Thursday, 7 May 2015

What health insurance product is right for you?

When it comes to insurance I'm the type of person that is always over-insured.  It's not so much that I think insurance is a great's just that I tend to up-sell myself to premium products whenever I look at insurance.  This results in me paying far more than I really ought to be paying.

This is especially true when it comes to Health Insurance.  I currently have a very high level of hospital and extras cover when I barely use any of it.  I'm healthy, in shape and have no serious pre-existing or family conditions to worry about...I'm the last person that should have full cover on everything (I even have pregnancy cover...).

I obviously have had the wrong health insurance for a long time (despite promising myself to the contrary) I have done nothing about it and I continue to pay my exorbitant premiums.  However I was recently forced to re-look at my health insurance plans when I was considering my fiance's and my future financial position.

She doesn't have health insurance however she was going to get stuck with both the medicare levy surcharge as well as the lifetime health cover loading in one hit after marrying me (which would affect my tax as well) so we started looking at plans together.

Comparing health insurance plans is incredibly difficult

Let's state this up front.  Comparing health insurance plans is one of the most difficult things you can do.  They all offer different levels of cover, they exclude different procedures and offer different amounts back for the same procedure.  Some offer policy limits and some offer limits per person per year while others have lifetime limits on what you can claim.

With all of this complexity how on earth do you sort it all out?  I like to think that I'm pretty astute when it comes to finance but honestly comparing these plans was about the most difficult thing I have ever done.

I have put together the following step by step guide to help you work through the nightmare of health insurance products, premiums and offerings.  Some of this is very similar to my original post 'Choosing the Right Health Insurance' but this will go into more detail.

Step 1: Know what you want and what you need

Before you start looking at any products you need to know both what you need and what you want.  If you don't you're going to be inundated with choice and too much
choice will make your brain explode.

In Australia health insurance is typically broken down into hospital and extras cover.  In both of these categories sit down and think about what you're likely to want and need.  For example for me it would look something like this:
  • Hospital cover: I'm generally healthy but I want to be covered for emergencies and in case I come down with a major illness.  I don't mind sharing hospital rooms and one doctor is the same as the next to me so being able to choose my own doctor is not really important to me
  • Extras cover: I wear glasses so good optical cover is important.  Also I like having dental check ups so a good level of cover here is important.  My fiance's family has a history of cardiac conditions so we should probably have cover for that too.
Writing down what is important to you helps you avoid up-selling yourself when you are looking at plans.  A premium plan will always look better but don't forget that you are paying for services that you personally may never use. Also don't forget that you can upgrade to a premium package t a later point in life.

A quick comment on obstetrics cover...

I thought I would make a very quick comment on obstetrics cover if you are thinking of having a child.  Generally choosing maternity / obstetrics cover will push you into the premium range of products even if that is the only 'premium' type product you want.  You need to work out whether you actually want or need this cover and everything that comes with it.

Although my fiance and I definitely want to have a family we decided in the end that we would be more than happy to go through the public system.  That is a choice we made after asking a lot of our friends and work colleagues what they had done and it is a choice you need to make for yourself.  

Step 2: Understand that it is a price / cover trade off

One thing you need to understand when it comes to health insurance cover is that it is a price / cover trade off.  Although some deals are better than others and some insurers will charge you more for the particular cover you are looking for than others in the end it is really a price / level of cover trade off.

So what does this mean?  It basically means that you can't compare prices until you work out what level of cover you want.  There are too many variables if you do that.  Choose your level of cover and then look for the insurer that offers you that level of cover for the best price.

If you can eliminate things that you are unlikely to use then you are likely to get a better price.  For example if you are a single male, finding a product without obstetrics cover is going to save you quite a bit of money.  

Step 3: What are you actually the fine print

Ok so now that you've decided the level of cover that you want and need and you are no longer comparing apples and oranges it is time to get out the product disclosure statement (PDS) of the insurance product you are looking at and have a good look at what the fine print says.

Do not skip this step.  You never want to assume anything about insurance cover and the PDS is where the insurer has to disclose everything that is and isn't covered.

Start with the exclusions

The best place to start is with the exclusions.  Look a PDS is often an incredibly long and boring document and you're probably going to get bored reading it from end to end.  The first and most important thing you need to know is specifically what is excluded from the cover you are looking at and are any of these items important to you.

Then move onto specific item limits

If you're still comfortable with the things that are covered the next thing you look at is how much will the insurer cover you for specific items.  When you look at the 'what do we cover table' it will often say something like "$1,000 a year for general dental".  What they don't tell you is that they will only cover you for $120 per visit for a clean so you may be out of pocket on each visit.  This is the type of stuff you want to check out.

Look almost all insurers will have specific item limits.  The thing you want to do is to compare the specific item limits on the things you are likely to use between different insurers.  They are all going to be different and what you want is to get the best deal on those items you are most likely to use.

Finally do a quick scan to see if anything catches your eye

After you have narrowed it down to a few insurers from the process above the next step is to read the whole PDS quickly and see if something catches your eye.  When I was going through this process recently I noticed that the insurer I was looking at only covered emergency ambulance trips.  This specifically excluded if they needed to move you from hospital to hospital.  I know something that got stung with a massive bill because they had the same clause in their insurance contract.

Just make sure you are comfortable with everything in the PDS before you sign up to an insurer.

Step 4: The final steps in choosing your insurer: price and convenience

Now that you have narrowed your options down to just a few the next thing to do is to work out exactly which insurer you want to go with which is essentially a convenience and price decision.  When it comes to convenience try and work out what their process is for claiming.  Some insurers will have a fully automated system whereby you can use a card at the point of purchase in order to claim while others will make you submit written forms.

And then you need to consider the price you pay for the insurance.  The price you pay will be a function of the cover you choose but there will be differences between funds.  Some things you should do include:
  • Check to see whether your employer has a corporate deal.  Most large organisations will get you at least 5 -  10% off a lot of insurance products
  • Check to see whether you are eligible for an industry based health fund.  These funds are often not run for profit and you will get a better price (not a huge difference but it will save you $10 - $30 per month).  The downside of these funds is that they often have the worst systems...but that is once again a price / convenience trade off
  • Make sure that you check to see that your cover is right for you every few years.  Look our life circumstances change and sometimes the cover that was right for us 3 or 4 years ago isn't right for us now.  Also health insurers are notorious for having negative loyalty bonuses (i.e. you get screwed for not shopping around) so make sure you check to see that you are getting a good deal
  • Always get them to waive your waiting periods.  Insurers have waiting periods so that you don't join and claim the next day.  If you are switching insurance products they will waive the waiting periods so make sure that they do this!
Choosing your health insurance is a time consuming process however it is something we all need to do and something which you should put the time into because when it comes to claim you want to have the best plan for you.

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