Game Of Patients
Sydney Morning Herald
Wednesday April 21, 2004
Heal thyself, take a knife to health insurance costs. Ian Hamilton tells how.
Autumn brings the same things every year: shorter days, cooler nights and larger private health insurance premiums. They rose again this month to meet the escalating costs of gap cover arrangements, more expensive medical technology and rising doctors' fees.
The average 7.58 per cent across-the-board increase follows a similar rise last year - at a time when inflation is 2.5 per cent.
On comprehensive family hospital cover this means an extra hit of up to $140 this year, before a claim is made.
Many privately insured consumers are resigned to annual increases, but the industry ombudsman's office says a lot are moved to protest when, at the same time, they're hit by a double whammy of tighter policy restrictions or benefits being wound back.
Statistics from the Private Health Insurance Administration Council (PHIAC) show, however, that falling membership has virtually levelled out - for now - at 43.4 per cent of the national population.
The decision to take private cover requires weighing up the costs against the likelihood of using it, with the benefits arising when ill health strikes.
Primarily it gives you quick, convenient access to a private hospital and a choice of specialist. In other words, private health insurance gives you a degree of control that you wouldn't have in the public system.
On cost, bear in mind the Federal Government's carrot-and-stick measures to favour the private system - the 30 per cent rebate on premiums and the Lifetime Health Cover loading on premiums for those over 30 and under 70 not yet covered.
Coverage and costs vary considerably between funds. Picking the right policy requires juggling excesses, co-payments, excluded procedures, benefit restrictions, and of course, the potential out-of-pocket or "gap" expenses.
JUMPING THE GAP
Paying high premiums and then forking out again for expenses not covered in treatment has long been the biggest bone of contention in private health insurance. Since the introduction of gap cover arrangements in 2001, however, the situation has steadily improved.
The gap is the difference between the Government's schedule fee for a medical service and what the hospital or doctor actually charges. Health funds can now cover the gap if hospitals and doctors agree to keep charges within a limited margin above the schedule.
The proportion of medical services provided with no out-of-pocket expenses to private NSW patients has climbed from 50 per cent in 2000 to 76.6 per cent last year. But beware of statistics. One claim typically covers a range of services, so the percentage of claims without gap expenses for any service is somewhat lower.
"There are certainly more people getting through without out-of-pocket-expenses, but they are paying higher premiums for it," says Nicola Ballenden, the health spokeswoman at the Australian Consumers Association.
And where gap payments do occur for patients, the average was $130.30 per service last year, and rising.
The private health insurance ombudsman, John Powlay, says overall gap payments covering the range of services needed per claim can still run to several thousand dollars, particularly in doctors' fees.
There remains significant misunderstanding of gap cover arrangements, Powlay adds. Funds strike gap cover agreements with hospitals and doctors separately.
Those taking out higher levels of cover, and some on lower cover too, are getting 100 per cent of their hospital costs covered (accommodation, PBS drugs and theatre, intensive care or labour ward fees) if treated in one of their fund's "agreement" hospitals.
"The gap arrangements generally work well," Powlay says. "Most people can find a participating hospital without much trouble."
It's the doctors' fees where it's been harder to eliminate the gap. The medical indemnity insurance crisis, and shortages in key specialist areas, sees their fees rising.
"Anaesthetists, orthopedic surgeons and obstetricians are less likely to enter into no-gap agreements," Powlay says.
Often it's not just the gap itself but being surprised by out-of-pocket expenses when none were expected that rankles the most.
Many fund members don't understand that doctors participating in no-gap agreements can opt in or out case by case. Some will charge the lower gap-covered fees only to pensioners, for example.
More worrying is the emergence of out-of-pocket expenses even when the doctor has agreed to a no-gap arrangement.
The ombudsman and the Australian Competition and Consumer Commission have both expressed concern over growing instances of doctors charging a "booking" or "administration" fee direct to patients beyond the charge for the procedure itself covered under a gap arrangement.
"This is not illegal, but it's not in the spirit of the gap cover arrangements," Powlay says.
