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What is Hospital Excess and How Does it Work?

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What is Hospital Excess and How Does it Work?

Understanding your private health insurance excess

Most private health insurers offer their customers the option of paying an excess or a co-payment in exchange for a reduction in the cost of their premium.

Generally, the higher the excess you’re willing to pay, the lower the premium.

An excess is a lump sum that you pay toward hospital admission; it’s paid before your health fund pays your benefits. An excess cannot be claimed back – it’s an out-of-pocket expense.

Depending on your health cover, you’ll normally need to pay the excess each time you’re admitted to hospital. Your excess amount is often capped to a certain amount per year (this varies between insurers). An excess only applies to hospital cover – not to general treatment (extras) cover.

A co-payment is different to an excess: it’s an agreed-upon amount that you pay every time your insurer pays benefits on your behalf. With some health funds, co-payments might be payable upon each admission to hospital. Other insurers may charge a one-time co-payment amount per year with a maximum limit.

The idea behind excesses and co-payments is the same: they’re both an agreement that you’ll share some of the cost of your hospital bill with your health fund in return for a cheaper premium.

Options to pay excesses and/or co-payments vary greatly from one health insurer to the next. In most cases you’ll pay for one or the other but with some funds you may pay both.

If you’re going to hospital

Going to hospital is nobody’s idea of fun, but the process can be less daunting if you understand your choices and how it all works. With private hospital cover, you can choose to be admitted as (a) a private patient in a private hospital, (b) a private patient in a public hospital or (c) a public patient in a public hospital.

If you choose to be treated as a private patient in a public hospital, you can still choose your doctor, but you may still be subject to public hospital waiting lists.

Having private health insurance does not affect your ability to access the public Medicare system – it’s entirely your choice. About 80 per cent of patients who claim on their hospital cover are treated in a private hospital.

When you’re a private patient in a private hospital, you can normally choose your doctor and your preferred hospital; you may also have more control over when you’re admitted. If you choose to be treated as a private patient in a public hospital, you can still choose your doctor, but you may still be subject to public hospital waiting lists.

Why, you ask, would anybody who has paid good money for private health insurance want to be treated as a public patient in a public hospital under Medicare, especially when they don’t get to choose their own doctor?

Often the reason comes down to urgency of care. If you’ve been in a bad car accident, suffered a heart attack or strongly suspect your appendix is about to burst, you won’t care too much about a choice of doctor or being housed in a private room.

You may not even be in a position to make those choices. You just want hospital treatment as quickly as possible.

Clinic visit for senior woman

Because private hospitals generally don’t have emergency wards, you’ll usually be sent to a public hospital in more urgent medical scenarios. The hospital will then ask you (as soon as it’s practical) if you prefer to be treated as a private or public patient.

If you opt for public, there is no cost for your treatment. If you choose to be admitted as a private patient, your private health insurance hospital cover will pay the cost of your stay in hospital. You may, however, still have out-of-pocket expenses (known as ‘the gap’), depending on the types of treatment you receive and the specialists involved.

If you have private health cover and go to hospital, you can often pay your excess simply by swiping your health fund membership card for the required amount when you’re admitted.

Not all medical specialists charge a gap fee, and most medical services in hospital are gap-free, according to the Private Health Insurance Administration Council. Find out more about gaps here.

If you have private health cover and go to hospital, you can often pay your excess simply by swiping your health fund membership card for the required amount when you’re admitted.

As soon as you know you’re heading to hospital as a private patient, ask your doctor to provide the Medicare item numbers that will apply to your treatment. Then contact your private health insurer as soon as possible to double-check what you’re covered for and to find out what you might need to pay out of your own pocket.

Patient about to leave hospital.

The information your insurance provider sends you is extremely important, so read it carefully.

If you’ve read the product disclosure statement that pertains to your private health insurance policy, you should already be well informed about what to expect, but always clarify anything that confuses you.

How hospital excess can affect your tax

The amount of hospital excess you pay may also have tax implications. Most Aussie taxpayers pay the standard Medicare Levy as part of their income tax.

In order to avoid the Medicare Levy Surcharge (which covers you and your dependents), you must have hospital cover with a registered health fund

But those who earn above a certain threshold and elect not to take out private hospital cover are subject to an additional tax – the Medical Levy Surcharge. This tax was brought in by the government to encourage higher-earning Australians to take up private health cover and ease the burden on the public health system.

In order to avoid the Medicare Levy Surcharge (which covers you and your dependents), you must have hospital cover with a registered health fund, with a payable excess per year of no more than $500 for singles or $1000 for couples and families.

So having the appropriate level of excess in respect to the Medical Levy Surcharge can exempt you from paying this extra tax, which is calculated at a rate of between 1.0 per cent and 1.5 per cent of your ‘taxable income for Medicare Levy Surcharge purposes’.

If your income is below the threshold ($90,000 for singles or $180,000 for couples and families), you’re not required to pay the Medicare Levy Surcharge. (The information above is current until 31 March 2016 but may change. Check with the ATO for up-to-the-minute information).

Understand the pros and cons of your private health insurance

Providers of health fund hospital cover all have different restrictions (benefits that are only partly covered) and exclusions (services they don’t cover). Even many top hospital plans have limitations. Non-medical cosmetic surgery, for example, is a common exclusion in hospital cover.

Do you know if your current hospital cover includes palliative care, rehabilitation, joint replacement or obstetric care?

Do you have a firm grasp of the terms, conditions and limitations of your policy?

If you don’t ask the right questions and read your insurer’s product disclosure statement, you may not realise your cover is inadequate until it’s too late.

The same applies to extras cover – knowledge is king. Make sure you know how much dental care is provided by your plan.

Which alternative therapies are included?

The advantage of having a higher excess is that it normally equates to a lower premium.

Are you covered for blood glucose monitors, psychological services and hearing aids?

It’s not just about what you’re covered for – it’s about the benefit amounts that apply to that cover and any limitations that come with those benefits.

Although some aspects of private patient hospital cover can be complex and difficult to understand at times, a hospital excess is pretty simple. It’s normally a single lump sum that you pay when you’re admitted to hospital.

Many funds don’t apply excesses to children. You can set the excess level you want to pay up to a yearly maximum, which can either be per policy or per person. The advantage of having a higher excess is that it normally equates to a lower premium. Contact your insurer about any questions you have about your excess.

Many people in a waiting room

Out-of-pocket expenses are one of the most common points of confusion for consumers. Aside from understanding how your excess works, it’s also important to be aware of the gap component that applies to your stay in hospital.

The gap is the amount a private hospital or practitioner charges above and beyond what’s covered by your health fund and Medicare. Some insurers offer some form of gap cover to ‘bridge the gap’, so check on the details of this option too.

For many of us, it can be years between visits to hospital, so our hospital cover tends to be ‘out of sight, out of mind’. But if you always review your private health insurance annually (both hospital cover and extras cover, if you have both) you can ensure your present cover is still meeting your needs.

 

Sources
http://www.ombudsman.gov.au/__data/assets/pdf_file/0029/29963/healthinsurancechoicejuly2010.pdf
http://www.privatehealth.gov.au/healthinsurance/whatiscovered/privatehealth.htm
http://www.abc.net.au/health/consumerguides/stories/2006/04/17/1837457.htm
http://www.privatehealth.gov.au/healthinsurance/incentivessurcharges/mls.htm
http://www.smh.com.au/money/planning/how-to-get-value-from-private-health-insurance-20100823-13ebn.html