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How Does Your Health Insurance Compare to Your Neighbour’s?

July 2nd, 2012 0 comments

Community rating ensures equitable access to private health funds. Australia has one of the most efficient and reasonably priced private health insurance systems in the world. This is made possible by the community rating scheme enforced by the government.

With this in place, any Australian who wishes to obtain a private health insurance policy may readily do so without getting discriminated against for his or her current state of health or age. Community rating not only ensures relatively uniform premiums for all Australians, but it also gives folks the assurance of guaranteed renewable policies.

Image by smoorenburg.

Image by smoorenburg.

Lifetime Community Rating

Since 15 July 2000, lifetime community rating was put into effect, which then gave rise to the Lifetime Health Cover (LHC) program. This brought about some changes in the way providers compute for health insurance premiums.

For one, insurers can now vary rates according to the client’s age of entry into a private health fund. A 2% financial loading is added to the usual premium for each year that one did not have private hospital cover at the age of 30. Say for instance you only took out the private hospital cover at 55 years old. Since you did not have the prescribed insurance for 25 years, you’ll then have to pay 50% more on your premiums.

The number of years of continuous membership in a fund is now taken into account as well. For those without private hospital cover at the time LHC took effect, they’ll need to continue with the fund for 10 consecutive years. Only then will the 2% loading be taken out.

Folks that transferred between funds don’t need to worry about keeping their certified age of entry. This is so long as the new fund is comparable to the old one. Also, the cumulative periods of non-coverage should not exceed 2 years for one’s lifetime. Otherwise, the certified age of entry will increase and one may possibly end up getting hit with the 2% financial loading.

Other factors that can create variations in your premiums:

The age of entry isn’t the only factor that affects how premiums are calculated. Say you’re exempt from LHC and you’ve done a medical insurance comparison. How come you still get varying quotes? This is because there are a handful of other things that are taken into account in premiums calculation as well:

  • Excess is the amount you’ve agreed to cover out of pocket when using your hospital cover. For instance, if you get hospitalized and you have an excess of $300, you then pay this amount before you can claim against your insurer. Folks who assume a bigger financial responsibility by way of taking out higher excess amounts generally have lower overall premiums.
  • Co-payment is the amount you agree to pay on your own for every service you obtain under your hospital cover. Say you took out a $50 co-payment for private hospital accommodation. This means you’ll pay the first $50 for each day that you were confined. Staying in a private hospital for one week then means a total co-payment amount of $350. Again, folks who nominate a co-payment amount enjoy much cheaper rates than those who don’t take this out.
  • Policy type and coverage level play a role in the calculation as well. The more comprehensive the policy and the higher the coverage level, the more benefits are included, therefore, the more expensive the premiums.

Medical treatment and services costs, investments in preventative health programs, as well as benefits payout, increase every year. This is why private health funds normally petition for premium increases with the industry regulator Private Health Insurance Administration Council (PHIAC). The approved increases are then carried out industry-wide every year, which is another reason for varying premiums.

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