Health insurance

Health insurance: do you need it or don’t you? It’s a classic $64,000 question. If you need a hip replacement, non-urgent heart surgery, or a hysterectomy you might well wish you had insurance. If you don’t, you’ll be glad you didn’t spend the money.

Premiums also increase as you age and as new more costly treatments come into common use. When you need it most – once you’re retired – health insurance is at its most expensive.

If you get sick or suffer from a chronic condition, the public health system will help you sooner or later. It’s the “later” bit that makes health insurance worthwhile for some people. They want the peace of mind they can get treatment when they need it and not have to wait.

If you’re considering taking out health insurance, you need to ask yourself:

1. Can you afford to put aside savings that are earmarked just for
   medical bills? If the answer is yes, then you’re most likely to be
   better off without health insurance providing you don’t need to pay for major elective medical treatment when you’re younger.

2. Can you afford to pay for doctors’ visits? Then it’s probably not worth paying higher premiums for comprehensive cover. Likewise if you can afford the premiums for budget policies that only cover GP visits and other primary healthcare such as prescriptions then you can probably afford to pay for doctors' visits yourself.

3. If you don’t make it on to a public hospital waiting list, can you afford to pay for surgery? A procedure like a knee replacement can cost $21,600 to $30,600, according to the Health Funds Association of New Zealand. Can you afford to pay that? If a condition could stop you working, how much income could you lose?

4. Are you willing to take some of the financial risk? Some companies offer cost-sharing policies that only pay a percentage of the claim. The idea is that if you have some skin in the claim you won’t want to be treated unnecessarily or have the cost of treatment balloon out of control. The other way of doing this is by taking out a higher policy excess in exchange for a lower premium.

5. What are your chances of needing major surgery? Diet and exercise are vital factors in maintaining health and in reducing the risk that you’ll need medical treatment. Making lifestyle changes may do more for your health than health insurance.

If you do want to take out health insurance make sure you’re comparing apples with apples when looking at policies.

For example, two policies might each offer $200,000 cover for surgical procedures. But one may have more restrictions on the type of procedures available or limit the number of diagnostic tests and specialist consultations you can have. As well as the headline cover, it’s important to read the exclusions.

If you're searching for a health insurance policy, here are some key questions to ask:

• Are relatively common procedures or medical conditions excluded by the policy?
• Are treatment limits per procedure or per year?
• How generous is the policy about scans and investigative procedures?
• Can you claim if these procedures don’t result in hospital treatment?
• What type of minor surgery will be covered?
• Will non-Pharmac funded drugs be paid for?
• Is there home-based nursing available for post-operative care?
• Will you be able to claim for post-operative physiotherapy?
• Will the insurer allow you to go overseas for treatment?
• Are your children covered from birth – and until what age?
• Are pre-existing conditions covered after a stand-down period?
• Can you cost-share or is there a good trade-off between taking a higher excess for each claim and premium reduction?

You’ll want to choose your first health insurer carefully, as this decision may be a life-long one. Every time you sign up with a health insurer, you need to declare all pre-existing medical conditions. Fail to disclose something and you’re on your own.

If the health condition is assessed low risk, your insurer may provide cover. It also may apply a stand-down period – for example, some Nib and Southern Cross plans offer cover for lower-risk pre-existing conditions if you stick with the policy for at least three years.

However, if you have high-risk medical conditions, your new insurer will likely exclude cover for them. When switching providers, you’ll need to consider if the benefits of the new policy outweigh any limitations the new insurer will apply – these limits can be costly.

In a case handled by Financial Services Complaints (FSCL), a man’s claim for treatment for an injured thumb was declined after he switched insurer. The man and his partner had been with their previous insurer for 16 years.

According to the FSCL case file, the couple’s insurer reviewed the man’s full medical records and refused to cover any claims relating to the affected hand as the pain was due to a pre-existing condition.

Across the Tasman, regulations enable Australians to take their pre-existing conditions cover with them when they switch providers. Insurance companies can only exclude pre-dated illnesses and injuries for a maximum of a year.

Insurance specialist Jeremy Holmes, of Melville Jessup Weaver, said regulations to keep your pre-existing conditions cover when you switch would affect the cost of premiums. More claims would be approved, and insurers would pass on these extra costs. “All policyholders would end up paying more.”

Costs to Aussie consumers are offset to some extent by rebates and tax incentives, designed to encourage uptake of private medical insurance.

One notable difference between the plans we looked at is the limit an insurer will pay for a set type of claim within a year. For example, Accuro’s SmartCare, Nib’s Standard and the Partners Life and UniMed plans will pay up to $300,000 for surgical treatment, whereas AIA’s Real Health and Southern Cross’ Wellbeing Starter allow up to $500,000 – and Sovereign unlimited surgery.

However, a limit of $300,000 should suffice as few operations cost more than $150,000. We looked at the average cost of the five most common procedures paid out by Southern Cross:

1. Knee replacement: $22,000 to $30,000
2. Hip replacement: $21,000 to $28,000
3. Colonoscopy: $2000 to $3000
4. Skin surgery: $200 to $2500
5. Cataract removal: $3000 to $5000

Premium health insurance plans offer benefits such as extra travel and accommodation expenses or funeral costs. But these expenses aren’t as frequently claimed as surgical procedures, diagnostic tests or consultations – so consider if the extra cost of these plans is a better choice than squirreling the extra money away for a rainy day.

Health insurance companies must belong to a financial dispute resolution scheme.

All the companies in our survey are members of the Insurance & Financial Services Ombudsman scheme.

If you have a dispute that you can’t resolve with your insurer, you can take the case to the ombudsman. However, the complaint must be “deadlocked” with the company before you can go to the ombudsman.

The scheme can look at complaints about:

• policy and contract interpretations
• financial advice or services provided by the insurer
• the payout offered.

The ombudsman can’t look at complaints about premiums, excesses, underwriting decisions or claims above $200,000.