Will it be worth having private hospital insurance any more?

The Australian Federal budget for 2008/9 will be unveiled tomorrow, but a lot of the details have already been "leaked" by the government in advance. One of the changes will apparently be an increase in the threshold at which the "medicare surcharge" (tax) kicks in. Currently if a couple has a combined income over $100,000 and doesn't have private hospital insurance they have to pay an extra 1% medicare surcharge (on top of the normal medicare levy).

When DW was working full time this meant that taking out basic hospital cover didn't cost much more than the extra tax liability would have cost (if we didn't have insurance). However, over the years I've been less than impressed with the benefits of having private hospital cover. When DS2 was born we weren't even able to use our private hospital cover for the birth as there were no beds available in the private hospital. In any event, there are so many "gaps" in private hospital insurance that we would have ended up paying a few thousand dollars "out of pocket" if we hadn't used the public hospital for the birth. Each year the cost of private hospital insurance goes up, so that it now costs me $153 per month for the most basic level of family cover. I recently looked into enhancing our cover to included dental costs (in case DS1 or DS2 need braces), but the extra $70 a month is unlikely to be worthwhile (especially since having insurance doesn't cover 100% of the cost of all expenses).

Now that DW is working part-time (and I'm using salary sacrifice to contribute pre-tax into my superannuation account) our combined taxable income is too low for us to be liable for the surcharge if I dropped our insurance cover. If the proposed budget change takes effect we also wouldn't be in danger of exceeding the threshold when DW returns to work full-time. I'm giving serious thought to cancelling our private hospital cover and saving the extra $1,836 pa and relying on the public health system. There are plans to build a new public hospital less than one kilometer from where we live (if the State government ever allocates the required funding), so even if we keep our private hospital insurance we'd probably end up using the public hospital in case of emergency!

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Medical Costs Outpace Inflation!

Yes, I know, that isn't news to anyone. But my annual notice from my health fund arrived today letting me know exactly how much my premium is rising this year. After announcing that they paid a record amount in claims last year (up 8.5%) they got down to the nitty gritty and let me know that my monthly premium for basic family hospital cover is going up to $151.45 per month (including the 30% Federal Government Rebate). This is only an increase of 2.0% from last years $148.40 a month. BUT, there's also a change in how the 'excess bonus feature' works. Instead of getting a $100 cash refund at the end of each year if you haven't made any claims, this is now being replaced by up to two excess free same-day or overnight admissions per year. Although the benefit seems similar, it's actually not much of a benefit to us as we've any made one claim in the past five years. Instead of getting $500 worth of refunds, under the new rules we'd have just saved $100 for one excess payment. Adding in the loss of the $100 refund each year, the actual "out of pocket" increase in premium is 8.1%.

If we didn't have private hospital cover we would have to pay a 1% medicare levy surcharge when our combined taxable income (with 2 dependants) iss above the $101,500 threshold for any year. We would probably have been under the threshold this year as DW spent a large part of the financial year on unpaid maternity leave, but most years our combined income would be over the threshold, so we'd end up paying at least $1000 in extra tax. The net cost of having the private hospital cover is therefore only around $68 a month, so it's probably still worth it in case any of us ever need 'elective' surgery - which is available in the public system, but can have very long waiting lists.

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