Glossary of health insurance terms
Aiming to help make private health insurance more affordable for more Australians, and to ensure the viability of Australia’s current mix of public and private health care, the Commonwealth Government in 2005 introduced a 30% Rebate provided to individuals taking out private health insurance. This means that if, for example, you pay a premium of $1000 annually on private health insurance you would be entitled to receive $300 back as a rebate.
The rebate can usually be claimed either as a reduction on the premium paid to the insurer (requiring a completed Government Rebate Application form), as a refund from a Medicare office (on presentation of the Health insurer’s contribution receipt), or as a rebate claimed in your annual tax return.
The rebate is available to anyone who is both eligible for Medicare and has private health insurance, and applies to both Hospital and Extras premiums.
(A 30% rebate is provided to persons under the age of 65. Those aged 65-69 and over 70 years receive a 35% and 40% rebate respectively)
Benefit limitation period
In order to pay lower insurance premiums, you can elect to take out a hospital cover policy with one or more benefit limitation periods. A benefit limitation period is an agreed period of time where a member is entitled to only restricted benefits for to be paid for treatment of certain conditions. For example, you may take out a policy that pays restricted benefits for knee replacement surgery for the first two years of your membership. If this treatment has a standard 12 month waiting period, your policy with a benefit limitation period included may only pay full benefits for knee replacement surgery after 3 years of cover. It is recommended that you check with your health fund how your entitlements are affected by agreeing to benefit limitation periods.
Community rating is the fundamental regulatory requirement on the operation of health insurance funds, existing to enable affordable access to private health care for all Australians. The community rating requires that health insurance premiums remain the same for all Australians, and prohibits health insurance funds from discriminating against members and applicants based on their health status (except regarding pre-existing ailments), age, claims history or other characteristics of a person which may increase their likelihood for needing treatment, such as occupation or sporting activities).
Therefore health insurance differs from other types of insurance, such as life insurance, in which the risk, and corresponding premium rate, is determined by a person’s relative circumstances.
Co-payment (Also referred to as Overnight Excess or Patient Moiety)
In order to pay lower insurance premiums, you can elect to take out a hospital cover policy with a co-payment. A co-payment is a set amount that a member agrees to pay each time a service is provided. For example, a member may agree to pay a $50 co-payment towards each day of hospital accommodation; meaning a four day stay in hospital would require a co-payment of $200. Co-payments are often limited to a maximum amount that a member can pay annually.
Excess (Also referred to as a Front-end Deductible)
Another way to pay lower insurance premiums, is to elect to take out a hospital cover policy which includes an excess, or a front-end deductible. An Excess is an amount that a member agrees to pay for a hospital stay before their health fund begins to pay any benefit. If your policy has an excess of $300, for example, this means that you will be required to pay the first $300 of your hospital costs if treated as a private patient. Excess options may be capped annually or may apply to every hospital visit - it is advisable to check with the health fund as to how the excess fees apply.
It is also to be noted that health fund members earning high taxable incomes holding hospital cover policies with an annual excess amount of over $500 for singles and $1000 for couples/ families are still liable for the Medicare levy surcharge.
You can elect to take out a hospital cover policy with less benefits, including one or more exclusions as a way to reduce the cost of premiums. An exclusion is a condition the treatment for which is not covered by health insurance. For instance, if you opt to exclude hip and knee replacements from your private health insurance policy, your health fund will not pay for your hospital and medical costs should you be admitted to hospital as a private patient for this treatment.
The ‘medical gap?is the difference between the doctor’s fee for hospital services and the combined Medicare and health insurance benefit, and, unless the health fund has a gap cover scheme or a negotiated agreement in place, this must be paid by the patient. An out-of-pocket payment may need to be made for non-medical hospital services, specialist consultations, or extras/ ancillary services.
Lifetime Health Cover (LHC)
Introduced by the Federal Government on 1 July 2000, Lifetime Health Cover was implemented to create an incentive to take out health insurance earlier in life and help ease the burden on the public health system.
If you are over the age of 31, or about to turn 31, and don’t have health insurance, you may be required to pay a loading when you take out private health cover for the first time. Your ‘certified age of entry' is established as your age when first applying for health insurance on or after 1 July. A 2% loading applies for every year you delay taking out health insurance after the age of 31. This is paid on top of the ‘base rate' premium, or standard premium payable for hospital cover. Therefore, the premiums paid by a 31 year-old taking out health insurance for the first time will be 2% higher than the base rate, increasing to 20% for a 40 year-old new to health insurance. The Lifetime Health Cover has a maximum loading of 70%, and does not apply to extras / ancillary cover premiums or ambulance cover.
Recent changes to Lifetime Health Cover now require the loading to be paid only for a maximum of ten continuous years, although should hospital cover be cancelled following this period, the individual may be liable to pay the loading again.
