Can you cancel health insurance at any time?
Yes you can, but what happens if you do?
The Commonwealth Ombudsman advises that if you decide to cancel your policy, your health insurance provider should pay back any premiums you've paid in advance. There may be an administration charge or fee related to cancelling, but this will depend on your individual provider.
How to cancel your health insurance
Cancelling your health insurance tends to be a relatively straightforward process. Depending on your provider, you will need to either contact them by phone, fill out an online form or log onto their website to tell them you wish to cancel.
If you're cancelling your policy to switch health insurance providers, you should request a clearance certificate from your old provider. A clearance certificate is a document that shows a record of your health insurance cover. Your new provider will want to see it to show that you have served your relevant waiting periods, so you will not have to serve them again when you sign up for your new policy.
Why might you cancel your health insurance policy?
There are several reasons you might consider cancelling your private health insurance. Perhaps the cost of your premiums has crept up just that bit too high over the years, or perhaps you've decided that you’re simply not satisfied with the benefits and coverage you’re getting. If it's starting to feel like private health insurance is no longer worth it for you, there are some things you can consider before cancelling.
What should you keep in mind before cancelling private health insurance?
Cancelling your private health insurance outright, without signing up to a new policy, will lead to a gap in your coverage. This means you'll likely have to re-serve waiting periods for hospital and extras if you decide to join up again down the line. There may be additional costs that you will incur in future, should you wish to rejoin due to the Lifetime Health Cover (LHC) loading.
You may also face a tax implication when cancelling your hospital cover due to the Medicare Levy Surcharge (MLS). It's also worth remembering you will still have access to hospital care and treatment through the public hospital system.
Waiting periods
A waiting period is the initial period after signing up for private health insurance, during which there may not be a benefit payable for certain services. The maximum hospital waiting periods private health insurers can apply are set out in the Private Health Insurance Act 2007, with waiting periods of 12 months for obstetrics and treatment for pre-existing conditions, and two months in all other circumstances.
The waiting periods for extras services (i.e. dental, optical, physio) are set by individual insurers, but are typically two months for general dental and physiotherapy services, six months for optical services, and 12 months and above for major dental procedures.
If you cancel private health insurance outright and take it out again at a later point, you may need to re-serve the relevant waiting periods, even if you have previously served them under your old health insurance cover. Some insurers will allow a break of two months without requiring you to re-serve waiting periods, but some will only allow a week. If you cancel for any longer than this before taking up health insurance again down the line, it's likely you will need to re-serve waiting periods.
Lifetime Health Cover loading
LHC loading is a scheme designed to encourage younger Australians to take out and maintain private hospital cover. If you do not have hospital cover before the 1st of July following your 31st birthday, a 2% loading will be added to your premiums for every year after this date, up to a maximum of 70%. The loading is removed if you hold hospital cover continuously for ten years.
The Australian Government advises if you cancel your private hospital cover after your 31st birthday, you may be required to pay loading again for the period you're not covered, unless you're exempt or fall into one of several special circumstances categories. At the time of writing, you're permitted a total of 1094 ‘days of absence’ during your lifetime to cover gaps, such as periods when you're switching from one health insurance provider to another.
The Medicare Levy Surcharge
The Medicare Levy Surcharge (MLS) is an annual amount that's applied to Australian taxpayers who earn over a certain threshold, and do not have the required level of private hospital cover. The surcharge is intended to encourage Australians to take out private hospital cover and reduce demand on the public hospital system.
For example, if you're part of a family earning more than $202,000 per year or are a single person without children who's earning more than $101,000 per year, and you do not have the minimum level of hospital cover required, you may be required to pay the surcharge. The surcharge can be between 1–1.5% of your annual income. If you're thinking about cancelling your private hospital cover, it's worth weighing up the cost of your current cover versus the amount you might pay at tax time with the surcharge applied.
The public hospital system
If you cancel the hospital component of your private health insurance, you'll be supported by the public hospital system for any treatment you may need. While private hospital insurance allows you certain benefits such as the possibility of choosing your own doctor and having a private room, if you become seriously ill, you should be able to get treatment in the public hospital system regardless. It's worth keeping in mind you may need to wait longer to see a specialist as well as receiving treatment or surgery than as a private patient.
What are some alternatives to cancelling health insurance?
There are several options that could help you maintain your cover and potentially pay less in premiums. You may decide you could save money or enjoy greater benefits by switching providers. Alternatively, you could call your provider to discuss your options directly, which could include changing your level of cover, cancelling your extras cover while maintaining a suitable level of hospital cover, or suspending your cover for a time.
Switching providers
If you're not satisfied with your current coverage, you can compare health insurance to see if there's another deal worth switching to. If you do this, it's often advisable to request a clearance certificate from your former health fund to show your new provider. Some providers may request a clearance certificate from your old provider on your behalf, so if you intend to switch to a new fund, it's worth asking your new provider if they can do this for you. If you're considering switching providers, there are a number of sign-up offers and promotions available that you may consider (although not in isolation).
Changing your level of cover
Private health insurance is made up of two components; hospital cover, and extras cover, which can be taken out separately or together. The hospital component covers the cost of in-hospital treatments and other related expenses. The extras component, on the other hand, is used for services not covered by Medicare, such as general and major dental treatments, optical products and physiotherapy.
There are four tiers of hospital cover in the private hospital insurance system – Basic, Bronze, Silver and Gold, with the latter being the most comprehensive in terms of its inclusions. Similarly, there are various levels of extras insurance, from basic to more comprehensive packages.
If you're concerned you're paying too much for your private health cover, and feel you're paying for services you don’t use, it may be worth calling your health fund to discuss changing to a different level of cover, which may cost you less.
It's worth keeping in mind, though, that an appropriate level of cover for you will depend on your needs and circumstances. Likewise, if you change to a less comprehensive level of cover, then later choose to switch back to a higher one, you may need to re-serve relevant waiting periods for certain services.
Before making any changes to your level of cover, it's important to ask your provider exactly which services you’ll be covered for when you switch, plus what waiting periods will apply.
Cancelling extras insurance
If you rarely make claims on your extras insurance, and do not use services such as optical and physio, you may find that you're spending more on premiums than you're saving on medical bills.
If this is the case for you, one option for saving money might be to cancel the extras component of your private health insurance, while retaining hospital cover. In this way, you’ll avoid the MLS and LHC loading, and have cover for future private hospital admissions.
Alternatively, if you claim enough on your extras insurance that you find it’s providing you with good value for money, you may consider cancelling the hospital component of your cover if you don't feel it is necessary.
Suspending your cover
Rather than cancelling your hospital cover, you may decide that you wish to retain it to avoid paying the MLS at tax time. If this is the case, then depending on your other needs and circumstances, you may find it worthwhile to switch to an appropriate level of cover.
Some providers will be more flexible with suspending memberships than others, and the terms will vary, so it's advisable to check with your provider if you can suspend your membership, and for how long. It's also worth keeping in mind that periods of suspension are not counted towards the 1094 days of absence that are allowable before you accrue Lifetime Health Cover loading.
What is the minimum amount of hospital cover required to avoid the Medicare Levy Surcharge?
The minimum requirement to avoid paying the MLS is to have hospital cover with a maximum excess of $750 for singles and $1,500 for couples or families. The basic tier of hospital cover is usually enough to cover this, and you may save money if you switch from a more comprehensive tier, although a trade-off is that your coverage for hospital treatments may be limited. If you're considering switching to a basic tier of hospital cover, it's important to check what your insurer will cover.
