Introduction
Deciding to protect yourself by taking out private health insurance is one thing, but actually deciding on a specific policy can be overwhelming. With endless options to sift through, it can be difficult knowing exactly which type of policy will fit your needs.
Given the rising cost of living here in Australia, you might be tempted to go for the cheapest health insurance available, but is it really worth it in the long run? Let’s explore some of the reasons to avoid cheap health insurance, as well as discuss whether cheap health insurance is worth it in certain situations.
1. Cheap health insurance = minimal cover
One of the biggest pitfalls of cheap health insurance is the lack of cover for essential services. Low-cost policies generally only cover you for the bare minimum, which means just emergency hospital treatments and excluding other top health needs like dental, optical, physiotherapy and mental health services.
While you may think you’re saving money upfront, unexpected out-of-pocket costs can catch you off-guard and put a serious dent in your hip pocket. Imagine needing a root canal or ongoing physiotherapy – if your policy doesn’t cover these services, you could end up paying a lot more in the long run.
Key takeaway: Cheap health insurance might not cover important services that you use regularly. Before committing, make sure the policy covers the health services that you are most likely to take advantage of.
2. You might end up paying higher out-of-pocket costs
Without reading the PDS in great detail, you may miss some of the hidden costs associated with having cheap health insurance. Namely, you’ll be stung with higher out-of-pocket costs compared to more comprehensive cover. Policies that rely on low premiums to attract people often come saddled with bigger gap fees, which means that when you do end up using your health insurance you’ll be responsible for a large portion of the final bill.
Let’s say you find a cheap policy but it only covers 75% of the fee for a hospital stay or procedure. Compared to a comprehensive policy that approaches 100% cover, you’re stuck with having to pay for the remaining 25% – on top of the premiums you are already paying for private health insurance. If the procedure costs $10,000, for example, you could be on the hook for $2,500 – a substantial amount for what was supposed to be ‘affordable’ cover.
Key takeaway: Cheap insurance might save you money on premiums, but out-of-pocket expenses can quickly add up, making it the cost of private health insurance much less affordable over the long term.
3. Limited hospital choices and lower quality care
With cheap health insurance, you’ll probably be limited to the hospitals and health providers you can pick. Cheap plans usually have a narrow network of preferred providers, which restricts your choice of doctors and healthcare facilities. In some cases, you might need to travel far from home to even receive treatment – or worse, settle for a provider you’re not entirely comfortable with.
In contrast, higher-tier insurance policies usually have a broader network of hospitals and specialists. With the Fair Health Care Alliance, we can save you time, money and give you more control over where and how you’re treated by matching you to the most appropriate health insurer.
Key takeaway: Cheap health insurance often restricts your choice of hospitals and healthcare providers, which can compromise the quality of care you receive.
4. Strict caps on treatments and services
Another biggest downside to cheap private health insurance is that it usually means strict caps or limits on the amount you can claim on certain services. These caps restrict how much your insurer will pay out for different treatments, and once you exceed that cap, you’re responsible for the remaining costs. Some are annual caps, but there are also lifetime caps – once you’ve passed the threshold, you’ll never be able to claim anything back on that procedure again.
Let’s say you’ve compared health insurance options and found a cheap policy that caps dental cover at $500 per year. If you need a more expensive procedure like a crown or orthodontic work, you’ll have to pay for the majority of your bills entirely out-of-pocket. Over time, these caps can make even a cheap policy feel like a financial burden.
Key takeaway: Cheap insurance policies often have caps on cover that can limit your benefits, resulting in much higher out-of-pocket costs when you exceed those limits.
Portability
Don’t re-serve waiting periods when you switch to a new health fund or policy
“John was immediately covered for a hip replacement in private hospital because he had already served his waiting periods for joint replacements on his old policy”
5. Risk of higher premiums in the long run
While cheap health insurance might seem like a smart financial decision today, it could end up costing you more down the road. In Australia, if you don’t take out private health insurance by the age of 31, you’ll be hit with lifetime health cover (LHC) loading – a penalty that increases your premiums by 2% for every year you’re uninsured after 30. This penalty is charged on top of your standard premiums and continues for 10 years.
Going for cheap insurance early on just to avoid the LHC loading may seem appealing, but if the cover is inadequate, you might still end up paying hefty out-of-pocket costs while also dealing with higher premiums later in life.
Key takeaway: Cheap health insurance might help you avoid penalties like the LHC loading and the Medicare levy surcharge (MLS), but inadequate coverage now could mean higher overall costs later.
6. False sense of security
The allure of cheap health insurance is the idea that you’ll be covered in case of emergencies or unexpected health issues. However, many people mistakenly assume that having any type of insurance at all means they’re fully protected. This false sense of security can leave policyholders unprepared – and financially burdened – when they discover gaps in their cover.
Some cheap policies won’t cover complex surgeries or specialised treatments like cancer therapies. If a serious health issue arises, the financial burden could be devastating – not to mention the emotional distress during this time. If instead you budget for a more comprehensive level of health insurance, you’ll have better peace of mind knowing you’re fully protected across a huge range of health scenarios.
Key takeaway: Cheap health insurance can give you a false sense of security and leave you vulnerable when you need serious medical care or specific treatments.
7. Limited mental health coverage
Thankfully, mental health services are increasingly being recognised as essential for our overall wellbeing, but cheap health insurance policies might lack the level of cover you need for these services. While Medicare does let you claim up to 10 individual and 10 group sessions with a mental health professional every calendar year, for many people that’s simply not enough. So if you need private health insurance for mental health treatments or services like psychology, counselling or psychiatric care, then a cheap policy probably won’t offer you much in the way of financial cover.
Because ongoing therapy and psychiatric treatments can be very expensive without insurance, it pays to compare policies and find one that matches your health needs and your budget. If a cheap policy doesn’t include mental health benefits, you could face steep out-of-pocket expenses for services that are vital for your long-term mental health.
Key takeaway: Cheap insurance plans might not include comprehensive mental health cover, which can leave you vulnerable when you need necessary treatment and ongoing support.
Is cheap health insurance worth it?
Bottom line: cheap health insurance in Australia might save you a bit of money upfront, but the hidden costs, limited cover and potentially high out-of-pocket expenses could far outweigh those initial savings. When weighing whether cheap health insurance is worth it, make sure you think about your individual health needs, lifestyle, family size and long-term financial goals.
Ultimately, investing in a health insurance policy that offers better value – one that balances affordability with broader cover – could be the smartest choice. At Fair Health Care Alliance, we believe in finding that sweet spot between cost and quality, which is why we’ll help you get the best protection for your health and peace of mind.
