If you struggle to get your head around private health insurance, you’re not alone.
Finder research shows more than a quarter of Australians (27 per cent) find that managing health cover is their second-most-stressful expense. Fortunately, things can be a bit more straightforward when it comes to extras cover. You don’t need to go into the weeds of the Medicare levy surcharge or any government rebates – unlike with more complicated hospital insurance policies.
As a reminder, extras cover is an optional insurance that pays benefits for non-hospital treatments and services such as dental work, glasses and physio visits. Medicare won’t cover these services. So, it’s no great surprise almost 13 million of us hold extras cover in this country.
Does extras cover really deliver value for money?
On average, no.
The Australian Prudential Regulation Authority’s (APRA) latest private health stats show that, for every dollar consumers spend on extras cover, less than 45 cents is returned back to consumers in benefits. It’s worth keeping in mind the dollar spend factors in premiums plus out-of-pocket costs (the amount you need to make up yourself to meet the cost of a service).
The issue of whether extras cover – and private health insurance more broadly – offers good value is a divisive one. Some people advocate strongly for private cover due to the peace of mind it brings, and the options it provides in the case of your health needs changing.
On the other hand, many are critical of how the system works for insurers rather than delivering great outcomes for users. An insurance expert I spoke to recently was critical of the “use-it-or-lose it” approach to extras benefits taken by health funds, with claimable limits being reset each year – commonly on January 1 or July 1.
"Major funds have set up benefits like gift vouchers, which they hope you'll forget to use in time,” the expert told me.
The Australian Medical Association’s (AMA) 2022 report card identified that some health funds now paid more than 15 per cent of their earnings in “management expenses”. These fees are the costs taken out of your premiums by an insurer so they can run their fund.
What can you do to avoid being ripped off?
Here are 3 actions you can take when it comes to extras cover:
Do the maths. If you hold extras cover, start by checking your bank’s transaction history. Add up your benefit claims and see if they are on par with – or, ideally, exceed – your premiums over a period of time; for example, 12 months or three years. If you’re regularly spending more than you’re getting back, this type of insurance may be one you can do without in 2023.
Use your benefits before they expire. One easy step policyholders can take is to make sure they’re actually using their benefits before any limits are reset. By not doing so, you’re effectively pouring your hard-earned into the pockets of an insurer. Plan out how you will use any remaining benefits early, so you’re not rushing to order those contact lenses or book in that much-needed massage.
Make the most of any sign-up deals. Another way you can plan for your extras services is to look for a deal that lets you get around the policy’s typical waiting periods. These are usually two- or six-month waits. It’ll mean you can claim money back right away on things like glasses and visits to the dentist.
Be sure to shop around
Ultimately, extras cover is only good if it’s used smartly. You’ll want to be one of the consumers dragging the 45 cents per dollar up to a fairer number.
In practical terms, you need to be ready to switch regularly to another policy that’s better suited to your needs.
Finder’s health insurance database shows there’s a difference of $134.06 per month between the cheapest and the most expensive extras policy.
By not comparing policies, you could be overpaying to the tune of hundreds of dollars in potential savings.