Increasing Health Insurance Excess – Can it Lower Premiums?

24 April 2019

The recent increase to the hospital excess limits health insurers can offer on their policies was introduced by the Government in a bid to make premiums more affordable and encourage more people to take out cover. But which insurers have started offering the increased excess option to consumers? Let’s take a look and explore how the new limits could work in practice.

Annual health insurance premium increases can put a strain on the household budget, and even though this year’s average increase of 3.25% was the lowest since 2001, it was still nearly twice the rate of inflation. With this in mind, some Australians may be looking for ways to ease upwards pressure on the cost of their health insurance.

One way the Government has tried to combat rising premiums this is by permitting health insurance providers to increase the excess they charge the consumer on hospital policy claims. The excess limit is now $750 for singles and $1,500 for couples and families. This change was brought into effect on April 1 2019, and some insurers have now started offering customers the option to select a higher excess.

Which providers have started offering increased excesses?

Canstar’s health insurance database (as at 16 April 2019) indicates that the following providers (listed in alphabetical order) have started offering the increased excess level to customers.

  • AAMI
  • ahm Health Insurance
  • APIA
  • Australian Unity Health Limited
  • Bupa
  • CBHS Corporate Health Pty Ltd
  • CBHS Health Fund Limited
  • CUA Health Limited
  • Defence Health
  • Frank Health Insurance
  • GMHBA Health Insurance
  • HBF Health Limited
  • HCF
  • Health Partners
  • Kogan
  • Latrobe Health Services
  • Medibank
  • Mildura District Hospital Fund Ltd
  • NIB Health Insurance
  • Peoplecare Health Insurance
  • Phoenix Health Fund
  • Qantas Assure
  • Queensland Country Health Fund Ltd
  • St. Lukes Health
  • Suncorp
  • Westfund Health Insurance

What is a health insurance excess?

Your health insurance excess is the predetermined upfront expense you agree to pay your insurer when lodging a claim. Excesses generally encourage policyholders to be more mindful of claims and reduce the number of low-value claims. Bear in mind health insurance excesses typically only apply to hospital claims, meaning you most likely won’t have to pay an excess for making an extras claim.

Prior to the reforms coming into effect, if a policy came with an excess (some insurers offer no-excess policies), it would have been capped at $500 for singles and $1,000 for couples and families. However, now that the health insurance reforms have come into effect, these have increased to $750 for singles and $1,500 for couples and families.

Consult the product disclosure statement (PDS) of any health insurance policy you’re considering or contact the provider directly to determine what your excess options are.

How does my excess affect my premium?

On policies where you have a choice of excess, there is generally a relationship between the cost of your insurance and your excess. If you elect to increase your excess, your premiums could decrease, and vice versa. However, make sure you are aware of the premium as well as the excess of your product before choosing a higher excess, to determine the total costs.

Essentially, the option to alter your excess could result in the following scenarios:

  • If you opt for a lower excess and pay a higher premium you can expect to incur a higher ongoing cost, but have a smaller out-of-pocket expense if you need to make a claim
  • If you opt for a higher excess and pay a lower premium you’ll most likely have a lower ongoing cost, but in the event you need to make a claim, you’ll incur greater out-of-pocket costs

Factors such as your income, age and medical history may be important to take into account when considering what option may be better suited to your needs.

What are the implications of a higher excess?

The main result of electing to increase your excess is that, should you require medical treatment in hospital and need to make a claim on your health insurance, your immediate out-of-pocket costs will be higher.

It may also be worth considering whether you would be in a financial position, should you need to make a claim, to pay the higher excess upfront along with your usual expenses, and any potential expenses after the treatment.

Is a higher excess appropriate for me?

Some of the main factors you may want to take into account when deciding whether or not to increase your excess are:

  • Age the ABC says that “young people typically pay more in premiums than they claim” when it comes to health insurance. So if you are relatively young and don’t have a history of illness or injury, you may decide that you are willing to take on the risk of a higher excess as you do not feel it is likely you will make a claim in the near future. As people get older, their likelihood of claiming statistically increases, and could impact your decision on whether you would be willing to pay a higher excess.
  • Medical history – if you have a history of illness or a medical condition that means you may be more likely to make a claim, it may impact your decision on the amount you would be willing to pay for your excess. However, if your medical history is spotless, you may feel you are less likely to claim and therefore could be more comfortable increasing your excess.
  • Income – it is worth weighing up the overall cost of premiums with the amount you would pay for an excess if you make a claim to determine what fits your budget.
  • Occupation/hobbies – If you are healthy, work in a relatively sedentary role and prefer low-impact activities in your spare time, your lifestyle may not be putting you at a higher-than-usual risk of injury. But if you work in a physically demanding job or like to participate in contact sports, your risk of injury may be higher than average, and you may choose to opt for a lower excess to reflect this.

The question of whether you should decide to increase your excess or not is, at the end of the day, dependent on your personal circumstances.

To find out more about the reform changes, click here.

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