There are a number of reasons you may consider cancelling your private health insurance. Perhaps the cost of your premiums has crept up just that bit too high over the years. Perhaps you have decided that you’re simply not satisfied with the benefits and coverage you’re getting, and you’ve been asking yourself whether private health insurance is still worth it.
Whatever the reason may be, there are some important things to keep in mind before cancelling your private health insurance. There are also a number of alternative approaches to cancelling outright that could potentially save you some money, while allowing you to maintain your insurance. In this article, we’ll answer the questions:
- Can you cancel health insurance anytime?
- How do you cancel your health insurance?
- What are some things to keep in mind before cancelling health insurance?
- What are some alternatives to cancelling health insurance?
- What is the minimum amount of hospital cover required to avoid the Medicare Levy Surcharge?
Can you cancel health insurance anytime?
Yes, you can cancel your health insurance at any time. The Commonwealth Ombudsman advises that if you decide to cancel your policy, your health insurer should pay back any contributions you have paid in advance. There may be an administration charge or fee related to cancelling, but this will depend on your individual health insurer.
How do you cancel your health insurance?
Cancelling your health insurance is typically a relatively straightforward process. Depending on your provider, you will either be required to contact them by phone, fill out an online form or log onto their website to inform them you wish to cancel.
If you are cancelling your policy in order to switch health insurers, you should request a clearance certificate from your old insurer. 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.
What are some things to keep in mind before cancelling health insurance?
If you have private health insurance and are considering cancelling it, there are a number of things to keep in mind. Cancelling outright will lead to a gap in your coverage, meaning you will likely have to re-serve waiting periods if you decide to rejoin down the line. There may be additional costs that you will incur in future, should you wish to rejoin, thanks to Lifetime Health Cover loading. You may also face a tax burden due to the Medicare Levy Surcharge. It is also worth remembering, though, that you will still have access to hospital care and treatment through the public hospital system.
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 that 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 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 your 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 is likely that you will need to re-serve waiting periods.
Lifetime Health Cover loading
Lifetime Health Cover loading is a scheme that is 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 that if you choose to cancel your private hospital cover after your 31st birthday, you may be required to pay loading again for the period you are not covered, unless you are exempt or fall into one of several special circumstances categories. At the time of writing, you are permitted a total of 1094 ‘days of absence’ during your lifetime to cover gaps, such as periods when you are switching from one health insurer to another.
The Medicare Levy Surcharge
The Medicare Levy Surcharge (MLS) is an annual amount that is 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.
If you are part of a family earning more than $180,000 per year or are a single person without children who is earning more than $90,000 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 are thinking about cancelling your private hospital cover, it is 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 will need to rely on 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.
What are some alternatives to cancelling health insurance?
If you are not satisfied with your current health insurance arrangement but are reluctant to cancel entirely, there are a number of options for you to maintain your cover and potentially pay less in premiums. You may decide that you could save money or enjoy greater benefits by switching providers. You can call your insurer and discuss your options directly with them, but some things you might consider include changing your level of cover, or cancelling your extras cover while maintaining a suitable level of hospital cover, or even suspending your cover for a time.
If you are not satisfied with your current coverage, you can compare health insurance to see if there is a deal worth switching to. If you do this, it is 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 insurer on your behalf, so if you switch to a new fund, it is worth asking your new insurer if they can do this for you. If you are considering switching providers, there are a number of sign-up offers and promotions available that you may consider.
Changing your level of cover
Private health insurance is made up of two components, hospital 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 that are 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 – the Basic Tier, the Bronze Tier, the Silver Tier and the Gold Tier, 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 are concerned that you are paying too much for your private health cover, and feel you are 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 is 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, you may need to re-serve relevant waiting periods for certain services if you later choose to switch back to a higher one.
Before making any changes to your level of cover, it is important to ask your health insurance provider exactly which services you’ll be covered for when you switch, plus what waiting periods will apply.
Cancelling extras insurance
If you are re-evaluating your private health insurance arrangements, it may be worth considering which aspects of your cover you use the most, and which may be the most beneficial to retain. If you rarely make claims on your extras insurance, and do not use services such as optical and physio, you may find that you are spending more on it than you are saving.
If this is the case for you, then one option for saving money might be to cancel the extras component of your private health insurance, while retaining the hospital component. In this way, you’ll avoid the Medicare Levy Surcharge, 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.
Suspending your cover
Rather than cancelling your private health insurance cover, you may ask your insurer if you can suspend it for a period of time. You may wish to do this if you are planning to travel overseas. Some insurers will be more flexible with suspending memberships than others, and the terms will vary, so it is advisable to check with your health insurer if you can suspend your membership, and for how long. It is 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.
Amid the ongoing COVID-19 pandemic, a number of health insurers have begun to recognise that customers are facing financial hardship, and are offering support and relief with premiums. If you need financial support, it may be worth calling your health insurer to discuss your options, which may include suspending your policy for a time.
What is the minimum amount of hospital cover required to avoid the Medicare Levy Surcharge?
Rather than cancelling your hospital cover, you may decide that you wish to retain it in order to avoid paying the Medicare Levy Surcharge 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 that will allow you to do this.
The minimum requirement to avoid paying the MLS is to have private patient 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 sufficient to cover this, and you may save money if you switch to this from a more comprehensive tier, although a trade-off is that your coverage for hospital treatments may be limited. If you are considering switching to a basic tier of hospital cover, it is important to check with your insurer to find out what you will be covered for.
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