Private health insurance

If you were ever looking for a euphemism for the word ‘useless’, look no further. I recently purchased private health insurance and I’ve never felt more robbed in my life. What a spectacular waste of money.

Assumptions

I’ve made three assumptions in dismissing private health cover’s value to society. First, you live in Australia or a country which provides its people with an adequate universal healthcare program and you are covered by that country’s healthcare program. Second, you are privileged enough to be mostly free of any pre-existing medical conditions. Third, you don’t do crossfit and therefore you don’t have a tendency to injure yourself because of your poor form (you’re dreaming if you think that’s a pull-up, crossfit). So, to reiterate, so long as you satisfy the above assumptions, your health insurance is probably about as useless as the pair of birks you’re considering purchasing. However, if you absolutely must take it out, whether because the government will punish you otherwise or if you just simply disagree about how important it is (which is totally okay), here are a few things I think you should keep in mind.

Level of cover

Don’t be an idiot (i.e. don’t be me). In a mad rush to buy health insurance before some arbitrary deadline, I selected a policy without looking too closely into what I was buying. I realised a couple weeks later (thankfully within my cooling off period) that I was paying for gynecology. Now, I appreciate many of you only know me as that frugal, geeky, sandal-critic behind the keyboard but trust me when I say, I have no use for gynecology. Annoyingly the health insurer knew this too since they asked me for my sex, but they didn’t seem to care too much when they were selling me the policy.

Have a good, long think about about exactly what you need. Some people (including yours truly) are content with a level of cover strong enough to avoid paying the medicare levy surcharge (see below). Some people want cover for elective surgery. Some people want extras (if you do crossfit, you’ll probably want extras).

Taxation and other penalties

In a bid to reduce society’s burden on the public health system, the Australian government put in place two measures to push people onto private health cover:

  1. The medicare levy surcharge (MLS): In Australia, everyone earning over a very small income threshold has to pay the medicare levy (2% of your taxable income) towards maintaining our public health system. Few can argue this is unfair. Once your income reaches $90,000 or more you start being levied with the MLS (1%, 1.25% or 1.5% depending on your income). The income test the tax man (or woman) uses to calculate your MLS obligations is a test called “income for MLS purposes” (creative right?). Your income for MLS purposes takes into account a bunch of annoying income inclusions and exclusions but importantly includes certain super contributions (please keep this in mind).
  2. The lifetime health cover (LHC) loading: In 2000 the Australian Federal government introduced an initiative called the LHC loading which “encouraged” people to take out private hospital cover earlier in life and to continuously pay the exorbitant premiums. How it works is that if you buy private hospital cover before the 1 July following your 31st birthday, you will avoid paying the additional LHC loading, which is an extra 2% loading on your premiums every year until you reach the 70% cap (for example if you wait until you’re 40, you would’ve accumulated a 20% LHC loading and a $150 monthly premium would set you back an extra $30 (20% of $150)).

What does all this mean? Well, if (1) above applies to you now, you can actually find an adequate degree of private hospital cover which is cheaper than the MLS. If (1) doesn’t apply to you now but you think it will in the future and you’re worried about (2) hurting you, you might like to consider taking out private hospital cover as close to the LHC deadline as possible. It’s worth noting that the government also incentivises the purchase of private hospital cover by offering people within certain income brackets a rebate on their premiums. I’d personally rather not be bullied onto private hospital cover in the first place to then subsequently be incentivised with a discounted premium but hey, deaf ears.

Why do I think private health insurance is a waste of money?

I’m fortunate enough to satisfy the assumptions I’ve made above. Health cover is extremely expensive for your insurer, particularly as you get older. A cynic’s view (i.e. that of yours truly) is that government policy measures to push millennials onto private hospital cover plans have really only been put in place to subsidise the health insurer for paying out claims made by older policyholders. Before you attack me for my cynicism, have a think about just how unlikely a healthy 29 year old is to make a claim for joint reconstruction or endoscopic retrograde cholangiopancreatography (these are words that exist I swear).

Many private health insurance plans include annual limits and each individual claim may be limited to a certain portion of the cost of the claim (as if you’re receiving a rebate for the total cost of your medical procedure/consultation). Say for example you had to undergo emergency surgery for something which was covered by your country’s public health system. If you use the public health system, you’re very unlikely to pay any substantial costs out of pocket. If you opt to undergo the same surgery in a private hospital under your private health insurance plan, you may only be able to claw back x% of the total cost (depending on your policy and your insurer’s agreement with the hospital). Therefore, even if I was to require hospital care, despite having taken out private hospital cover, I’ll likely rely on the public system anyway. I’m quite literally paying something for nothing – ‘useless’.

Elective surgeries and extras are where private health insurance may actually be able to deliver value for you. Under the public health system, many elective surgeries have long wait periods. If your existing condition is something which significantly detriments your quality of life, then it may make sense to take out a comprehensive level of private hospital cover. Finally, if you’re taking out private health insurance anyway, and you know for sure you will make some use of extras (if you wear corrective lenses for example), tacking on an extras policy and purchasing a bundle may be worth the money. As with all things in life, do the math.

I for one am in it to avoid the taxes.