Changing policies is easier than you think

Brought to you by United Australia.

Health insurance is one of the most widely held financial products in Australia. It is also one of the most misunderstood. Most of us know roughly what we pay each month, mainly because we see a large amount of direct payments from our cash flow.

Very few of us know what we are paid, how the system is structured, or whether the fund we have is working for our benefit. If you’re thinking about reviewing or replacing your portfolio, (and if you’re in your 40s or 50s, you probably should be) here’s what you need to understand before you do.

1. Standards are a government system, not marketing. The bronze, silver and gold hospital standards are not created by money – they are a government system designed to make policies comparable with different insurers.

If the fund says it is in the financial policy, it means the same set of clinical categories are covered as the financial policy of any other fund (or almost the same). Which means you can compare the covers between funds and the appropriate level of equity.

What confuses people are the intermediate products – the “silver plus” or “bronze plus” policies that add a few inclusions from the top level to try to upgrade you. These exist because funds are allowed to increase the category beyond the minimum, and many do so to make their products more attractive.

If you’ve had hospital insurance for years, switching is rarely as stressful as you think it will be.

It’s not fair, but it makes comparing from policy to policy more difficult. So, when evaluating a policy, look at the specific medical categories covered, not just the grade label.

2. The grade tells you what is covered, not how you are treated. This is a scam that costs people more money. Gold cover does not mean better treatment, nicer rooms or more attentive doctors.

If a medical category is covered under your policy, you receive the same care whether you use a bronze or gold policy. The difference is in the groups that are included.

Gold cover covers things like pregnancy and birth, weight loss surgery and hospital psychiatric services. For most Australians in their 50s and 60s, none of that matters. Which means a lot of people are paying gold fees for inclusions they’ll never use, when a silver cover can serve them just as well for everything they need.

What is most known is how much is covered at lower rates. Bronze includes chemotherapy, radiotherapy and immunotherapy for cancer, and bone and joint procedures. Silver adds cataract, joint reconstruction, cardiovascular surgery, and plastic and reconstructive surgery – including post-cancer rehabilitation.

For many people in their 50s and 60s, money is a good place. It deals with things that are statistically more likely to happen, with no gold rewards for things that won’t happen.

3. Older policies often have features that are no longer available. If you’ve had the same policy for a decade or more, your policy may include features, limits or conditions that aren’t available in a new policy today.

This cuts both ways. Sometimes an older policy has better excess limits that have been gently eroded in newer products. Sometimes they carry inclusions – such as maternity insurance – that cost you money for something you’ll never use again.

The only way to know is to read your policy document and compare it to what is currently being offered, both inside and outside your pocket. Many people are surprised by what they find and it is not always pleasant.

4. Loyalty doesn’t pay – and money knows it. The health insurance industry, like many financial services industries, tends to reward new customers more generously than existing ones.

Introductory offers, competitive pricing and enhanced promotions are frequently offered to entrants, while long-term customers purchase products that do not fit their needs or the market.

This does not mean changing policy is always the right answer. But it means that assuming your wallet is taking care of you just because you’ve had it for years is a mistake. The reviews you claim are honest.

Ask yourself – what am I getting, what is it costing me, and what else is available that would be a better fit for where I am today and where I am going?

5. Recommended service providers are more important than you think. Some major health funds use preferred provider networks for extras, meaning you’ll only get the full discount if you use a dentist, physio or optometrist within their approved network. Use someone offline and you will get less profit, sometimes much less.

For people who have established relationships with specific doctors, such as a dentist they trust, a health professional who knows their history and is good at rehabilitation, this can be a very frustrating hurdle.

Not all funds work this way. Others pay the same discount regardless of which registered carrier you see. It’s worth knowing which model your fund uses before committing, or resubmitting, to a policy.

6. Out-of-pocket costs are where the real difference lies. The gap between what your pocket pays and what your specialist charges is where health insurance gets complicated and legitimately expensive. Gap payments can range from anything to several thousand dollars depending on the procedure, specialist and hospital.

Some funds have agreements with special hospitals and specialists that eliminate or reduce the gap. These are worth understanding before you need them, not after. When evaluating funds, ask specifically about their gap prevention programs and which hospitals in your area are covered under those agreements. Headline payments are rarely the whole story.

Surplus is another parameter worth examining. Policies with higher rates carry lower premiums, and for people who don’t go to the hospital infrequently, a co-pay or additional model can represent a real savings, by changing, in many cases, to the lowest product before the scheduled procedure without serving a new waiting period.

7. Switching is less painful than most people think. The waiting period question is what keeps many people from switching, and understandably so. No one wants to change money and then find that they have to wait another two years for the procedure they need.

The law is more complicated than people think. If you switch to the same payment level for a new fund, you generally do not need to re-serve any waiting periods you have already completed. You carry your history. Waiting periods that typically apply are for new inclusions, or items you add to your cover that weren’t on your previous policy.

The practical implication is this: if you’ve had hospital insurance for many years, switching is rarely as troublesome as you think it will be. The situation that keeps many people with their existing fund is often based on a misunderstanding of how portability works among service providers.

The system is easier to navigate than the industry sometimes makes it out to be. Which is, perhaps, exactly the point. But for anyone willing to ask the right questions, there is usually a better plan and policy that fits the life you live now rather than the life you were living when you last purchased a policy.

Bec Wilson is a best-selling author How to Have an Epic Retirement and newly released Prime Time: 27 Lessons for the New Middle Ages. He writes a weekly newsletter for epicretirement.net and host of Great Time podcast.

• The advice given in this article is general and is not intended to influence readers’ decisions about investments or financial products. They should seek their own professional advice that takes into account their personal circumstances before making any financial decisions.

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