It's in obstetrics where this appears most prevalent.
When having a baby, privately insured mothers get a range of expenses covered but also end up having to pay a lot of out-of-pocket expenses too, warns Ballenden.
Where eliminating the gap is not possible, ensuring the expenses are known and agreed to upfront by patients is important, Powlay says. The lessons? Ask the doctor directly about expenses at the time of pre-treatment consultation - including fees for other specialists involved, such as anaesthetists, radiologists and pathologists.
Emergencies aside, contact your fund before treatment and run through the no-gap or "known-gap" options.
TOP COVER
The top levels of hospital insurance provide cover for emergency and elective treatment carried out by your choice of doctor in an Australian private hospital.
Usually, in a gap agreement hospital, 100 per cent of hospital charges will be covered, but not necessarily all doctors' fees. Post-operative, rehabilitative costs generally won't be covered if treatment occurs outside hospital - unless covered separately under ancillary/extras cover.
The comparison tables for four of the largest health funds in NSW and the ACT show premiums for families and couples. There are lower premiums for single parents and the singles rate is generally half the family rate.
To reduce premiums, more than half of members pay an excess of $250 to $1000, or make co-payments of $50 or $100 a night.
Again, using Medibank Private as an example, agreeing to pay a $500 excess reduces the premium significantly from $1731 to $1289.
MBF's Premium Cover is $2109 but the fund offers a high-cover alternative at $1495, requiring daily co-payments of $50 for the first five nights in hospital. Swapping the co-payments for a $500 excess reduces the premium to $1210.
But check the fine print on excesses. Are they payable only on the first claim each year, once for each family member, or every claim?
The high-excess or co-payment alternatives especially suit younger age groups who don't expect lots of claims. You'll have to fork out if and when you do go to hospital, but the excess is a known quantity and more than covered by the annual savings from lower premiums.
Some funds now offer combined coverage to families with adult children up to the age of 24 or 25, even if not living at home, studying full time or financially dependent.
Premiums are higher but combining the adult family all on one policy may give a cheaper overall cost than if the adult kids took out separate policies.
"Many families have a higher level of hospital cover than the children would buy on their own, so this way the kids may also get access to better cover," says Simon Westaway, the corporate affairs manager at Medibank Private.
Blue Ribbon cover for families at Medibank Private, for example, is $1731, while the rate for families with adult children $2162.
BASIC COVER
Those opting for cheaper insurance to save money should be aware that, in return for lower premiums, coverage is significantly traded off in a number of ways - through exclusions, restricted benefits and benefit limitation periods.
The premiums quoted above are for policies that differ markedly along these lines.
About 36 per cent of members have hospital policies containing some form of exclusion, and these are especially targeted at the young.
"Exclusionary products are not appropriate for most because no one can predict what might befall them," says Russell Schneider, the chief executive of the Australian Health Insurance Association. "A surprising number of young people do suffer heart attacks, for example."
To economise on premiums, opting for policies that carry an excess is a better bet, he says.
Common sense suggests there are a number of procedures young or old people are unlikely to need and would be silly to pay for. But the devil is in the detail in exclusions and the fine print must be examined closely.
For example, before rejecting plastic or cosmetic surgery as unnecessary, check that you're not foregoing cover for plastic reconstructive surgery after an accident.
Remember, too, that taking a cheap exclusions policy for now and aiming to trade up to better cover later will mean new waiting and benefit-limitation periods - possibly when you can least afford it.
As well as exclusions, funds also restrict cover by limiting the benefits paid.
The most basic private cover merely offers treatment as a private patient in a public hospital. You get your choice of doctor but everything else is provided by the public system and you usually won't be able skip the queue for elective surgery.
Another level sees members covered for treatment in a private hospital, but only for minimum benefits. Considerable out-of-pocket costs will be incurred.
The Government-regulated minimum or "default" benefits typically range between 5 and 50 per cent of actual costs.
Older patients beware. Low default levels apply particularly to cataract eye surgery, joint replacements or heart treatment, Powlay says.
