What Happens if I Drop My Hospital Cover?

Post in collaboration with Health Insurance Comparison

If you are like me, you will have already received your notice of a premium increase from your private health insurance fund.

I must confess I sometimes contemplate giving private health insurance away to save some much needed money, given the constant increases to premiums. And this option is particularly attractive now that all of my son’s therapies are covered by the NDIS. I now find myself relying less on my health fund to subside costs and, as a result, I’ve found myself questioning the ongoing value of this cover.

However, there are a few things to consider before going through with this impulse and I’m happy to have Health Insurance Comparison here today to explore the ramifications of giving your hospital cover away. Apart from the very logical points listed below, I’ve been convinced to keep my policy as the rest of our family still need to be protected – it’s not just about my son.

Besides, accidents like rupturing your ACL, will sometimes occur. And when they do, you’ll be relieved to have that policy to protect you and get you treated sooner. I know I was!


 

What happens if I drop my hospital cover? www.myhometruths.com

The annual health insurance premium increases can encourage many families to look at dropping their cover to free up some extra room in their budget. On paper, this might seem like the best option but in reality, it can actually have a negative effect on your finances. Many people don’t realise this and are then caught out after cancelling their Hospital cover.

Potential Impact #1: The Medicare Levy Surcharge

Depending on your family’s income, you may be obliged to pay the Medicare Levy Surcharge (MLS) if your household earnings are above the income threshold. For MLS and rebate purposes, the income thresholds will stay the same across for 2015-16, 2016-17 and 2017-18.

Families and single parents earning $180 000 or less don’t need to worry about paying the MLS. For income above this base tier, the thresholds are:

Tier I – $180 001 – $210 000 = 1% extra tax

Tier 2 – $210 001 – $280 000 = 1.25% extra tax

Tier 3 – $280 0001 and above = 1.5% extra tax

If your family’s income falls into Tiers 1-3 or is likely to do so over the next couple of financial years, you’ll need to pay the MLS if you drop your Hospital cover but you can continue to exempt yourself by holding at least a basic level of Hospital cover with a registered health fund. This needs to be a Hospital policy with an excess of $1000 or less for couples and families.

Having even low level Hospital cover can actually be cheaper than paying the MLS and can therefore be the most cost effective option for your budget. It also means that your family can be private patients in either a public or private hospital in the event of an admission to hospital.

Potential Impact #2: Lifetime Health Cover Loading

The Australian government’s Lifetime Health Cover (LHC) initiative is intended to encourage you to buy Hospital cover when you’re relatively young and to maintain it as you get older.

If you drop your Hospital cover and later decide to be covered again, Lifetime Health Cover loading fees can come into play and raise the cost of your premiums. You can get away with dropping your Hospital cover for a total of 1094 days and this is known as your maximum “permitted days without Hospital cover” before loadings start to apply.

There is a 2 per cent loading fee added to Hospital premiums for every year that you are over the age of 30 and over time, this can really add up and put a dent in your budget.

Tips for Getting More From Your Hospital Cover

For many families, it can make a lot more financial sense to keep Hospital cover and take steps to try to reduce the cost of premiums:

Review Your Situation. You need some degree of Hospital cover to avoid the MLS and LHC loading but the level of cover is up to you. Some health funds do budget friendly Hospital cover aimed at families, which tends to include many of the in-hospital services that will be important to the average family. This can be a good option if you need to cut premiums but still want to be covered for key services. If you no longer want to be covered for pregnancy and birth services, some health funds do Family cover that excludes this to keep costs down.

Shop Around. It may be better for you not to drop your Hospital cover but that doesn’t mean that you need to keep the same policy. As long as you have eligible cover with an excess of less than $1000 (for a family), there’s no reason why you can’t shop around to see if you can get better value for money with another health fund. At www.HealthInsuranceComparison.com.au, we compare a range of health funds to help you see what kind of cover you could get for your budget by switching to a different insurer.

Look for Member Benefits. Some health funds have member incentives that can help to cut costs further. For example, some don’t charge an excess if your kids need to go to hospital.


 

I hope this information has informed your decision regarding hospital cover and  private health insurance. I know it helped me and I thank Health Insurance Comparison for sharing this today. 

What are your thoughts on retaining your hospital cover and health insurance policies?

Disclaimer: I received monetary compensation in return for publishing this post. 

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17 Responses

  1. Trish says:

    Even with an ‘urgent’ cancer diagnosis – you can be left waiting up to 2weeks to a month – as we found out with my husband needed surgery (at a major Sydney Hospital)
    Plus the surgeon may not be the one who operates in a teaching hospital – fully supervised of course but still not his expertise.
    I would never drop health cover. Thankfully, we can afford PHI and peace of mind over not waiting.
    Knee surgery or orthopedic you can wait for up to a year (Hub’s nephew did last year).

