Introduction
If you’re thinking about cancelling your private health insurance, bear in mind that it’s a pretty big decision that can have knock-on effects into other parts of your life. While it might seem like an expense you can’t afford right now, if the worst were to happen you might be left severely out-of-pocket.
It’s true that rising premiums, changing financial circumstances and dissatisfaction with your current provider can all be reasons to cancel, but there are also alternatives to cancelling outright. So before you take the leap, make sure you understand all the potential implications and other ways you can stay covered – we’ve got the tips to walk you through the whole process.
Step 1: What are your reasons for cancelling?
Can you identify the exact reasons why you’re thinking about cancelling your private health insurance? Some of the more common explanations include things like:
- Cost: Higher premiums might make your policy seem unaffordable.
- Dissatisfaction with the insurer: Your current policy might not be meeting your needs or give enough actual value.
- Lifestyle changes: Job changes or moving to another state/territory might change your need for the same level of private cover.
Step 2: Review your policy details
Before you actually go through with cancelling your policy, it might be worth taking a bit of time to revisit your PDS and review the terms. Who knows? You might find some ways to make the situation more manageable. Here’s what to look for:
- Prepaid premiums: If you’ve paid your premiums in advance, you could be entitled to a refund for unused cover.
- Cooling-off period: If you’ve recently signed up for a policy, check if you’re still within the cooling-off period (usually 30 days), which can give you a full refund if you cancel during this time.
- Cancellation fees: Some health insurers will charge an administration fee for cancelling – give them a call or email to confirm whether this applies to your policy.
Step 3: Really think about the consequences of cancelling
Cancelling your private health insurance means there will indeed be some drawbacks. In terms of what you could lose, here’s what you should consider beforehand:
Waiting periods will reset
If you cancel and decide to rejoin later, you will need to re-serve waiting periods for a lot of different benefits. These waiting periods can include:
- 12 months for pre-existing conditions and pregnancy/obstetrics.
- 2 months for general claims like dental and physiotherapy.
If you’re switching providers rather than cancelling outright, make sure you ask for a clearance certificate from your current health insurer, as this will make sure any waiting periods you’ve already served will transfer over to your new policy.
Lifetime Health Cover (LHC) loading
If you’re over 30 and cancel your hospital cover, you could face a Lifetime Health Cover loading of 2% on your premiums for every year you stay uninsured after your 31st birthday. Consider this your helpful reminder that loading can increase your premiums by up to 70% and will only disappear after you keep consistent cover for 10 consecutive years.
Medicare Levy Surcharge (MLS)
High-income earners who cancel their private hospital cover will in most cases need to pay the Medicare Levy Surcharge (MLS). It’s a tax that ranges from 1% to 1.5% of your income (for singles earning over $97,000 or couples earning over $194,000).
Loss of private benefitsCancelling means giving up benefits like being able to streamline your way through elective surgeries and into private hospital rooms, as well as getting rebates for extras like dental, optical, physiotherapy, chiro and more. You’ll need to rely solely on the public healthcare system, where waiting times for non-urgent treatments are – at least as of late 2024 – very lengthy.
Step 4: Explore alternatives to cancelling
If you’re hesitant about the consequences, here are three easy ways to avoid cancelling your private health insurance outright:
1. Switch providers
Sometimes the issue isn’t with private health insurance itself, but rather your current provider. Comparing policies can help you find a plan that best suits your needs and your budget. If you do end up switching, make sure your new policy has the level of cover you want, and also request a clearance certificate from your old insurer so you don’t have to re-serve waiting periods.
2. Downgrade your cover
If the cost of premiums is your biggest concern, you might save a bit of money by switching to a lower-tier hospital cover or cancelling your extras cover. Don’t worry – you’ll still be protected from the Medicare Levy Surcharge and LHC loading.
3. Suspend your policy
Some health funds will let you suspend your policy for a short amount of time, such as if you’re heading off on extended travels or facing financial hardships. This could be an option if you don’t want to deal with new waiting periods when you choose to reactivate.
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”
Step 5: How to cancel your private health insurance
If you’ve weighed up the pros and cons and are serious about cancelling, here’s how you can do it:
- Contact your insurer: If you’re not sure how everything works, check in with your insurer about their specific process, as some funds will require as much documentation as possible. Regardless, you should be able to cancel via:
- Phone (Call your insurer’s customer service line)
- Email (Send a written cancellation request)
- Online (Use the insurer’s portal, online form or app).
- Request a clearance certificate: If you’re switching providers, ask for a clearance certificate from your current health fund. It will break down your previous cover and help transfer any waiting periods to your new policy.
- Cancel direct debits: Make sure you immediately stop any automatic payments set up for your premiums so that you don’t incur more charges after cancelling.
- Confirm your refund: If you’ve prepaid premiums, confirm the amount you’ll be refunded and when you can expect it (and then double-check that it’s correct once it arrives).
Step 6: Keep track of tax implications
Cancelling your private health insurance mid-year could have a few tax implications. The Medicare Levy Surcharge, for example. applies proportionally to the number of days you’re uninsured throughout the financial year. If your income is higher than the MLS threshold, then be prepared to account for this tax when filing your return.
Step 7: Think about your future healthcare needs
Before cancelling, it’s also a good idea to consider what your future healthcare needs might be:
- Chronic conditions: If you have ongoing health problems, relying solely on Medicare could mean you have to deal with delays and expensive treatments out-of-pocket.
- Growing families: Planning for kids? Hospital cover has a 12-month waiting period for pregnancy-related services, but it will also take care of the brunt of your costs. Either way, timing is critical.
- Ageing: Your healthcare needs will go up as you get older, which obviously makes private health insurance an increasingly valuable safety net as you age.
Is cancelling the right choice for you?
Cancelling private health insurance can indeed give you some short-term financial relief, but it’s not without some serious risks. The loss of benefits, potential tax penalties, long-term costs like LHC loading and other surcharges can all outweigh the upfront savings.
Conclusion
Instead of cancelling outright, think about how some other options – like switching providers, downgrading your policy or suspending your cover – could be a better alternative. If you’re still unsure, comparing policies can help you see what you can and can’t afford, and hopefully give you a better idea about how affordability should be balanced with your level of cover.
Speak to the experts at Fair Health Care Alliance today to find a policy that suits your needs without breaking the bank.
