Private health insurance in retirement: keep it or give it the flick?
Written by Glen James
Host of the Retire Right & money money money (formerly my millennial money) podcasts & author of The Quick-Start Guide to Investing.
Community member asks:
Hi everyone, what are people doing regarding their private health insurance? Both our children are coming off our policy and I only recently found out we are not covered for knee replacement surgery on our policy. I have tried to compare sites but it is very confusing. My husband is planning to retire at the end of the year & me working part time. Would be grateful for any input.
Glen: Thanks for the question. Regarding the children, make sure they get their own policy set up as they come off yours. In general, private health insurance is a luxury in Australia. It’s a bit of a weird system here where healthcare is a blend of public and private.
When it comes to most private health insurance policies, joint replacement is usually not found on basic or even some mid-level policies.
One thing that people get hung up on with private health insurance is the extra benefits like eyecare, physio, massage etc. These are exactly that: extra benefits. The main purpose of private health insurance is in patient hospital treatment & elective surgery. That’s how the government sees it. The government wants any non-life threatening or urgent hospital treatment to be covered in the private system. For families that earn over $186,000 (and $93,000 for singles), you will get taxed more (up to 1.5%) if you do not have private health insurance with hospital cover. The government doesn’t care if you have extras cover.
What does this all mean?
Over time things change, like car insurance, your car might be worth less and you need to review your car insurance due to the changing circumstances. Likewise, with your home & contents insurance and life / income insurance.
This community members has had a bit of a flash point with the children leaving the policy, some potential surgery and retirement in the coming year. It’s a great time to review.
Insurance is a simple concept: you pay a premium into a pool of money to transfer financial risk away from you that you are not prepared to carry. Not everyone claims, but if you do, you should be able to get money from the pool.
That being said, when it comes to reviewing insurances, price is a big factor in concert with your needs. Life is full of risks and we can’t remove all risks. But we can minimise the financial loss of risks. For me, I never have private health insurance just for extras cover and my extra benefits are actually pretty basic. I have it there for elective surgery where I can select a doctor of my choice and effectively book in to have this done whenever, skipping the public waitlists.
What to do?
I would suggest contacting your current provider and asking them to give you some options for hospital cover that includes joint replacement, looking at increasing the excess and then potentially considering dropping extras cover, or heavily reducing these. This means that you would ‘self-insure’ the first co-payment (or ‘excess’) which the highest you may find may be $1,500.
Doing this means you have effectively just moved some of your premium from extras to a higher tier hospital policy and hopefully the cost has balances out with a higher excess, if not a lower cost. You may need to do this every year or so in line with your budget and don’t be afraid to ditch the extras as the main reason for private health insurance is for elective surgery, like a knee replacement. Unfortunately, Medicare doesn’t consider pain and annoyance as urgent in most cases!
What to look out for?
Upgrading to new benefits may attract a waiting period. For example, if you upgrade the hospital policy today, you may not be able to claim on this for 12 months. This may still be faster than waiting on the public list.
Don’t be afraid, if you have the money, to ask your surgeon for a full quote to pay for the replacement from your own funds – if it is more urgent and you have the money.
I have personally found that most hospital cover is pretty competitive with each insurance when it comes to like-for-like cover. So, give your current insurer the first option to tweak your cover, otherwise, you can find a list of other private health insurance companies on the government website and conduct a comparison here.
I’m a little skeptical of comparison websites, so I would suggest the government website or doing your own comparisons with reputative providers direct on their website.
Finally, most health insurers work on a calendar year model, so one excess per calendar year. If you are going to plan some surgery (or say, a routine colonoscopy etc) and works out to do so, do it at the start of the year. That way if something comes up later in the year, you won’t need to pay another excess.
Happy Health Insurance-ing.
Glen