Health insurance: A necessary spend or a waste of money?

It’s one of today’s most debated household expenses: Private health insurance. As a media topic, it also seems to generate headlines, particularly around the annual April 1 price increase.

Plenty of Australians have private health insurance; around 46% of us are covered by a private policy. In fact, it’s a $26bn a year industry in Australia. Given we’re a country with a reasonably strong public health system, is it something that you need to spend your hard earned wages on? Or is it simply a waste of money?

The value of private health insurance

Private health insurance does have some significant advantages. Firstly, the Federal Government actively encourages Australians to purchase private health insurance, with the Medicare levy surcharge imposed to encourage us all to go private. Given that, provided you meet salary thresholds, you’ll pay the levy surcharge if you don’t have it, it makes some financial sense to take out health cover.

We would definitely encourage you, at a minimum, to take out hospital cover. The benefits are clear, and it certainly makes sense, both financially and for your peace of mind, if a medical situation arises. This becomes especially important in your later years, as elective surgeries become more common and avoiding waiting lists is a priority.

The more contentious issue arises around the extras that all health insurers offer. There’s a plethora of options in today’s market and the amount of claimable services is quite extensive, from the usual dental, chiro, and physio, to more exotic options. For those of us who regularly use these services, the add-on extras make a lot of sense, financially.

There are some drawbacks

While there’s certainly some benefits, there are also some drawbacks. The first is the flipside to the added extras. While for the proactive health insurance users they make sense, the reality for many of us is that the extras we pay for in our premiums essentially go unused. In fact a recent survey showed that up to $4.5bn in extras go unclaimed every year.

There’s also the fact that we do have a strong public health system; it’s worth pointing out that despite media coverage and the odd negative political campaign, our public health system is still one of the best in the developed world. I personally think it is fantastic that we live in a country where health services are available to all, regardless of your financial position. There are many other Western countries that don’t have that universal aspect to their public health system, most notably the USA. So I can understand the argument that, given the rising costs of private premiums, some consumers would forgo coverage.

How do you make sure you have the best deal?

Like most financial decisions, there’s a few steps you can take to maximise your spend on health insurance:

1. Ring your fund

It might sound simple, but I think it’s a good first step. My advice is to call and ask for a breakdown of what you’re paying in terms of hospital cover vs. extras. Once you know what you’re paying in extras, ask for your claim history for the past 2-3 years. You can then compare your premium vs. what you’ve used. If you’ve been to the dentist once and not used any other extras, you may look at paring back spend on these add-ons to reduce your premium.

2. Shop around

There are plenty of options to compare your private health premium, both through the government website www.privatehealth.gov.au, and a number of comparison websites such as finder.com.au or iSelect. It’s often good to have a snapshot of your options to put to your current provider: Insurers hate losing you as a client and will often match or beat a lower price offered by a competitor.

3. Maximise your policy

There are some excellent extras that you’re most likely already paying for in your premium. Once you’ve worked it out and sorted out the ones you want, make sure you use them!

Overall, the benefits of private health insurance do outweigh the negatives. The key is to ensure that you check the level of coverage you have and compare providers to make sure you get the coverage you need for the lowest possible premium.