Is health insurance a rort?

 Health insurance may not be worth it – and insurers could be ripping you off.

That's the harsh warning issued by consumer group Choice - urging Gen Y to think carefully before taking out potentially pricey health insurance, with premiums set to rise by 5%, or as much as $200, again this year.

Australian insurance premiums have soared a whopping 48%, on average, since 2009 – despite the Consumer Price Index lifting just 17%.

New figures show insurance payouts for physiotherapy; dental and optical have dropped by 6% - despite consumers paying more for cover.

Also read: 2017 warned the end of private health insurance

Scare campaign?

The warning from Choice comes on the back of a Seven News report this week, which showed Aussies are actively turning their back on private health cover amid complaints it's far too expensive and not getting enough for their money. Last year, 9,000 abandoned their health insurance.

Choice Spokesperson Tom Godfrey, has chastised the insurance industry for running a ‘scare campaign’ warning young people to take out private health cover before turning 31, or else face a government penalty in the form of the 2% Lifetime Health Cover loading.

The reality is this tax penalty only kicks in [if the person] chooses the take out private hospital cover in later life. If you stay in the public hospital system, you aren't penalised, Godfrey told Yahoo7 Finance.

He criticized the “huge racket around encouraging private health insurance.”

Insurance cover is not always worth it, he warned. “People should only take out [insurance] if they need it.”

Confirmed this week, the 5% premium price lift looks set to kick in on April 1 and comes hot on the heels of a 5.5% hike in 2016. However, insurers often hike up premiums above the average increase, warns Choice.

“Its important that individual consumers contact their health fund to find out what the [premium] price increase is,” says Godfrey. You can also drop the 'Extras' cover without getting a tax penalty.

But the problem is when consumers contact their health insurer to change their pricey policy they are often downgraded to ‘junk’ policies, which “wont cover the vast majority of claims,” he points out.

Complaints to the private health insurance ombudsman have soared, of late, with Medibank Private emerging as the most-complained about insurer.

Also read: The 10 best-performing Australian super funds in 2016?

Now is also good time to ask insurance companies for an annual claims statement.

$100-$200 hike

The 5% price increase means $100 more a year, on average, for a standard hospital policy, with premiums for jumping to $1505 for singles, while for families will soar by $200.

Private Healthcare Australia have defended the latest price hike and claim its being driven by an aging population and the prevalence of chronic disease, meaning people use health services more.

Dr Rachel David, chief executive of PHA, claims that for every $1 collected in premiums, 86c is passed back in benefits, on average.

"Many younger people take out private health cover for the value they receive from Extras Cover in particular, through cheaper access to dental and allied health services," she said.

"Health funds pay out over $2.5 billion per annum in dental benefits, which is more than Federal Government dental programs. 53% of the total benefits paid for ‘Extras’ goes to dental care."

Health funds pay for 90% of same day mental health care and 50% of inpatient mental health admissions, David added.

If you are thinking about taking out health insurance, ask yourself the following, according to Choice.
 

• Take the Do I need health insurance? health check

• If you need cover, a top level hospital cover with an increased excess is often better value than reducing your cover.

• Pay your annual premium in March to avoid the April 1 price rise for now

• Check to see if you can join a restricted membership health fund for your industry.

• Think of extras cover as a budgeting tool. If your annual payouts are less than the cost of your policy, it may not be worth the money.