Australians are ditching private health insurance as premiums shoot well over the inflation rate, with cumulative hikes of 28 per cent since 2012.

The industry gave the go-ahead in February to raise premiums by almost 5 per cent – three times the rate of inflation and worth at least $200 a year to families. It’s estimated at least 22 per cent of policy holders will dump their cover this year in response to the increase which kicked in this week. If you’re going to follow suit, health care is an important long-term investment so here are a few key points to consider.  

Why do I need it?

Hospital cover can help protect you in the event of a sudden illness or accident with the benefit of your choice of doctor and reduced waiting periods. A carefully chosen extras policy can save you money on dental, optical, gym fees, physio and pharmaceuticals.

On the flipside, private health is a bit like a lottery where everyone pays a similar rate to be part of it and a minority reap most of the benefits. And the biggest beneficiaries are older Australians, who are more likely to end up in hospital or require medical treatment.

Why am I paying more?

Part of the reason is simply that we are receiving better health care and are getting older. The industry’s peak national representative body Private Healthcare Australia says premiums will continue to rise due to our rapidly ageing population, improvements in technology, increasing health input costs such hospital accommodation and medical specialist fees, and consumer expectations.  

Cut your policy costs

Before throwing in your policy, review it. Whether you are a senior with major ailments, a healthy under 20-something or a family who regularly uses health cover, significant savings can be made on any policy.

Compare the Market spokeswoman Abigail Koch says many policy holders make the costly mistake of over-insuring and failing to check what they are covered for.

“We see situations where young people have policies covering them for hip replacement, kidney dialysis or palliative care, and seniors with cover for assisted reproduction,” Ms Koch says.

Removing unnecessary items like these can save policy holders between $300 and $600 a year, she says.

Lower your premium

If you want to pay a lower premium each month, consider increasing your hospital excess or co-payments. Your excess is the amount paid for a hospital stay as a private patient before health insurance benefits kick in.

Pay ahead for discounts

Paying your annual premium upfront and before April 1 annually will lock in the cost of your policy before the price goes up. Paying annually may also attract a discount from your insurer, and sometimes paying by direct debit can too.

Switch insurers to save

Don’t be afraid to switch insurers. It takes time and energy but it could save you thousands of dollars over the life of a policy. Just make sure you’re still covered for what you use. Usually, if you’re already covered by another insurer, any waiting periods will be waived.

Look for incentives to switch health funds as these deals can be a good point of difference when trying to make a decision between similar policies.

But before choosing a new fund, make sure you’ve done your homework. Review how the fund has performed in recent years both in regard to how much its premiums have risen but also how it is rated by its own members.

Save on an industry fund

Check if you can join a restricted membership health fund for your industry, such as Teachers Health or Police Health. Industry funds often come with discounted premiums and regularly rate above mainstream funds for customer satisfaction. If you have a family member who is a teacher, police officer or a doctor, you may also be eligible to join.

Does health insurance reduce my tax?

Most Australian taxpayers pay a Medicare Levy of 2 per cent of their taxable income.

If you’re a single who earns more than $90,000 annually or in a couple that earns more than $180,000, you’ll also be up for the Medicare Levy Surcharge, which is between 1 and 1.5 per cent of your income. Private cover can exempt you from the surcharge, so if your fund’s fees are similar to the surcharge, it may be practical to keep your cover as it’s money you’re paying anyway.

Don’t despair. There’s Medicare

The reason more than half of us don’t have private health cover in Australia is because our public health system is one of the best in the world. All Australian citizens and permanent residents are covered by Medicare so if you go to a public hospital, almost all your costs are covered. And that’s peace of mind if you do have to give up private health insurance.   

DISCLAIMER: This is general information only and not financial advice. You should also consider seeking professional advice before finalising any decisions that may affect your financial future.