Young likely to opt out of health cover
19 05 08 - 18:04
PRIVATE health insurance buyers may well be "punching ponchos'', as the iSelect commercial says, were they not to engage the services of said broker.
But healthy under-30s with credit card debts would be "puffin muffins'' if they bought the insurance at all, says popular financial adviser Scott Pape.
For singles earning up to $100,000, there is now one less incentive to take up private health insurance, thanks to the Rudd Government's changes to the Medicare levy surcharge.
Introduced partly as a stick to encourage younger people to join private funds which needed them to subsidise the premiums of higher-claiming older members, the old surcharge had been 1 per cent of taxable income over $50,000.
Someone earning $90,000 would pay $900 a year -- unless basic hospital cover was picked up.
This is about the same cost as the average policy picked by iSelect customers under 30, including partial refunds on extras such as dental, physiotherapy and chiropractor treatment, spokesman Rohan Martin says.
But now the Federal Government has raised the income threshold for the surcharge to $150,000 for couples and $100,000 for singles.
So someone earning $99,900 who before had two choices -- either paying $900 for private insurance or a $999 Medicare levy surcharge -- can now avoid both.
Mr Pape says attacking the plastic, on which Australians pay 20 per cent annual interest on average, would be a wiser choice.
It would be better still, he says, for low to middle-income earners (up to about $59,000) to make a super co-contribution, with the Government matching $1.50 for every $1 put away for retirement.
iSelect's Martin says the old levy helped funds recruit under-30s, who made up a quarter of all 400,000 new fund members in the past year.
Robina broker Eddie Anderson says young people who come to him usually do so to avoid the surcharge.
"Our argument was you either pay the 1 per cent and get nothing or pay the roughly 1 per cent and get some benefits back and some cover should you need it,'' Anderson says.
According to a 2007 healthcare report by Ipsos, about 30 per cent of those seeking to avoid the surcharge had no intention of actually using their insurance.
For someone under 30 to eschew hospital cover is punting on the fact they're statistically less likely to claim than over-30s.
Of course, some still do, says West End-based broker John Small, typically through accidents, sporting injuries, wisdom teeth extractions, adenoids, tonsils or pregnancy.
A much-needed knee reconstruction recently set back an uninsured 24-year-old between $8000 and $10,000 in the private system, as against a 12-month wait in the public system.
Then $1000 a year for health insurance looked cheap to this client, who is earning only about $35,000, Mr Small says.
"(But) what's going to tend to happen now is the younger healthy people who have `indestructible' stamped across their forehead will say: `Oh well, I don't have to take hospital cover now, I can save that money and not have to pay that additional 1 per cent,'' he says.
The Private Health Insurance Intermediaries Association wants the Government to lower the singles threshold to $75,000.
AMP financial planner Tony Rigby says people who can afford to, opt for health insurance to have the choice of when, and by whom, they are treated when having elective surgery.
"I believe, probably, most Australians are going into private health insurance for the right reasons, not just to avoid paying a levy but because they want genuine quality private health cover,'' Mr Rigby says.
Health insurance is similar to life insurance, he says, which is "never bought, always sold''. But not once has it come up on the chopping block when he talks cost-cutting with clients.
At exactly what level of income health insurance becomes unaffordable is not clear. The clearer factor is age.
Mr Pape says private health insurance becomes a better option for over-30s who are more likely to claim, especially given that premiums will cost 2 per cent extra for every year after 30 if there is a delay in joining a fund.
But, if someone is not claiming hospital cover in their 20s, the value of extras like optical and dental work, alongside your out of pocket expenses, would not add up, he says.
"I tell you what, I've had a lot of work done on my teeth and I've got back basically two-parts of bugger all.''
Paying up
- $8000-10,000: Cost of a knee reconstruction in a private hospital
- $900: Average annual health insurance premium for iSelect customers under 30, including hospital cover for a knee reconstruction
- $15,000: Total these premiums would fetch after 10 years if put instead in a 7 per cent interest savings account