Switching policies is easier than you think

Brought to you by Australian Unity.

Health insurance is one of the most widely used financial products in Australia. It is also one of the least understood. Most of us know roughly how much we pay each month, largely because we see what a big chunk of our cash flow autopay takes up.

Far fewer of us actually know what we are insured for, how the system is structured, or whether the fund we are in is actually working in our best interest. If you’re considering revising or changing your cover (and if you’re in your 40s or 50s, you probably should be), here’s what you need to understand before doing so.

Tiers 1 are a government framework, not a marketing framework. Bronze, silver and gold hospital tiers are not created by funds; they are a government framework designed to make policies comparable across different insurance companies.

If a fund says it operates a silver policy, that means the same (or nearly the same) clinical categories are covered as other funds’ silver policy. This means you can actually compare coverage between funds that have a reasonable level of parity.

It’s the in-between products that confuse people; “silver plus” or “bronze plus” policies, which add a few add-ons from the tier above to encourage you to upgrade. These exist because funds are allowed to add categories beyond the minimum, making many of their products marginally more attractive.

If you’ve had continuous hospital insurance for years, switching funds is rarely as disruptive as you think.

They don’t commit fraud, but they make it difficult to compare policies. So when evaluating policies, look at the specific clinical categories covered, not just the tier label.

Tier 2 shows what is covered, not how well you are treated. This is the myth that costs people the most money. Gold coverage does not mean better treatment, nicer rooms, or more attentive doctors.

If your policy includes a clinical category, you will receive the same care whether you are on a bronze or gold policy. The difference is all in which categories are included.

The gold cover also adds things like pregnancy and birth, weight-loss surgery, and in-hospital psychiatric services. For most Australians in their 50s and 60s, none of this is relevant. This means that many people pay gold premiums for contributions they will never use, while silver coverage will serve equally well for whatever they actually need.

What is less known is how much is actually covered at the lower levels. Bronze includes chemotherapy, radiotherapy and immunotherapy for cancer, as well as bone and joint procedures. Silver also adds plastic and reconstructive surgery, including cataracts, joint reconstructions, cardiovascular surgery, and post-cancer reconstruction.

For most people in their 50s and 60s, silver is the sweet spot. It covers the things that are statistically most likely to happen, without a gold premium for things that won’t happen.

3. Old policies often contain features that are no longer available. If you’ve been with the same fund for more than a decade, your policy may include features, limits or conditions not available in new policies today.

This cuts both ways. Sometimes an old policy may actually have better extra limits that are slowly eroded in newer products. Sometimes it may carry additives like maternity insurance that costs you money for something you’ll never use again.

The only way to know is to actually read your policy document and compare it to the proposals currently on offer, both within and outside your fund. Many people are surprised by what they find, and that’s not always a pleasant situation.

4. Loyalty doesn’t work and the funds know it. Like many financial services industries, the health insurance industry tends to reward new customers more generously than existing ones.

Introductory offers, competitive pricing and enhanced extras are regularly offered to new entrants, while long-term customers opt for products that fail to keep pace with either their needs or the market.

This doesn’t mean changing policy is always the right answer. But this means it’s a mistake to assume that your fund cares about you just because you’ve been with them for years. The review you owe yourself is an honest review.

Ask yourself: What am I getting, how much is it costing me, and what else is available that is better suited to where I am today and where I’m going?

5. Preferred providers are more important than you think. Some of the major health funds operate preferred provider networks for extras; This means you’ll only get the full discount if you use a dentist, physical therapist or optometrist within their approved network. If you use someone from outside the network you will get less feedback, sometimes significantly less.

This can be a very frustrating limitation for those who have established relationships with certain practitioners, such as a dentist they trust, a physical therapist who knows their history and is excellent at rehabilitation.

Not all funds work this way. Some pay the same rebate no matter which registered provider you see. It’s important to know which model your fund uses before committing or re-committing to a policy.

6. The real variability is out-of-pocket costs. The difference between what your fund pays and what your specialist pays is where health insurance gets really complicated and legally expensive. Gap payments can range from zero to several thousand dollars, depending on the procedure, specialist, and hospital.

Some funds have agreements with certain hospitals and specialists that eliminate or reduce the deficit. It’s worth understanding these before you need them, not after. When evaluating a fund, ask specifically about gap-coverage arrangements and which hospitals in your area are covered by these agreements. Headline premium is rarely the whole story.

Redundancy is another variable worth examining. Policies with higher excesses carry lower premiums, and for people who rarely go to the hospital, a copay or higher excess model can represent real savings, with the flexibility to switch to a lower excess before a scheduled procedure without introducing a new waiting period.

7. Transitioning is less painful than most people think. The wait time question is what keeps most people from switching, and understandably so. No one wants to have to relive a two-year wait for the procedure they need after switching funds.

The rules are more nuanced than people think. If you move to an equivalent level of coverage with a new fund, you generally won’t have to re-serve any waiting periods you’ve already completed. You carry your history with you. The waiting periods that apply are generally for new additions or things you add to your coverage that were not included in your previous policy.

What this means in practice is that if you’ve had continuous hospital insurance for years, switching funds is rarely as disruptive as you might think. The inertia that keeps most people in their existing funds is often based on a misunderstanding of how portability between providers actually works.

Navigating the system is easier than the industry sometimes makes it seem. Maybe that’s the point. But for anyone willing to ask the right questions, there is often a better deal and a policy that fits the life you live now rather than the life you lived when you last chose the policy.

Bec Wilson is the bestselling author How to Have an Epic Retirement and new releases Prime Time: 27 Lessons for the New Middle Life. Writes a weekly newsletter epicretirement.net and hosts prime time podcast.

• The advice given in this article is general in nature and is not intended to influence readers’ decisions about investments or financial products. They should always seek their own professional advice, taking into account their personal circumstances, before making any financial decisions.

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