Guest post: Maintaining health insurance on a tight budget

Maintaining health insurance on a tight budget - Ever-changing Life of a Mum

*In conjunction with Health Insurance Comparison

I have to say that one of the biggest challenges of leaving work in the middle of last year to spend more time with my family has been adapting to living on one income. Our budget is tight and over the past year I have been trying to find ways to cut costs to help improve our cash flow.

During this time, I have often questioned whether we should drop our private health insurance. Lucky for me, I don’t move quickly on these things so I didn’t get around to making any changes before discovering I was unexpectedly pregnant with my third child. But now that my baby girl has arrived and, knowing that she will definitely be my last, I am once again questioning the need to maintain our private health insurance. I currently have top level hospital cover, but it is one of our most expensive yet optional bills to pay each month.

I’m sure many other families in this economy often have the same thoughts, so I asked Sally from Health Insurance Comparison if she should offer some advice on ways to fit private health insurance into a tight family budget, what it would mean tax-wise if we cancelled our insurance, and what options there are to reduce the cost of private health insurance after you have finished having babies.

{GUEST POST} Health insurance on a tight budget: tax implications of dropping your cover and how to reduce premiums

If you’re on a tight budget, health insurance may not be one of your biggest priorities. Compared to feeding your family or keeping a roof over your heads, health insurance is more of a luxury, after all.

If you’re thinking of dropping your health insurance cover to free up a bit more room in your budget, it’s worth thinking about how it might affect your tax situation. The Medicare Levy Surcharge (MLS) means that there may be some implications on this front if you decide not to have even basic Hospital cover in place. Depending on your household income, it may be better to keep some degree of health insurance and try to reduce the cost of your premiums instead.

Health insurance on a tight budget

When money is in shorter supply, you’re probably going to be priced out of top end policies and possibly mid range ones too. Basic policies are still an option though and can be better than having no cover at all. However, bear in mind that they can have a lot of restrictions and exclusions, and basic Hospital policies will almost always exclude things like pregnancy/birth services and age-related services, such as joint replacements, to reduce the cost of premiums. This can be fine if you are young and healthy and only anticipate being admitted to hospital for emergencies, but it can be inadequate for families (even on Family policies).

For Extras cover, basic policies will usually cover general dental and optical services (albeit with relatively low annual limits) and some health funds go beyond this by offering ‘no gap’ dental services to virtually eliminate out-of-pocket expenses for check-ups. As Medicare only offers limited support for kids dental services (the Children Dental Benefits Scheme is capped at $1000 over two consecutive calendar years), even basic Extras policies can help to reduce out-of-pocket expenses. If you’re less concerned about hospital cover but want to avoid out-of-pocket costs for out-of-hospital costs, such as dental and optical, you may prefer to focus more on Extras cover and just have a basic level of Hospital cover – especially if you are not affected by the MLS.

Tax implications of dropping your health insurance

Before you make a decision as to whether to drop your health insurance cover, it’s worth recognising the financial impact that this could have. The MLS is the biggest thing to think about as families earning above $180,000 (for the 2014/15 financial year) are obliged to pay an additional levy on top of the mandatory Medicare levy. This could be between 1-1.5 per cent, depending on which income bracket you fall into. If your household is earning below this, you’re exempt from paying the MLS but it is something you’d need to factor in if your household income rises again in the future.

You can avoid paying the MLS if you hold Hospital cover with a registered health fund. To be eligible, this policy must have a maximum excess of $1000 for families/couples (including single parent families).  Be aware that if you only have Extras cover, you are still required to pay the MLS.

How to reduce health insurance costs

If you are satisfied that you have definitely completed your family, you can quickly and easily reduce your health insurance premiums by dropping pregnancy/birth services. Downgrading to a policy that does not include this is a great way to cut costs without affecting the services that are still important to you.

Being one step ahead of the game is crucial when funds are tight. Think about the kind of services (both in-hospital and out-of-hospital) that may be needed in the next year and be prepared to adjust your cover accordingly, if necessary, so that waiting periods don’t catch you out. If you don’t serve the appropriate waiting period for a particular service, you won’t be eligible to make a claim. This would lead to out-of-pocket costs that you hadn’t anticipated.

Paying by direct debit is another simple way to reduce premiums and this can cut costs by up to 4 per cent. Pre-paying a year’s worth of premiums upfront to lock in current rates and effectively avoid inevitable rate rises is another option, but this is less feasible on a tight budget.

If you want to compare health insurance funds, visit Health Insurance Comparison at www.healthinsurancecomparison.com.au

*Health Insurance Comparison did not pay for this post, however they are one of my sponsors.

Do you have private health insurance? How do you maintain your private health insurance on a tight family budget?

19 thoughts on “Guest post: Maintaining health insurance on a tight budget

  1. I’ve kept my health insurance though the cost is killing me. I’m not working. I do a bit of writing but am on unemployment benefits which don’t cover my bills…. but I know the moment I drop my insurance will be when I need it!

    • Thanks Em. I don’t have extras as I find them too expensive for the rebates you receive back. I think if I put that extra money away I would probably have more than enough money to cover what I need when the time came … not that I actually do that, but it would be good plan!

  2. We have considered leaving our insurance company on more than one occasion, I am so grateful that we haven’t. With one accident prone Son, we’ve had to use it more times than I would care to remember, throw into that a couple of pairs of braces and we’ve been on the good end of health insurance. Some excellent advice here, thank you. xx

    • Thanks Nicole. We have used ours a couple of times this year too. With a young family, I feel it is important for us to keep it up but I think need to review our plan to save some money by drop some things, like obstetrics, which we will no longer be needing 😉

  3. I don’t know where we’d be without our health insurance. From the moment we knew we were having twins it’s been such a life saver for us.

  4. We gave up our hospital cover after we had our first daughter. We just couldn’t afford it while living on one wage. The only reason we got it in the first place was for having our first daughter and we ended up paying over $2000 out-of-pocket. With our second daughter we didn’t have it and went public and had next to no out-of-pocket expenses. I would like to have basic hospital cover but we simply can’t afford it. However once I start working again next year it’s definitely on the top of my list to investigate as I’d like to have that safety-net as the girls get a little older.
    #teamIBOT

    • Wow, that’s quite a large amount to be out of pocket. To have my daughter in a private hospital cost me a $400 excess (well, plus the monthly premium!) and I was also about $300 out of pocket for the epidural. I also have friends who have been very happy with their experience in giving birth in a public hospital. But I guess we have used our insurance for other things since having our girls and I worry if we get rid of it that something will happen and we’ll regret it.

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