Where Does Your Health Insurance Premium Go?

Where does all that money that you pay for your health insurance premium go?

In Australia, the average health insurance package (hospital and extras) for a single person ranges in premium from a low of $1,313 per annum in the Northern Territory to a high of $1,866 per annum in Victoria (based on products assessed for CANSTAR’s 2016 health insurance star ratings). In short, health insurance premiums hit the household budget – and the cost over the past decade has risen at a consistently higher rate than inflation. Health insurance policy details can be complex for consumers to understand, so some Australians may end up questioning if the increasing expenditure is justified, even if they’re actively trying to reduce the cost of their premiums.

So where does the money from my health insurance premium go?

As it turns out, the vast majority of the premiums go back to members in the form of medical care. Statistics from the Australian Prudential Regulation Authority (APRA) reveal that there were approximately 4.41 million hospital treatment episodes and 88.76 million ancillary (extras) treatment services for members of private health insurance funds for the year to 30 June 2016. Both of those figures represent a year-on-year increase, with the 2015 figures being 4.28 million and 86.29 million respectively.

That equated to private health insurance payouts of $1,227 per person for hospital treatment (including medical and prostheses) and $387 per person for ancillary treatment. Overall, health funds had a net margin between inflows and outflows of just 5.23%.

In terms of the most widely used services, hospital benefits were largely spent on hospital accommodation and nursing (accounting for approximately 70% of the hospital benefits paid.

The costs of extras payouts

On a per person basis, extras (ancillary) treatment payouts during the 12 months to June 2016 mainly consisted of the following:

Considering the fact that most, if not all of us pay a visit or two to the dentist every year, dental treatment having the top spot isn’t particularly surprising. Optical’s number two spot may be a result of our aging population, or it might just be that every other person needs glasses these days!

Why should you get health insurance?

Considering the outstanding quality of Medicare, our public healthcare system, people may end up questioning whether they need private health insurance. Why pay for something that you can get for free? Well there are actually numerous benefits to holding private health insurance; here’s a few of them.

• Shorter waiting times – In a public hospital, you could see yourself waiting around for hours if your injury/condition isn’t life-threatening. In a private hospital, you’ll usually be whizzed off for treatment in a matter of minutes. While the health insurance process can potentially see you encounter a few hiccups, they’ll be hiccups you can deal with after the fact, safe in the knowledge that you were treated in a timely manner.
• Choice of doctor/surgeon – Public hospitals are more or less ‘you get whoever’s on at the time’ when it comes to operations, whereas private hospital cover allows you to nominate a doctor or surgeon that you have experience with.
• Tax benefits – While we wouldn’t recommend taking out a basic healthcare policy solely for tax purposes, there’s no argument that the simple act of paying health insurance premiums does afford you a few handy tax-related benefits. For one, it means you won’t have to pay the Medicare Levy Surcharge; more on that here. If you purchase hospital cover by the 1^st of July following your 31^st birthday, you’ll also manage to avoid paying Lifetime Health Cover loading; more on that here. And if you want to know more, you can go here to read more about the tax implications of having private hospital cover.

So while health insurance may be a grudge purchase, it’s also something that you are likely to use!  The two most important things, when it comes to private health insurance are to ensure that you are covered for the things you need and to ensure that you are getting good value for money. Also keep in mind that both the government and health insurance funds are trying to keep health insurance reasonably affordable; if it’s not something you’ve looked into, private hospital cover might be cheaper than you thought!

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