Current exemptions from Lifetime Health Cover loading include those born before 1 July 1934, and also new migrants to Australia who apply for health insurance within a year of becoming eligible for Medicare.
Medicare Benefits Schedule (MBS)
The Medicare Benefits Schedule (MBS) is a listing of the Medicare services subsidised by the Australian government within the public health system. The MBS provides a schedule of medical fees set by the government, based on a fair price and taking into account the economic viability of the total health system. The government supplies a reimbursement on nearly all medical fees, whether to members of a health insurance fund or to private patients paying all their own fees. Currently, the reimbursement for the MBS fee for in-hospital medical fees is 75%, and for out of hospital medical fees the reimbursement is 85% of the MBS fee. For people with private health insurance, the health fund will cover the remaining 25% of the cost of in-hospital medical fees unless an excess or similar arrangement has been included in the policy.
Medicare Levy Surcharge
The Medicare levy is used to fund Australia’s public health system, and is calculated at the standard rate of 1.5% of taxable income. This is paid by Australian resident taxpayers, although reductions and exemptions in some circumstances are granted. Introduced to encourage private health insurance membership and thus help make public services more available for less well-off Australians, the Medicare levy surcharge is an additional 1 % of taxable income paid by high-income earners who do not have an appropriate level of hospital insurance. The following types of people are liable to pay the Medicare levy surcharge -
-Single people with a taxable income of over $80,000 who do not have a hospital cover policy with an excess of no greater than $500 per annum.
-Couples/ families with a combined taxable income of over $160,000 (this threshold increases by $1,500 for each child after the first) who do not have a hospital cover policy with an excess of no greater than $1,000 per annum.
People who have had hospital cover policies since 24 May 2000, with an excess greater than $500 (singles) or $1000 (couples/ families) will be exempt from the surcharge providing they maintain continuous membership to this cover.
Should you be a high-income earner who only holds private health insurance coverage for ancillaries or extras cover, you will not be exempt from the Medicare levy surcharge.
Further information on the Medicare levy surcharge can be found at the Australian Taxation Office (hyperlink -http://www.ato.gov.au/) or by calling the ATO Helpline on 13 28 61.
Health insurance funds are entitled to set a maximum 12-month waiting periods to pay benefits for the treatment of ailments and conditions which are deemed to be pre-existing. A pre-existing ailment is defined, according to the National Health Act of 1953, as an ailment, illness or condition, the signs or symptoms of which, in the opinion of a medical practitioner appointed by the health fund, existed in the 6 months prior to the member joining a health insurance fund, or applying to a higher level of cover.
Therefore, if a member requires hospital treatment for a pre-existing condition, but has been a contributor to their health insurance fund for less than twelve months, they may need to see out a waiting period for treatment should they wish to claim a benefit. They may not be entitled to claim a benefit for treatment undertaken within that time. It is the health fund who decides whether a condition is pre-existing, and it is advisable for members to check this with their fund before admission to hospital.
This rule is set to prevent people from taking out health insurance with the express intention of immediately making claims for treatment, and thus helps to keep health insurance premiums at a more affordable level.
Public Hospital (or basic default) table
Some health insurance funds offer policies which have restricted benefits across all treatments. This policy is often called a public hospital table, or a basic default table, and under this policy the patient will be covered for treatment as a private patient at a public hospital, yet may need to pay significant out-of-pocket costs should they be treated in a private hospital.
In order to pay lower health insurance premiums, you can opt to take out a policy which offers less or limited benefits, and thus provides only a minimum level of payment for certain conditions. With a policy of restricted benefits ie Public Hospital Cover, members may have to meet some or all of the cost of certain treatment in private hospital.
Such policies often do not pay benefits for theatre fees, intensive and coronary care units, or same day theatre. It is advisable to confirm with the health insurance fund if you are unsure as whether restricted benefits apply to your policy.
Suspension of private health cover
Under certain circumstances, some health insurers may allow members to suspend the payment of their premiums for an agreed period of time. Such circumstances can include working or studying overseas, temporary unemployment or financial hardship, although these can vary between health insurers.
During such a time, while still considered members of the health fund, individuals cannot claim benefits from the insurer. Upon recommencement of paying premiums, members are not required to serve waiting periods, nor is the Lifetime Health Cover status affected by a suspension being granted.
Members may not be eligible for health fund benefits for certain treatments until a defined period of time has elapsed since taking out their membership - this length of time is known as a waiting period.
Benefits for certain hospital treatments have a maximum waiting period as set by the Commonwealth Government, these include:
- 12 months for treatment related to a pre-existing ailment
- 12 months for obstetrics and pregnancy-related services; and
- 2 months for all other services.
Health funds sometimes offer a waiver of some or all of these waiting periods, and can set their own waiting periods for ancillary, or extras services. It is advisable to check with the health fund to see which waiting periods apply to your cover selection.