Key Takeaways
- Choosing the wrong level of cover can end up with you footing the bill for out-of-pocket costs.
- Extras cover might not always be worth the additional cost if you don’t use it frequently.
- If you aren’t across all the specific waiting periods, it could mean you’re left without cover when you need it most.
What to avoid when shopping for a private health insurance plan
If you’ve never taken out private health insurance before, it might seem like there are just far too many things to take care of. From researching the sheer number of policies on the market, to wrapping your head around the different tiers, to reading the fine print on the PDS – something many people overlook. Yes, having health insurance makes you more financially secure in the event of a healthcare issue, but making the wrong choice can be an even more costly endeavour.
The problem is that many Australians end up with policies that don’t match their healthcare needs, forcing them to either pay for services they’ll never use or face unexpected costs when they actually need treatment. Others fall into common traps like forgetting about waiting periods or not taking advantage of rebates and other tax benefits.
To help you avoid these issues, we’ve compiled a list of things not to do when choosing a health insurance plan.
1. Don’t focus only on the cheapest policy
It’s tempting to pick the lowest-priced policy to save money, but cheaper doesn’t necessarily translate to better. A lot of the most basic and budget-friendly policies have plenty of exclusions, high excess fees or restricted benefits, which means you could end up paying more out of pocket when you need treatment.
Basic and Bronze-tier policies might also only cover restricted hospital services, which means you’ll have to rely on the public system for major treatments. If you end up needing surgery or a hospital stay, a cheaper policy might not cover it at all, forcing you to either go on a long public waiting list or pay full price for private treatment.
What’s more, some cheap plans automatically slap you with higher excess fees. This means that while your monthly premiums will be lower, your upfront costs for any hospital admissions could be eye-wateringly high.
Better approach: Instead of choosing the cheapest plan, compare the value of all the benefits against the cost to find a policy that balances affordability and cover.
2. Don’t ignore waiting periods
One of the biggest mistakes people make is assuming they can claim benefits straight after signing up for a policy. But that’s not how the system works. Health insurers have waiting periods in place to stop people from signing up, making claims on expensive procedures and then cancelling their policies as soon as those costs are covered.
If you have a pre-existing condition, insurers will set a 12-month waiting period before you can claim for treatments related to that condition. Many people don’t realise this until they need treatment, only to find out they aren’t covered yet.
Similarly, pregnancy and birth-related services also come with a 12-month waiting period. If you’re planning to start a family, you’ll need to take out hospital cover before you conceive to avoid being caught out. Also bear in mind that other services may have a two-month (or more) waiting period.
Better approach: If you expect to need treatments or procedures in the near future, choose a policy with waiting periods you can manage or look into transferring from an existing policy where new waiting periods might be waived.
3. Don’t overpay for extras you don’t use
Extras cover (i.e. ancillary services like dental, optical, physio, etc.) are very popular for millions of Australians – but by the same token, not everyone benefits from it. If you have perfect vision or don’t need to visit the physio, you might be paying for services you will never use.
So, what are some of the signs you might be wasting money on extras?
- You don’t use most of the included services.
- Your rebate is too low to justify the premium.
- You’re not getting close to reaching your claim limits every year.
Extras can be great for families, seniors or people who frequently use allied health services. But for younger, healthy people who rarely need treatment, it often ends up being an unnecessary expense.
Better approach: If you’re not sure whether extras cover is actually worth it, calculate how much you would spend on treatments out-of-pocket versus how much you’re paying in premiums every year. You might just find it’s much cheaper to self-fund those services.
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”
4. Don’t forget to read the PDS and information about gap cover
Just because a service is covered under your policy doesn’t mean the entire cost of a procedure will be reimbursed. Some specialists charge more than the Medicare Benefits Schedule (MBS) fee, leaving you with a gap payment.
Quite a number of private hospitals and doctors will charge above the MBS rate, meaning you’ll have to cover the difference out-of-pocket unless your insurer has a gap-cover program. Some funds offer ‘no gap’ or ‘known gap’ schemes, which will help reduce – or eliminate entirely – these out-of-pocket costs, but not all doctors and hospitals participate in these programs.
If you need surgery or specialist treatment, always check whether your doctor and hospital participate in your insurer’s gap-cover scheme. If not, you could be hit with thousands of dollars in unexpected medical bills.
Better approach: Choose an insurer with a strong gap-cover program and always confirm the exact costs with your doctor before getting treatment.
5. Don’t overlook Lifetime Health Cover (LHC) loading
Lifetime Health Cover (LHC) loading is a government penalty for people who don’t take out private hospital cover before July 1 following their 31st birthday. Every year you delay, your premiums go up by 2% per year, up to a maximum of 70% extra.
If you wait until later in life to take out private hospital cover, you’ll end up paying much higher premiums for years to come. The only way to remove LHC loading is by keeping your hospital cover for 10 continuous years.
Better approach: If you’re under 31 and thinking about getting private health insurance, jump on it now to save money in the long run.
6. Don’t choose the first policy you come across
Just like underinsurance is a big problem in Australia, many people have the problem of sticking with the same insurer for years – completely unaware they could get much better cover for less money somewhere else. Health insurance policies change all the time, and what was once a great deal for you might no longer be the best – or even a good – option.
Staying with the same insurer out of loyalty or convenience could mean you’re missing out on better benefits or cheaper premiums with competitors. Also, some funds tweak their policies every year by getting rid of certain benefits while increasing their costs.
Better approach: Use an independent health insurance comparison tool or speak to an advisor to get the best value for money.
Summary
Choosing the right health insurance policy can give you peace of mind and financial cover whenever you need treatment – but only if you avoid common pitfalls. Too many Australians fall into the trap of choosing the cheapest policy or paying for extras they’ll never use. Taking the time to research and compare different options will save you money and guarantee you are always covered for what you need.
If you need help comparing policies, Fair Health Care Alliance will guide you along the way to finding the best cover for you and your family.
FAQ's
Only choose to get extras cover if you plan on regularly using it. Also compare policies and see if a combined hospital and extras plan is better than extras-only.
Yes, if you switch to a policy with equal or lower cover, your waiting periods will carry over.
