Need to know
- As health insurance gets more expensive, some Australians are opting to drop health insurance entirely in favour of 'self-insurance' i.e. paying for private treatment out of their own savings
- Cataract surgery is one example of a procedure that can be cheaper to pay for yourself rather than than forking out the premiums for top cover health insurance
- If you're considering dropping health cover in favour of self-insurance, CHOICE experts recommend first comparing policies to see if you can get a better deal, or seeing if you can downgrade to a cheaper policy that gives you the cover you need
Are you sick of health insurance price rises? With household budgets overstretched, many Australians are scrutinising the monthly cost of health insurance and questioning the value for money.
CHOICE experts say there are many ways you can save on your health insurance. You can start by comparing policies and switching to a better deal or downgrading your cover.
But with health insurance becoming so expensive, you may also choose to drop your insurance completely.
Many Australians have health insurance to save money on tax or to avoid lengthy elective surgery waiting lists. However, there are some specific cases and certain procedures where you could be be better off putting money into a savings account and paying for a procedure or treatment in a private hospital yourself, rather than forking out every month for health insurance payments.
Cataract surgery, for example, is one of the most common elective surgical procedures in Australia. Half of all Australians over 50 are affected by cataracts, and by the age of 80, almost everyone develops cataracts. But the surgery to treat cataracts is often only covered by the most expensive top-cover Gold policies.
CHOICE experts have crunched the numbers and found that the annual cost of top cover health insurance can be more than you would pay for a private cataract procedure out of your own pocket.
What is self-insurance?
Self-insurance is an alternative to paying for private health insurance. Instead of paying money to an insurer, you drop your health insurance completely and instead save the money you would have spent on premiums to pay for private health costs as they arise. If you don't need any private health treatment, your savings will grow.
It's important to understand that this option may only be suitable for people who have few health issues and do not anticipate any unexpected health events. And of course, you need to ensure you have the money set aside in case you do require a surgical procedure or treatment in the private system.
Jo, 71, from regional Queensland and her husband decided to self-insure about 20 years ago when her husband retired from his job, which had provided corporate health cover.
Instead of paying money to an insurer, they paid it into a special investment account.
Over the years, Jo and her husband have received treatment for minor issues and things such as broken bones for no cost in their local public hospital, as these are things covered by Medicare.
But they also needed some procedures and treatments, such as shoulder replacements, cataract operations and dental implants. They used their savings to pay for these treatments in private hospitals to avoid public hospital waiting lists.
Despite the considerable costs, Jo says they've still come out on top, particularly as their savings were boosted by compound interest over the years.
Self-funding your cataract eye surgery
About 250,000 cataract surgeries are performed in Australia every year. But this type of surgery has very long public hospital waiting times.
Across Australia the average wait time is just over four months, but in some states it can be much worse: in NSW the average wait time is over nine months, and one in five people wait for their surgery longer than a year.
Using a private surgeon and private hospital can cut down your waiting time considerably, which is why many Australians may opt for private health insurance to cover them if they ever need this procedure, particularly as waiting for cataract surgery for an extended time can have significant effects on your quality of life.
"While waiting for cataract surgery, you may not be legally allowed to drive, cannot read and are at risk of falls which could even lead to you breaking a hip," says ophthalmologist Dr Guy Bylsma.
If you think you will require cataract surgery in the future, choosing to self-fund your treatment could be a better-value option
However, cataract eye surgery cover is only available with the most expensive Gold health insurance policies and some Silver Plus policies. If you think you will require cataract surgery in the future, choosing to self-fund your treatment could be a better-value option.
The average patient with private health insurance in NSW will pay $1250 in out of pocket costs for cataract eye surgery (including a $750 excess). If you instead opted to self-fund the surgery, the average out of pocket cost is just over $3910 (after the Medicare rebate).
Once you take into account the money you would have already forked out on premiums for the top level cover, self-funding comes out on top.
Take for example, HCF Premium Hospital Gold cover ($750 excess), the cheapest Gold policy of the big five health funds in NSW. It'll cost you $3910 a year, which is about the same as paying for the surgery outright. If you then add your out of pocket costs, paying for private health insurance solely for one cataract surgery is about $1250 more expensive.
If you then add your out of pocket costs, paying for private health insurance solely for one cataract surgery is about $1250 more expensive
"Health insurance is increasingly expensive, so we encourage Australians to look closely at whether they are getting value for money from their insurer, and whether they're paying for cover they don't need or aren't using," says CHOICE health insurance expert Uta Mihm.
"If you're paying for top level Gold cover specifically for cataract surgery, you may be better off saving the money yourself instead of paying it to an insurer. Bear in mind, this only works if you don't need any other procedures in the private system. You can't always predict what your health needs will be in the future."
Australians who have decided to self-insure
The trend of self-financing private healthcare is growing in Australia.
Linda's story
Linda, 61, from NSW is another Australian who has opted to not take out health insurance.
"I couldn't afford it when I was a postgraduate student and later on did not see it as worth it," says Linda.
Once, when she had an accident which resulted in a head injury, she was treated in a public hospital. In the last few years she had two procedures performed in a private hospital; a tonsillectomy and a septoplasty. She paid for both procedures with her savings.
She has some orthopaedic issues and thinks she may need a knee replacement in about 10 years. Closer to that time she plans to do some research into the costs of health insurance and the procedure and consider if it makes sense for her to take our private health insurance in time to serve the waiting time before she gets scheduled for surgery.
Phil's story
Until a few years ago, Phil, 62, and his wife had health insurance.
"I made a spreadsheet and found that my insurance had cost me more than $5500 in the last year and I only got back about $1500. This led me to dump the insurance," says Phil.
Since then, Phil has had a day surgery to remove a fistula in a private hospital, which he paid for using his savings. This cost him less than $3000.
Phil is happy with his decision, and his expenses since the surgery have been minimal.
"We have only had normal doctor's bills, and a couple of pairs of glasses from Specsavers," he says.
Self-insurance for birthing in a private hospital
Another circumstance where some people are considering self-insurance is when planning to give birth in a private hospital.
When it comes to giving birth, there are some serious perks to going private. If having your partner stay overnight, enjoying chef-prepared meals and a high tea and staying in a modern, stylish suite with an ensuite are important to you, you might consider going private.
But these luxuries are not exclusively available to private health insurance patients – a number of private hospitals offer packages with all the bells and whistles to self-funded patients.
While it can be costly using a private obstetrician during your pregnancy, for both private health insurance and self-funded patients alike there are large differences in costs for the hospital stay and birth.
In NSW the average private hospital patient with health insurance pays between $400 and $1200 out of pocket. The average cost for self-funded new parents is much higher: between about $8250 and $12,000, with the highest costs for a complicated cesarean birth.
But for health insurance, pregnancy cover has a 12-month waiting period, so if you want to be sure that you're covered, you need to upgrade to a Gold policy before you even start trying to get pregnant. And of course you have no idea how long it may take you to get pregnant.
If, for example, you upgrade to Gold cover two years before giving birth, a couple policy with HCF Gold Premium Hospital $750 excess will set you back $15,640 in NSW.
So, in some circumstances, the self-funded parents can end up paying less.
If you're thinking about using this option, you should ask your obstetrician and hospital what will happen if things do not go to plan.
For example, your baby may need to go to a Special Care nursery or ICU, or you may need further post-birth treatment that could cause costs to blow out if you have to remain in a private hospital.
Ask your obstetrician if you would be able to get transferred to a nearby public hospital if you or your baby required further treatment. And consider if this extra complication might be too stressful in the case that something does go wrong.
Stock images: Getty, unless otherwise stated.
