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Private Health Insurance | What happens if you cancel private health insurance?

During these uncertain times, it makes sense to be looking at ways to tighten our belts and cut unnecessary expenses.

With private health insurance set to rise by an average of 2.74 per cent on April 1 it’s understandable private health insurance cover is firmly on the chopping block of household expenses.

However, experts are warning Australians to think hard before cancelling their health insurance completely as it could be more useful than ever.

Covid has created a backlog for elective surgeries as hospitals postponed non-emergency treatments to focus on managing the pandemic.

Cancelling your private health insurance now may mean longer waiting times for treatment as public hospitals struggle to address the backlog after the pandemic eases.

But that doesn’t mean you should be overpaying for private health insurance.

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Specialising in Health Economics at the University of Melbourne, Professor Yuting Zhang, believes that three key Federal Government polices affect your premium costs: the Medicare levy surcharge, government rebates, and discounts for younger people.

“As many people struggle financially amid the pandemic, you may be wondering whether you should drop your private health insurance altogether,” says Professor Yuting Zhang from the University of Melbourne.

“Before you do, bear in mind some government policies affect the cost of your insurance, and sometimes dropping it may even cost you more.”

The health expert says the core of your decision to cancel or not should be based on your income and earnings.

“For singles with an income above $105,000, and for families with an income above $180,000, it’s worth buying private hospital cover even if you don’t think you’ll use it,” she says.

“People with incomes below these levels need to compare value and costs. The decision varies a lot depending on your age.”

Professor Zhang recommends starting with calculating what you pay in Medicare levy and surcharge as that can show you if having private health insurance represents the best value for money.

Almost all Australians pay 2 per cent of their taxable income as the Medicare levy. This money goes towards funding parts of the public health-care system.

If you earn above a certain income and don’t have private hospital cover, you have to pay an extra 1 to 1.5 per cent of your taxable income on top of that, this is called the Medicare levy surcharge.

“If John Citizen has a total taxable income of $150,000, he must pay $2,250 in additional tax (the Medicare levy surcharge), on top of the $3,000 he already pays as the Medicare levy. If he buys an appropriate level of private hospital cover, he can waive this extra tax and just pay the $3,000,” she explains.

Checking the level of private health insurance rebate you’re entitled to is also prudent, says Professor Zhang, as it can reduce the overall cost of your premiums.

Young people, who in the past have been more likely to cancel health insurance due to price increases, should factor in the discounts they’re entitled to.

Since April 2019, people aged 18 to 29 have been able to get discounts of up to 10 per cent of their private hospital premiums. People will retain that discount until they turn 41, then the discount gradually decreases by 2 per cent a year.

“Factoring the above policies in, for singles with an income above $105,000 and families with an income above $180,000, it makes sense to buy private hospital insurance even if you won’t use it, s because you can find hospital cover cheaper than the Medicare levy surcharge,” says Professor Zhang.

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For those with an income below these levels, her advice is to compare whether the value is more than the cost.

“Value consists of two components: protection from unexpected catastrophic risk, and your expected use of private hospital care,” she adds.

And Professor Zhang’s top tip to cut your health insurance expenses? Compare your current health policy against other providers and switch to a better deal for yourself and/or your family.

“Shop around and use free resources to compare health insurance policies,” she says.

“It’s a good idea to re-evaluate your options every year or every other year as your situation or government policy changes.”

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