Hold on to Health Cover as Means Test Nears
23 April 2012
Government rules on health insurance already leave most consumers bewildered. From July 1, means testing will only add to the confusion.
CHOICE has crunched the numbers on the impact of the means test for private health insurance rebates, finding that consumers affected by the upcoming means test who are thinking of dumping private health insurance will probably save money by holding on to their hospital cover.
The people’s watchdog says most people, including higher income earners, will save money if they keep their hospital cover because the alternative means paying 1% -1.5% of their income on the higher Medicare Levy Surcharge (MLS).
“If you’re a higher income earner and things are getting tight, don’t rush to dump your private hospital cover. If you do, you’ll be hit with the higher Medicare Levy Surcharge that comes on top of the Medicare Levy most people pay,” says CHOICE spokesperson Ingrid Just.
For hospital cover policies with an excess of up to $500 (single) or $1000 (family), CHOICE found:
- It will normally cost less for singles on incomes of 84,001-$97,000 to take out basic hospital cover policy than pay the MLS.
- It will normally cost less for couples/families on incomes of $168,001-$194,000 to take out a basic hospital cover policy than pay the MLS.
- People can normally take out full hospital cover and it will still cost them less than MLS if you earn more or are aged 65 and older and are therefore eligible for a higher rebate.
From the 1st of July 2012, singles earning more than $84,000 a year and couples or families earning more than $168,000 a year will pay more for hospital and extras cover because their current rebate will be reduced. At the same time, the MLS will be increased for higher income earners who don’t have hospital insurance.
“If you’re in the high income range, another way to save is to pre-pay your yearly premium before June 30 this year, thereby benefiting from the existing rebate and avoiding the means test for another 12 months,” says Ms Just.
CHOICE Health Insurance Satisfaction Survey
CHOICE says consumers are confused by private health regulation.
In a survey of 2558 CHOICE members, CHOICE found most people have little understanding of the health insurance rebate, Lifetime Health Cover (LHC) and the Medicare Levy Surcharge.
Confusion around health insurance –CHOICE survey of 2558 CHOICE members:
- Only 37% knew the government rebate applies to both hospital and extras insurance.
- Only 38% knew that LHC surcharges only apply to hospital insurance.
- While most respondents knew that some form of hospital insurance is needed to avoid paying the MLS, only eight per cent correctly nominated policies with an annual excess of up to $500 (single) or $1000 (family).
- Only three per cent nominated the income level at which the MLS was applied last financial year – $76,000 for singles and $152,000 for families.
The lack of understanding about private health insurance regulations means that consumers are putting a lot of trust in a system they find bewildering.
“With more knowledge, they can make the system work for them – not the other way around,” says Ms Just.
MLS and LHC depend on whether you have hospital insurance however, the Private Health Insurance Rebate applies to extras and hospital insurance, so your premium will go up for both if your rebate is reduced.
Whilst CHOICE says some people who have extras as part of their private health insurance find that they’re not getting value for money, particularly if their claims are minimal the drawback is that if you take up extras cover again at a later date, you will have a waiting period of two to twelve months for most therapies.
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