For you non-Australians out there in the blogosphere, health insurance always seems to be a challenging question brought up by those either hearing about early retirement for the first time, or seriously considering how to go about it. The typical response is to find a plan with a “high deductible” in American speak, which we would call a “high excess” and then cover any minor medical issues out of your own pocket.
This whole topic is completely different for us in the Land of Oz simply because our system has a totally different set of rules compared to the US.
So how do the rules compare?
In the US, I understand that some key features of the system are as follows:
- If you don’t have health insurance, you can use the public system but you will have to pay a lot of money for it.
- A major illness could therefore put a serious dent in your financial position or even bankrupt you.
- Health insurance premiums are very expensive.
- Many employers pay health insurance premiums for employees, and people are therefore far more tied to their employers because of health insurance.
In Australia, the picture is a bit different:
- Everyone is covered by the public system (Medicare) with no out of pocket cost (of any significance) for hospital visits. The only problem is that you may have to go on a waiting list, which can be quite long, and it also won’t cover procedures that are not considered essential.
- For “extras” (which loosely translates to non-hospital medical services, e.g. chiropractors), you have to pay out of your own pocket as Medicare does not cover these at all.
- Many people choose to take out private health insurance to avoid waiting lists or to be able to cover non-essential hospital procedures and “extras”.
- If your family unit earns over a certain threshold ($88k for singles or $176k for couples), if you don’t have health insurance then you will pay an additional tax called the Medicare Levy Surcharge of at least 1% (but up to 1.5% if your income is high enough). If you are high income earners, you may therefore be better off getting health insurance as it may not cost you much more than the Medicare Levy Surcharge.
What do people typically do in Australia?
The Medicare Levy Surcharge threshold was quite a bit lower not that long ago (more like $50k for singles and $100k for couples), so many people got into the habit of getting private health insurance. Most of these people get what I consider to be largely unnecessary “Rolls Royce” hospital cover, plus completely unnecessary “extras cover”. They also get these with no or low excesses (a.k.a. “deductibles”), pushing the premiums even higher.
People get oversold this cover without ever really questioning the “why” of it all, but if they did they would realise a few things, including:
- By increasing your excess (deductible) from nil to $500 (the maximum allowed while still avoiding the Medicare Levy Surcharge), you would usually reduce your premiums by more $500 per year or more. Unless you are being admitted to hospital once every year this is obviously a no brainer – there is no reason why you wouldn’t do this.
- Extras cover is completely overrated for most people, as it is essentially covering minor day to day expenses rather than cataclysmic costs that could bankrupt you or seriously hurt your financial position. Typical costs that it might cover could be chiropractor (maybe $40 of a $60 bill), dental (but not things like braces, so perhaps up to $300 of a $500 bill), and glasses (say $120 of a $200 pair). Even if you took up all of these examples in one year (and in doing so achieved a benefit of $460), the cost of the insurance might be about the same amount. So why bother?
- The typical hospital cover that everyone gets (which I refer to as “Rolls Royce” cover) sends you to a private hospital, with a private room. These private hospitals cover many procedures, but if it gets really serious you may well be sent to a public hospital anyway and there goes your private room.
- You can get lower cost hospital cover (like we have recently switched to), which covers you for all of the same things as Rolls Royce cover, but in a public hospital in a public room. And at a much cheaper price!
- Everyone makes a fuss about having a private room, but in the 10 years that we have had private health insurance, we have been to hospital five times (two births, an arthroscope for my wife’s knee, and two tonsillectomies). While it was nice to have a private room for the births, we really really wouldn’t care about spending one to three nights in a room with someone else. I don’t know why such a fuss is made about private rooms – you will so rarely use the cover (and even then only for one night stays) that it just seems ludicrous to pay for a private room. It’s like buying a four bedroom house when there are only two people – you might use the other rooms for visitors once in a blue moon, but for the rest of the time you are just wasting your money. Why not just put them up in a hotel and get a smaller house?
Is there another way?
Yes, there are multiple other ways, but the one that we have chosen is this:
- Get private hospital cover in a public hospital. We chose GMHBA’s Bronze Hospital Cover with the $500 excess. GMHBA doesn’t have offices in every city (or our city for that matter) to save on costs, but why would we care when claims are done online or electronically at the place of the transaction?
- Having no “extras cover” and instead just paying for these costs as they arise.
- Actually trying to look after our health by exercising regularly, looking after our teeth and not playing sports that are high contact or are particularly strenuous on joints (so that my wife doesn’t wreck her knee again).
By taking this approach, we reduced our health insurance costs from about $185/month to $94/month. That’s almost a 50% saving!
So what are your thoughts on health insurance in Australia? Are you reassessing your cover, and how do you think our system compares to other countries like the US?