Confused about your private health insurance coverage? You're not alone

Anyone who has purchased private health insurance or thought about changing policies knows the system is complex and confusing. It’s almost impossible to compare coverage between the 34 providers and their various 20,000 or so plans.

The Australian Competition and Consumer Commission’s (ACCC) annual report on the industry, released this week, shows that half (48%) of private health insurance customers have thought about changing plans and took steps to do so, but only 14% followed through.

Private health insurers use different terminology, technical language and make bold but vague advertising claims. Consumers are often unclear about the benefits and exclusions, and may end up opting for lower-cost plans that lack adequate coverage.

The ACCC report on the disconnect between what consumers expect and what insurers provide echoes our own research. Along with rising premiums, consumers are often slugged with unexpected out-of-pocket expenses. And they’re often encouraged to use their private health insurance rather than using the taxpayer-funded public health system.

Better information – about private health insurance policies, but also how the health system works – is key to fixing these problems.

Should you use your private health insurance?

Half the Australian population already has private health insurance and there is increasing pressure on others to sign up, either to avoid higher taxes, avoid higher premiums if aged over 30, or to ease the burden on the public hospital system.

When people with private health insurance are ill or injured they must decide whether to use the public system or use their private health insurance. According to the ACCC, “public hospitals are becoming increasingly active in pressuring patients to use their insurance in a public hospital”.

Once an initial decision has been made about which health system to use, it’s difficult to change course. And, if using private health insurance, costs can quickly cascade. As one of our research participants, pregnant with her first child, explained:

I figure I’ve got [private health insurance] so should use it. We know that the hospital is covered as far as I only have to pay my excess for that, but the obstetrician is costing us about $3,500. If I need to have a cesarean there will be extra costs for the anaesthetist, a paediatrician at the time, so there could be extra costs if that happens… And to do the antenatal classes it’s $160 and most private health funds cover it except for mine.

People need “system knowledge” to successfully navigate health care, such as whether to use private health insurance when admitted to a public hospital. Such system knowledge can be gained through personal experiences, the experiences of close friends or family, or health advocates.

In our research, many participants described being asked if they would “help the hospital” by using their private cover.

Those with system knowledge generally did not do so. They knew there would be out-of-pocket expenses if they did, but none if they did not. They assessed their quality of care as likely to be no different.

People without “system knowledge” agreed to using private health insurance and were surprised that there was little difference in the care received. They thought private health insurance provided an entitlement to superior care and experience, such as a private room.

Towards more informed health consumers

The ACCC report outlines a number of stakeholder recommendations to reduce confusion and help consumers navigate the health care and health financing maze. This includes:

• standardising terminology and reviewing policy standard information statement (SIS) requirements so consumers can more easily compare policies
• improving minimum policy coverage requirements
• allowing consumers to more easily calculate their out-of-pocket expenses.

Consumers also need access to trusted information. While many comparator websites are available to help consumers select private health insurance policies, the extent to which they are sponsored by various providers is often unclear.

Groups that advocate for consumers, such as the Consumers Health Forum or Choice, may be better placed to provide accessible and trusted information. This would ensure that consumers receive the information they require through independent evaluation of products, consumer forums for sharing information and experiences, and clear information about switching insurers.

The ACCC report also highlights the benefits of the little-used and accessed government website: privatehealth.gov.au. With a name change and redesign, this site could be become an information portal for more than just private health insurance.

People also need information about what is available in the public health care system. Taxpayers pay for health care via the Medicare levy, and this can be overlooked when making decisions about health care. Clear information about access, navigation and services provided in the public system would help consumers decide what, if any, additional health insurance they need.

Our research found consumers want more information, in particular, about waiting lists for public hospitals in their region and how they compare to the private system; and clarity around what is considered “elective”.

What should you do in the meantime?

To assess whether you’ve got the right private health insurance coverage, you should review your policies on an annual basis. Carefully read your policy documents, along with any communications from the insurer, in case the terms change.

If you have ancillary or “extras” cover, consider the costs and benefits and whether you’re better off paying for these expenses upfront.

Finally, check what your insurer means when they use language such as “no gap”, whether annual limits are based on a “membership year” or a “calendar year”, and the items that are excluded in your policy.

Karen Willis is lead investigator on an Australian Research Council funded project titled 'Navigating the Healthcare Maze - the differential capacity to choose' (2013-2015).

Sophie Lewis does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.