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Fewer Young People are Buying Health Cover, But Here's Why They Should

Fewer Young People are Buying Health Cover, But He
Photo: Fewer Young People are Buying Health Cover, But Here's Why They Should
Over the past few years, the Australian healthcare system has been experiencing some worrying trends. It seems people are waiting longer for care than ever before, and many face unexpected bills for the care they've received. At the same time, an ageing population is poised to continue to keep the pressure on the system for many years to come.

Believe it or not, though, as troubling as those things are, they're not the worst problem the Australian healthcare system has.
The real problem is that younger Australians are dropping private health cover at an alarming rate, which will cause the aforementioned trends to accelerate.
They're doing so in reaction to the increasing out-of-pocket costs that have become the norm throughout the healthcare system.

That sets up what insurers are calling a 'death spiral' for the private health insurance system in Australia. If the situation continues to play out with no improvement, it could come to jeopardize care outcomes for everyone – which is something nobody wants.
Still, the mere chance that it could happen is causing insurers to call for the scrapping of the entire Medicare system, while public option proponents claim it's time to ban private insurers.

But what if the problem has a simpler solution?
What if the root cause of the problem isn't that young people don't want health cover, but that they don't know why it might be worth it for them to pay for it? To help clear the air, here's an overview of what you get out of having private health cover, and how you can cut down the costs involved in having it.

Hospital Coverage

To begin with, the biggest benefit of private health cover is that it will pay your costs if you ever have to stay for any length of time in a hospital.
That also means you'll be able to choose from public, private, or day hospitals for your treatment.
That not only increases your options for care, it also means you'll face a shorter waiting period when you need hospital treatment.

It's important to note, however, that your coverage can vary with different insurers.
This is one of the big reasons that people end up with unexpected bills. In most cases, the Medicare system will cover 75% of your hospital care, while your insurer picks up the other 25%.
The problem is that those figures are based on the costs listed in the Medicare Benefits Schedule. If the hospital you choose charges more than the fees listed there, you'll end up paying the difference yourself.
So, whenever possible, shop around before you choose a hospital.

Avoid the Lifetime Health Cover Loading

For young people, paying for health cover is a matter of 'buy now or pay later'.
That's because the government imposes an escalating penalty on your private cover costs if you don't purchase a plan before you turn 31.
The Lifetime Health Cover initiative stipulates that you pay an extra 2% of your premium for every year you went without coverage after that age.
The additional cost doesn't phase out until you've had continuous cover for ten years.

To translate that into real terms, consider this: an individual that waits until the age of 40 to buy cover will pay a 20% premium on their plan. For a plan with an average cost of $1,250, they would instead pay $1,500. That increase would last until they turned 50. That's an extra $2,500 in costs that could have been avoided by purchasing cover by the age of 31. Although your total costs will rise by paying for ten years of cover, at least your money is going toward actual coverage, and not a penalty. Plus, if you buy in early enough, that penalty turns into a discount – of up to 10% if you buy in by around the age of 25.

Take Advantage of The Rebate

For Australians making less than $90,000 per year or families earning less than $180,000 buying private cover is cheaper than it would seem on its face.
That's because they're eligible for the maximum health cover rebate from the Australian Taxation Office (ATO).
That means the government will pick up about a quarter of the cost of private cover each year, which should make it much more affordable and worthwhile for most people.

There is, however, a caveat for young people that they should know. It's the fact that the rebate doesn't include whatever penalty you might owe due to the aforementioned cover loading.
That means if you waited too long to buy cover and now have an added percentage to pay, the rebate calculation will ignore it and you'll have to foot the cost yourself.
In some cases, that can wipe out the value of the rebate itself (or at least negate the penalty, depending on how you look at it).

The Bottom Line
When it comes to young people buying private health cover in Australia, the bottom line is this: your best bet is to buy early and keep your plan for at least ten years to get the maximum benefit from the system.
That way, you'll be able to take advantage of premium discounts, avoid penalties, and maximize the value of the available subsidies.
Once you have coverage, though, you'll need to keep careful track of what the hospitals and doctors you choose charge relative to the set Medicare fee schedule.
Doing so can help you minimize unexpected costs and make the most out of what you're paying for coverage.

You should also take care to choose a plan that fits what your expected healthcare needs will be.
The differences in what each plan covers can be quite vast. Available plans are now grouped into the categories of basic, bronze, silver, and gold, as you can see here for insurance providers with iSelect.
The better the plan, the less you'll have to worry about gaps in coverage, and thus be able to avoid high out-of-pocket costs.
If you don't expect to need much care, though, you can buy a lower-tier plan and still get all of the financial benefits laid out here.

So now, it should be clear how young people in Australia can make the most out of having private health cover, and why getting it isn't as bad a deal as they may have thought.
Plus, every one of them that elects to buy-in helps to ensure that the system will remain viable and affordable for years to come – so it will be there for them when they get older and medical care is no longer a luxury.
Again, it's a case of 'buy now or pay later', except in this case, they could be paying in the form of declining health and a broken healthcare system.
Let's hope for everyone's sake that it never comes to that.


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