05 Apr Best not to listen to Meerkats
Now that title should have grabbed your attention. Like many people I do find the television advertisements with Meerkat actors amusing. A very clever company made them and I must say well done. Encouraging people to reconsider their provider of health insurance is a very sensible thing to do. The problem is that comparison websites have one fundamental flaw: they get paid if you change to another private health insurer (PHI) but they don’t get paid if you cancel you insurance. I am happy to be corrected but I suspect they will suggest a different policy which is more aligned to your personal requirements but I doubt very much if they would ever tell you to stop paying for extra’s health insurance.
There are two fundamental separate components to private health insurance, the medical (mostly hospital and surgical) and extra’s (dental optical, that sort of thing). I think the PHI’s would love for you to get the two of these mixed up and buy both. The question is should you? The medical side runs on very narrow margins of 2-3% (which is a pretty good deal for you) while the ancillary is a cash cow for the PHI’s and something they will spend millions advertising on telesion to get you to buy it.
The medical side of the insurance is intended to give you choice of surgeon and if you are lucky get a private hospital bed or perhaps earlier access to surgery. Of course I would carefully read the fine print regarding what you get and what limitations they impose. The insurer is not going to go out of their way to let you know you are not insured for the things you need and are not going to call you and tell you that you are paying for services you don’t need.
There are arguments for having medical/surgical insurance, especially if the government is going to charge you a medicare levy on your tax if you don’t have it. BUT VERY IMPORTANTLY you do not have to have extra’s cover to avoid the medicare levy. Obstetrics is not particularly useful if you are 60 but orthopaedics is.
Ancillary insurance is a very different thing altogether. Shaun Gath, CEO of the Private Health Insurance Administration Council, recently said “Australian extra’s cover was an irrational purchase for most people because the premium paid was more than the benefit derived”. That is a pretty strong statement for the Prudential regulator to make and is the clearest statement yet about the problem with the value of extra’s cover. If that does to open your eyes to the poor value extra’s represents then nothing will.
As a health care provider it is very frustrating for me to deal with the paltry rebates offered by PHI’s for dentistry. Most have barely changed the annual limit for over 25 years (hard to believe but it is true, no other industry could get away with that). Some rebates for common tasks are ridiculous, representing as little as 15% of the typical fee which is a source of much anger for you, the patient. The medical side may work on a margin of 2 or 3% but not so for extra’s. In stark contrast with administrative costs of about 10% and profit skimmed off the top of about 20% extra’s is a nice little earner for PHI’s. That means for every $100 you put in $30 is gone before you even make a claim. In fact PHI’s make more than a billion (read 1000 million) dollars a year out of extra’s insurance. Their own published documents admit that on average they pay less than 50% of the total value of the claims received.
I like to tell a little story to help explain why extra’s is not worth having. Here we go: Imagine insuring yourself against buying new tyres for your car. You know sooner or later your will need them so it is not real insurance just like most dental treatment. Okay so you pay $500 a year and they will give you a new set of tyres every three years, up to a value of $1,200 (remember the administrative costs and profit already removed?). Of course you only get $1,200 if you see one of their “preferred providers” of tyres, if you see the people you have been going to for years and trust the insurer will only give you $600. What makes a preferred provider anyway? Is it someone who is more skilled or experienced? No. it is the people who are willing to sign a contract with the insurer to provide services within certain guidelines and prices that are dictated by the insurer. If you have a good business with loyal clients would you sign your independent business over to a third party who will tell you what you can and can not do? Of course not, you would only do it is your business was struggling, or you were young and inexperienced, or perhaps for some other reason could not fill your appointment book. Is that where you want to go for you tyres?
Will the ‘preferred provider’ (BTW I hate that term because it implies some sort of superiority which is rubbish) tell you there are better tyres for your model of car that are safer or will last longer? Not if they are not on the approved list of tyres. The services you get are only the ones they approve and will pay for.
What if you were to put the $500 per year into a bank account and when you need new tyres go and buy exactly the tyres you want from the people you trust? That is what I think you should do. If you don’t believe me then do this: ask your insurer to print out for you exactly what they have paid to you for extras for lets say the last five years then compare that number with the premiums you paid over the same time. Are you getting value for money?
Here is a strategy I have recommended to many people. Calculate the difference between between your current PHI premium with what you would pay for a more targeted policy to your families specific needs with a excess you can cover if push comes to shove. Put the saved funds, plus $5 per week per family member, into a bank account called “my insurance”, and ONLY use it for healthcare payments. That’s right ladies don’t tell you husband about the this account because he will just buy a new boat or an overseas holiday when he finds how much you save 🙂