Health Insurance: Cheaper policies less popular & tax savings

Both the government and opposition have been campaigning against basic health insurance policies, and it seems the message has been received.

The end of financial year is a popular time for many Australians to think about ways that they could potentially reduce the amount of income tax that they pay. For some high income earners that means making sure they have a private health insurance (hospital) cover in place, to help avoid the Medicare Levy Surcharge.

Other people may be shopping for private health insurance to avoid the Lifetime Health Cover loading, which is a 2% increase in premiums per year for every year after your 30th birthday that you don’t take out private health insurance.

Costs and rebates related to private health insurance

Medicare Levy Surcharge Additional tax levy of up to 1.5% if you do not have an appropriate level of private patient hospital cover. The base income threshold is $90,000 for singles and $180,000 for families. Read the details here.
Lifetime Health Loading A 2% increase in private health insurance premiums for every year after your 30th birthday that you don’t take out private health insurance. Read the details here.
Health Insurance Rebate A rebate of a portion of the cost of your private health insurance, up to just under 36% of premiums. The rebate you receive (if any) depends on your age and your income. Read the details here.

Fewer people looking for cheap health insurance


Interestingly, less than 1 percent (0.70%) of visitors to Canstar’s health insurance selector tables in June 2016 were looking for a health insurance policy specifically for tax reasons. This is down from 8.45 percent of visitors in June 2015. And it’s certainly not due to fewer people looking for a health fund; there were significantly more people overall shopping for a health policy on the Canstar comparison tables this June, but they were almost all looking for a more fully-featured policy.

It wasn’t a one-off statistic either.  Generally Canstar sees a build up in the proportion of visitors to looking for a health policy in order to avoid tax in the months prior to the end of financial year. In 2016, though, there was no build up.

Why aren’t Australians looking for cheap health insurance?

We can’t say for sure why Australians are looking for a more fully-featured health insurance policy, but it may have something to do with the health insurance announcements made by both major parties in the lead-up to the federal election.

Back in October last year, in a Press Club speech, Health Minister Sussan Ley flagged her intention to hold a series of roundtable discussions with the medical profession and public:

And she launched a month-long public consultation In November, attracting more than 40,000 responses to an online survey.

In March, just after announcing the annual increase in premiums, she issued a release calling some health insurance policies “junk” and hinting that these policies may not continue to receive government rebates, as well as calling for greater health insurance policy transparency.

“… I also want to see low-value products called out for what they are – junk. It is essential the $6 billion taxpayer support for patients who take out private health goes towards delivering high-quality health care outcomes that actually take pressure off of the public system.”
– Health Minister Sussan Ley

In the week prior to the election, the opposition specifically announced its intention to remove the health insurance rebate from policies that only cover public hospital treatment. It would appear, all other things being equal, that these messages have hit home with consumers.

Cheap health insurance is cheaper…

Below is the range of monthly premiums for hospital cover in Australia, based on insurance policies targeting various consumer profiles on CANSTAR’s database.

Profile Monthly cost range
“Tax” $50 – $91
Singles $54 – $144
Couple $114 – $288
Family – Without Obstetrics $129 – $255
Family – With Obstetrics $148 -$288
Source: Based on 5 star rated products on Canstar database. Range will vary in each state, excludes NT. Hospital cover only.

… Features are more important than price though


Approaching health insurance with a “how much do I want to spend” attitude is the wrong strategy. Approach the question from a “what do I want to be covered for” attitude and work backwards from there. You should also beware the health insurance tax benefit hype!

Think about the lifestyle implications of your health insurance choices. If you need a knee replacement, do you really want to wait six or seven months, probably in chronic pain, for that to happen at a public hospital? Because that’s the average wait time you’re looking at. How would that impact on your work or your home life? Even a tonsillectomy is an average of around 4 months waiting time.

Also think about your family history. Are there certain illnesses that you might be prone to? Fortunately in Australia health funds aren’t allowed to price according to individual risk (unlike some other countries – New Zealand for example). So you can happily insure yourself no matter what your personal risk factors.


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