Q. We have just been advised by our Private Health fund that our premiums are going up by more than $300 a year to around $6000 effective 1 April. We are seriously considering cancelling the cover as we don’t see value in the ever increasing expense of cover. We have two teenage children. My wife and I both work and our combined family income is approximately $220,000.
A. In February this year, the Federal Government approved premium increases to Private Health Funds of 4.8%. Whilst inflation is around 1.5%, the cost of health care has apparently increased at 3 times this rate.
Notwithstanding the obvious risks in cancelling any insurance, you would need to be mindful of the tax consequences of electing to cancel your Private Health insurance.
If you cancel your Private Health Insurance, you will become liable for the Medicare Levy Surcharge (MLS). MLS is payable if you elect not to have Private Health Cover and your family income is greater than $180,000.
Family income of $180,001 to $210,000 attracts a levy of 1% against total family income. Family income of $210,001 attracts a levy of 1.25%. Family income in excess of $280,001 attracts a maximum levy rate of 1.5%. The threshold increases by $1,500 for every child after the first child. Note family income includes taxable income, fringe benefits and reportable Super contributions.
Based on your family income you would pay a levy of 1.25% or approximately $2,750. Therefore the impact of the Medicare Levy Surcharge would offset the premiums saved by cancelling your Private Health Cover.
Before making any decision, I would recommend you shop around as there are a range of Private Health Insurance providers available in the market who may offer you lower cost cover. Costs will vary depending on a range of features and benefits you may or may not need.
I would recommend you determine what cover you need and what areas you would be likely to claim for. You may have a choice of hospital benefits ranging from Basic Hospital to Premium Hospital cover. The level of luxury may vary but also the procedures covered.
With an older family, hip replacements may have greater importance than fertility treatment! So ensure the level of hospital cover and procedures reflect your needs.
You may be able to reduce costs by increasing the excess on Hospital stays. You typically will have a choice of between $0, $250 and $500 excess on hospital stays.
Review the range of ancillary benefits you currently have. Ancillary benefits may include Dental, Physio and Chiropractic but they may also include remedial massage, acupuncture and dieticians. If there are ancillary benefits you are unlikely to use, seek to tailor your cover to your particular areas of need. Alternatively, you can cancel this form of supplementary cover.
If you change Health Cover providers, ensure you are aware of the terms and conditions, especially any changes to qualification times for cover or the treatment of pre-existing conditions.
Check that the premium quoted includes the Australian Government rebate. Assuming you are both under 65 and based on your income, the rebate should be 8.93%.
If after shopping around you are still determined to cancel your cover, you will always have the public system available to you.
Under the public system, some procedures may require you to be waitlisted. If you are not prepared to wait you may face the financial burden of funding the costs yourself. The cost of “self-insurance” may be substantially higher than the costs of Private Health insurance premiums in the long run.