Private Health Insurance, know your Gap

Rohan Brown

As Accountants we often end up discussing private Health insurance for the taxation-based reason of reducing the Medicare Surcharge Levy (1% additional tax).  Another reason that under 30’s buy Private Health insurance is to lock in at the ’30 year old’ rate for life.  (It gets progressively more expensive after age 30).

Although these are sound reasons for taking the cover, there needs to be a long term benefit in having insurance, i.e. that you expect to obtain value from it.  For many this unfortunately means being ill or using the cover for other medical services.

Although either having or not having cover appears a straight forward choice, not all insurance covers are equal, especially when it comes to the payment of the ‘gap’. The ‘gap’ comes about where the doctor charges more than the government prescribes.  Many people only find out what their policy covers when they actually make a claim.

In a recent Financial Review article, an example was provided where a member that had hospital cover (premium of $2,000 per year) undertook a medical procedure with medical costs of $8,000. Their Medicare and health insurance only covered to an amount of $1,000.  The reason for this was that the specialists charged more than the Medicare Benefits Schedule.

So what policy should you consider?  This is the question normally asked. Often the choice can be quite complex, since it depends on not just the policy and whether it covers the ‘Gap’ or ‘Known Gap’, but also the amount the specialist is going to charge and whether the specialist participates with your chosen insurer.

The key when choosing a fund is to ask questions; particularly if you are aware of possible upcoming procedures; to ensure you know what the benefit payments are. At this point it may be beneficial to know of any wait periods imposed by a fund before you can claim on a certain policy, particularly if you are changing policies.

Another consideration is identifying what sort of cover you have.  From a tax point of view you require Hospital cover only, although many members have Hospital and Ancillaries. Evaluate what of the ancillaries you get benefit from, since for the same cash outlay you may be able to get better hospital cover with your existing fund that pays the ‘gap’. Also consider if there are services or procedures you will not require such as IVF and pregnancy.

For more information on choice of funds see the following: