Key Takeaways
- Out-of-pocket costs for private hospital cover have risen by 71% in five years, leaving numerous Australians paying more for their healthcare despite having insurance.
- Because gap payments can vary widely depending on your state/territory and provider, it’s a good idea to compare and choose policies with known gap agreements.
- Being proactive about your healthcare and future planning can help reduce unexpected expenses and mean you are getting the most value from your private health cover.
Healthcare costs are on the rise
For millions of Australians, having private health insurance is a necessary investment that gives them timely, high-quality healthcare when they need it most. But out-of-pocket expenses for policyholders have skyrocketed by a whopping 71% over the past five years, according to recent data from Money.com.au. And despite rising premiums every year, the portion of healthcare costs covered by private insurers has grown at a much slower pace, leaving patients footing bigger bills than ever before.
With household budgets under increasing strain thanks to the cost of living crisis, many Australians are re-evaluating whether their private health insurance is even worth it anymore. The challenge now is in how to manage rising costs while still being able to access essential medical services.
Let’s explore what’s driving the surge in out-of-pocket costs and how you can take back control of your healthcare spending.
Why are out-of-pocket costs going up?
There’s no one root cause of healthcare costs being on the up and up – and likewise there will be no panacea that can act as a complete fix. In reality, there are several factors that are contributing to rising out-of-pocket costs for insured Australians:
1. Private insurers are covering less
While the cost of hospital treatments has increased by 22% since 2019, contributions from private health funds have only gone up by 12%. It’s a growing gap that means policyholders are left to foot the difference, making even routine medical procedures much more expensive.
2. Medicare rebates not keeping up
Medicare rebates have also only increased by around 18% over the past five years, lagging behind strong inflation and the consistent rise in healthcare costs. As a result, patients are covering a larger portion of medical bills that were once more fully subsidised.
3. Gap payments on the rise
The average disclosed gap payment (where costs are known upfront) has increased from $99 to $135 in the same time period. Meanwhile, undisclosed gap payments (where patients only find out their costs after treatment) have soared dramatically from $418 to $685 on average. Such unpredictability makes it incredibly hard for everyday Australians to budget for their healthcare.
4. Higher premiums with less benefits
Health insurance premiums tend to go up every year on April 1st, and in 2024 millions of Aussies were stung with the highest private health insurance hike in 5 years. Despite paying more, the vast majority are finding that their policies cover fewer services. With many procedures and specialists excluded from cheaper plans, patients are either forced to upgrade their policies or pay large sums out-of-pocket – which is, in many instances, simply not possible.
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”
6 ways to manage your out-of-pocket expenses
It’s true – rising healthcare costs are unavoidable. But that doesn’t mean you can’t leverage a few clever strategies to try and keep your medical expenses under control:
- Choose a policy with a known gap agreement: Many health funds have agreements with specific hospitals and doctors to reduce – or even eliminate entirely – gap payments. Going with a provider who participates in a known gap scheme can really put a dent in your potential out-of-pocket costs. Before undergoing any procedure, just make sure to ask your insurer for a list of participating providers so you aren’t hit with unexpected bills afterwards.
- Review and switch your cover as needed: Too many Australians are paying for services they don’t use while missing out on the cover they actually do need. Review your policy at least every year to make sure it’s still giving you what you want. If you no longer need pregnancy-related services in your cover, for example, downgrading to a lower-tier, more affordable policy could reduce your premiums while also freeing up funds for services you do use.
- Negotiate with your healthcare providers: Some specialists and private hospitals might let you negotiate on fees – within reason – particularly if you’re staring down the barrel of a large gap. Before committing to a treatment, ask for an itemised cost breakdown and don’t be afraid to pose the question of any potential fee reductions.
- Pay a higher excess to reduce your premiums: Choosing to pay a higher excess (the amount you pay before insurance kicks in) can lower your monthly premiums, which would be very useful if you only rarely need hospital treatments but want to hold onto your cover for major medical events.
- Take advantage of preventive and allied health services: Many Australians fail to use their extras cover for services like physiotherapy, optical and dental. But having regular check-ups can work to prevent more expensive medical treatments from being needed later on. If your policy includes these benefits, make sure you’re getting the most out of them every year – and keep an eye on those limits.
- Check for government rebates and other incentives/perks: The private health insurance rebate is a handy perk that lots of Australians take advantage of to reduce the cost of their premiums. If you earn less than $97,000 (singles) or $194,000 (families), you could be eligible for a rebate of up to 24.608% until you turn 65, when you’ll end up getting an even bigger rebate. Higher earners also get a cut, so check your eligibility and make sure you are claiming this rebate to possibly save hundreds of dollars every year.
Health insurance in public vs private care
Given the state of the economy right now, it’s no surprise that some Australians will be thinking about dropping their private health insurance altogether and rely solely on Medicare. While the public system does indeed cover you for essential medical care, waiting times for elective surgeries (and even those that are fairly urgent) can be eye-watering.
In Victoria, for example, patients who need semi-urgent surgery (recommended to happen within 90 days) have had to wait an average of 307 days. For those who need surgery within a year, wait times have ballooned to almost two years.
If you’re considering whether or not to keep your private health insurance, think about how these wait times in a public hospital might affect you. Also weigh up the long-term benefits against the short-term cost savings. In many cases, switching to a better policy can give you better financial security and faster medical care.
To sum up...
While rising out-of-pocket expenses are putting pressure on everyday Australians, there are some proactive steps you can take to minimise your costs. After all, health insurance should work for you, not against you. If you’re unsure whether your current plan is still right for your situation, Fair Health Care Alliance will help you compare your options and find a better solution.
FAQ's
Gap payments are going up because some insurers are covering less of the total bill, there are rising hospital costs, plus Medicare rebates are failing to keep pace with inflation.
Choose a policy with known gap agreements and discuss fees upfront with your healthcare providers.
In spite of rising costs, having private health insurance is the best way to get fast medical treatment and your choice of specialists.