    • Kirsty says:

      The waiting times can be massive if you are not insured. My Dad was reasonably lucky with his cancer surgery (he didn’t have much of a wait at all) but I suspect he would have received follow-up treatment a lot faster had he been privately insured. And I know I would still be waiting for surgery if I hadn’t been insured myself….

  2. Hugzilla says:

    Yeah, it’s one of those necessary evils that you will always regret not having if you ever need it, so we just suck it up as one of those essential costs (and we ain’t getting any younger either….)

  3. Ours just went up and it was a little bit of a blow to the budget.
    But every year we’ve found a good side of it, so we will hold on to it. Bridie had an ear surgery last year and we got out of that virtually unscathed thanks to private health.

    • Kirsty says:

      That’s it, isn’t it? I don’t know what I would have done if I’d ruputured my ACL without having health insurance. I certainly would not have made the progress I’ve made = I may have still been waiting for my operation…

  4. Great post – We’re always looking at how much we pay in various insurances and it’s a huge amount but this does make it seem worth sticking with it.

    • Kirsty says:

      I think it is worth the peace of mind but it can be hard to see that when it costs so much each year to keep it going. I’m glad this post helped you Alix.

  5. We had to make the choice between hospital cover and being able to afford daycare and daycare won out. I really want to get it again but it’s so freaking expensive! We had it when we had our first baby, and it ended up costing us over $5000 on top of the expensive hospital cover we were paying for at the time. Second time around we had got rid of the cover (we couldn’t afford it on one wage) and went public and it didn’t cost us a cent. That’s what really makes it hard to part with all of that cash. Also the fact that I have been with the same health fund since the day I was born (my health fund card literally has my joining date as my date of birth!) and the only time I have ever used it was to have said first child and we got nothing out of it, the only money we got back was from Medicare. So 34 years with the same fund, not using any of the hospital service except for once, you’d think I could get some kind of loyalty discount or cashback but no, and that really sticks in my craw. I know we need to have it, but it’s hard to reconcile the outlay, even though I know we are better to be safe than sorry. With the girls (and us!) getting older I know we are gonna need it some time in the future.
    Kylie Purtell recently posted..Ten {2016 52 week project} | Photography

    • Whoops, forgot to add, visiting on behalf of #teamIBOT today 🙂
      Kylie Purtell recently posted..Ten {2016 52 week project} | Photography

      • Kirsty says:

        It’s so unfair that you did not receive any reward for your loyalty over the years. It’s a tough call having to choose between childcare and healthcare. I have to confess I’ve only had health insurance for the last 10 years – I only got it when I had to (when I turned 30 and needed to avoid even higher premiums) – and I still regularly question it’s value. But it’s helped us undergo quite a few operations & procedures over the years that we would have waited a long time for or would have not been able to afford. So, on balance, it works for us.

  6. Zita says:

    It angers me so much that the premium’s are going up AGAIN! I feel it is such a necessary evil and have literally just finished chatting to my health insurance to see if there is a way I can lower my premium and surprise surprise, there is not… And I used all my Chiro cover last month with still so many months until the end of the financial year… *sigh*

    • Kirsty says:

      That’s how I feel with my physio cover. Twice weekly and then weekly sessions over the last 6 months have used up nearly everything I had. But I would have been so much more out of pocket had I not had it so, on balance, it is worth it for me. But yes, it’s never fun when the premiums are always on the rise…

  7. Kirsty
    I get so frustrated with PHI. I personally need it for medical reasons and now it would seem for psychological ones. The real bug bear for me is that I can’t actually pick and choose what I need. We will never need pregnancy related services or sterility reversal services! But a higher level of cover for psychiatric care would be helpful in mid range cover. Even with the extras there are things that we will NEVER use. I wish there was a way to be able to go through and tick the things we need and the things we don’t.
    The other thing that bugs me is it is extremely difficult to compare policies. Some policies have a per family limit of 4 and others have a per person limit which when you have a family of 5 or more is far more helpful than a family limit. Arggghhhh goodness it is all so confusing! I guess this is what hubby, my dad and I will be doing over Easter. The reality is the companies offer no loyalties to customers regardless of how long they have been customers.
    Thank you again for writing this and the things to consider!
    Cat@lifethroughthehaze recently posted..Raindrops on roses …

    • Kirsty says:

      I love the idea of being able to pick the type of extras cover you need, as well as the level required. That’s something the health funds should definitely consider in future. If I were you I’d use a service like Health Insurance Comparison to compare policies – it’s too hard to do it on your own, especially over the long weekend when you should be enjoying some family time instead x

  8. These are great tips – we saved heaps of money reviewing our policy. Even with all the price hikes and changes in legislation, we’d never drop our PHI. After two cancer diagnoses and one stroke between us, we view it as a necessity rather than a luxury. Even if we never have to use it again (touch wood!) it gives me comfort knowing it’s there.

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