The dreaded increase is here – health insurance premiums are set to rise in April. With health funds proposing an average hike of 6%, this year’s increase could be one of the largest yet.
So, how can you respond to the upcoming health insurance price hike?
You have two choices:
- Cancel your health insurance.
- Switch your policy.
If neither of these options is pursued, then you are effectively accepting the increase.
Should You Cancel Your Health Insurance?
Cancelling your health insurance might seem like a good way to save in the short term, but it can quickly become a costly mistake if you experience an accident or develop an expensive health condition.
For example, if you suddenly needed emergency dental work and required a crown, you could face a range of unexpected fees for services like:
- X-rays
- Root canal treatment
- Anesthesia
- Crown creation
Without the proper health insurance, these costs would add up, and in many cases, would exceed the amount you would pay in premiums.
Additionally, cancelling your health insurance could expose you to penalties like the Medicare Levy Surcharge (MLS) and Lifetime Health Cover (LHC) loading.
The Australian government imposes the MLS on high-income earners who don’t take up private health insurance, aiming to encourage higher-income individuals to join private health funds and ease the burden on public healthcare. The surcharge is based on your annual income – $97,000 for singles and $194,000 for couples – with higher earners paying more if they lack the appropriate hospital cover.
To avoid MLS, you need to maintain the correct level of hospital cover throughout the entire tax year. Be aware that income bands often change each year.
Then there’s the LHC loading, which penalizes those who fail to take up health insurance before turning 31. This surcharge adds 2% for each year you don’t have cover, starting from July 1 after you turn 31, and can reach up to 70%. The longer you go without insurance, the more expensive it becomes.
What Happens to Waiting Periods If You Cancel?
One downside of cancelling your health insurance is that any waiting periods you’ve already served may need to be completed again if you rejoin in the future. Waiting periods can range from a couple of months to 12 months for certain services, including pre-existing conditions or pregnancy-related services.
Tip: When switching to an equivalent or lower policy, you won’t need to re-serve any waiting periods you’ve already completed. This means you won’t be penalized for upgrading to a more affordable plan.
What If I Don’t Want to Cancel But Am Going Overseas?
If you plan to be overseas for an extended period, many insurers allow you to pause your cover for a set duration. This way, you won’t face new waiting periods or LHC loading when you return.
Another advantage of pausing your policy is that any waiting periods you’ve already served will not reset when you reactivate your insurance.
Tip: If possible, it’s a good idea to finish any waiting periods before heading overseas, so you won’t have to complete them again when you return.
Most insurers have specific rules about pausing coverage, typically requiring you to have held the policy for at least 12 months. Learn more about how to pause your health insurance if you’re going abroad for a while.
Why Switching Health Insurance Makes Financial Sense
Life is unpredictable, and while family history can give you an idea of potential health issues, it’s impossible to predict exactly what will happen. Having private health insurance provides peace of mind, but with premiums set to rise, now is an excellent time to reassess your policy and switch to one that offers better value.
Are You Paying the Loyalty Tax?
Many people stay on the same health insurance plan year after year, paying for benefits they no longer need, while missing out on coverage that better suits their current life stage. This is known as the “loyalty tax.”
If you’ve been on the same plan for a long time, it might be time to switch. On average, families who switch to more affordable plans can save around $462 a year. So, if your policy has become stagnant, consider switching to stop paying the loyalty tax and start saving money.
Switching Health Insurance Is Easy
One common concern is the hassle of switching, but the process is actually quite simple. At Compare Club, we handle all the paperwork, ensuring a seamless transition between health funds. Our customers are often pleasantly surprised that the price of their policy through Compare Club is the same as going directly to the health fund, with the added benefit of easy comparison and time-saving tools.
Once people realize how much they can save by shopping around, they often have an “aha” moment, recognizing the importance of regularly reviewing their health insurance options.
Adding Adult Children to Your Policy
If you have adult children, you may not know that they can remain on your health insurance policy until they turn 31, as long as they aren’t married, in a de facto relationship, or have children of their own. They don’t even have to live with you.
A 25% loading is added to your premiums, but it applies regardless of how many adult children you add. So, the more adult children you have, the more you save. This loading is much cheaper than having each child take out their own separate policy.
Tip: Consider splitting the 25% loading fee among your adult children so that there’s no added cost to you.
Want to know more?
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Author Profile: Jeffrey Liu, JP, is the founder and principal adviser of Hippo Insurance (aka: Hippo Wealth), with a deep expertise in wealth protection. His extensive experience includes roles in the wealth management divisions of Westpac, ANZ, and a local multi-family office. As the host of “Riches Talk,” a podcast dedicated to cultivating personal and business growth, Jeffrey has established himself as a thought leader in developing life riches. His insights have been featured on SBS, The Australian, and Channel 7. Notably, he was a semi-finalist on Australia’s Got Talent in 2010. Learn more at http://www.hippoinsurance.com.au
