the money anyway – you may as well spend it on health insurance and get the benefit, rather than spending it on tax.
Find more information on the Medicare Levy Surcharge.
When you join any fund or take out a new policy make sure you have the details of your new product explained to you and confirmed in writing. In most cases, you will also have the benefit of a 30-day cooling off period. This means if you change your mind in the first 30 days after joining, and haven’t made a claim for benefits on the new product you may get a refund of any contributions you’ve paid.
What to ask your health insurer when looking at a policy
Getting health insurance can be a complicated thing. With so many funds and different levels of cover to choose from, it can be a bit tricky to work out what you really need and how much benefit you actually get from it. Here are a few questions you can ask a health insurer when you’re looking at getting a policy.
- Which hospitals have agreements with this fund?
- Do I still have a bill to pay even on top of the hospital cover?
- What is excluded or reduced under partial hospital cover?
- Is the excess payable once a year or for each hospital visit?
- How do the annual benefit limits compare across funds?
- What are your waiting periods?
- What is the definition of a dependent child?
- Can I lower the premium by excluding certain treatments?
- Are alternative therapies included in ancillary cover?
- Can I claim for 'wellbeing' costs such as gym membership?
Health Cover: Consumer Rights and Responsibilities
When you sign a policy with a health insurer, you have both entered into a legally binding contract. You both have a responsibility to act in good faith - that is, in an honest, fair and reasonable manner. You also have a duty of disclosure. This means that you must tell the insurer of any pre-existing conditions or illnesses. The insurer can then impose a waiting period of up to 12 months on hospital and other care relevant to this condition.
If you deliberately lie in order to obtain immediate cover, the insurer may be entitled to declare the contract invalid, and refuse to pay any benefit.
Private health insurers outline extras available to their members in the Private Patients Hospital Charter. Contact the insurer for more details.
The Private Health Insurance Ombudsman is the person to be approached if a consumer has a complaint about private health insurance arrangements. For example, there may be concern about a health fund, private or public hospital, doctor or another provider of health services.
The ombudsman will deal with any such enquiries or complaints and will act independently. The ombudsman tends to deal with most complaints by phone, email and fax, with most disputes settled quickly. This is often because many complaints tend to result from misunderstandings. If the complaint is more than a ‘misunderstanding’ then the ombudsman contacts the health fund or body to seek an explanation and gain further suggestions for fixing the problem.
For more information on private health insurance visit http://www.privatehealth.gov.au/.