Medium cover may see full benefits paid, but only after longer qualifying periods. This can mean waiting up to 24 months or "benefit limitation periods" which limit payouts for two years beyond the waiting period.
SWITCHING FUNDS
In principle, you can change funds without having to serve waiting periods again.
"Ultimately, funds have an obligation to cover you at your old level in the first 12 months," Powlay says.
In practice, a lack of comparability between the products of different insurers means members must check closely what waiting-period exemptions the new fund is offering.
Unless you have served out the waiting periods and any applicable benefit limitation periods at your old fund, the new fund will probably enforce them.
TAXING QUESTIONS
Purchasing the cheapest possible qualifying private cover to avoid the Medicare levy surcharge can pay off for those on higher incomes, producing net savings of $500 or more a year.
But cheap cover won't be much good if you do end up in hospital and most will have to rely on the public system or face large bills.
The surcharge adds another 1 per cent to the Medicare levy for those not privately insured and who earn more than $50,000 if single or $100,000 per couple or family.
To avoid the surcharge, singles' private cover must not contain an excess greater than $500, or $1000 for couples and families.
Anyone can choose to go public and not use their private cover, but make sure you make this clear before admittance. Hospitals often will assume those with private cover want to be treated as a private patient.
"For some below average income earners who can avoid the tax altogether, it may be worthwhile to stay uninsured until later in life," Ballenden says.
The savings in the meantime could well outweigh the premiums loading under the Lifetime Health Cover provisions later on.
GONE PUBLIC
Despite taking out private health cover, Penny Scott and Jorg Edsen of Dickson in Canberra chose to have their first child in a public hospital. Doing so let the couple have Nikolas, now two, the way they wanted, in the natural birthing centre at their major local hospital.
They say they're unsure whether their hospital and extras insurance is worthwhile, but initially took it out to avoid the Lifetime Health Cover loading.
They also feel that, approaching middle age and raising a family, they're at a time in life where more medical services might be needed.
"We can afford to pay some medical expenses, but it's just in case something goes wrong in a big way," Scott says. "We may re-evaluate later on."
They have some concern about whether the standard of the public system will be maintained in the long term. But in the meantime, the couple say they wouldn't hesitate to go public again for future children.
"We were surprised at how good it was, and we didn't pay a cent," Scott says.
THREE GOLDEN RULES
* Before treatment, check with your fund. Will there be any hospital or medical out-of-pocket expenses?
* Check your cover annually to ensure it's appropriate, particularly exclusions and restrictions. Consider top cover with a higher excess.
* Keep premium payments up to date. Otherwise you risk having your policy cancelled and having to re-serve waiting periods.
CUTTING THE COST
Ask your fund about discounts for payment by direct debit or annually upfront - and save about 4 per cent.
* Can you get cheaper group cover through work? Ask your employer - you could save 4 to 6 per cent.
* When it comes to ancillary cover shop around as it may be cheaper at another provider (but check with your own fund first as there are usually savings for taking both policies from the same fund).
* When comparing policies, understand the trade-off between premium, excess and co-payments and how they apply.
* If choice of doctor is important and money is tight, consider cover as a
private patient in a public hospital.
TOP COVER: FAMILY Family Cover Policy name Annual Premium HCF Top Plus Cover $1911 MBF Premium Cover $2109.65 Medibank Private Blue Ribbon $1731.20 NIB Top Private $1694.20 NIL EXCESS BASIC COVER: FAMILY Family Cover Policy name Annual Premium Excess# HCF Advanced Savings $589.20 $100 x 8* MBF Advantage $1210 $500 Medibank Private First Choice Saver $730.80 $500 NIB Public Hospital only $596.95 $400 *CO-PAYMENT OF $50 A NIGHT FOR UP TO 5 NIGHTS OF HOSPITAL STAY. # FOR EXEMPTION FROM MEDICARE LEVY SURCHARGE EXCESS PAYMENTS MUST NOT EXCEED $1000 ANUALLY IN TOTAL
© 2004 Sydney Morning Herald