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October 06 newsletter

Health insurance

Chances are, that if we pick any newspaper headline during the past 20 years, it's likely to be concerned with starvation in Africa, war in the Middle East, or hospital waiting lists. Despite the world's best intentions, the first two are likely to remain headline news for the next 20 years.

Tweaking health funding (if you can call the recent boost of $200m a tweak) may result in more elective surgery (depending who you believe), but the facts of the matter are that health inflation is rampant and health costs will only continue to sky rocket. Health funding is a challenge that the government won't win. Health insurance is therefore a product worth considering.

What does health insurance provide?

There are essentially three options.

Option 1 - Base hospital cover

This will cover the costs of surgical and non-surgical treatments in a private hospital. It includes professional fees, hospital stay charges and prescriptions.

If you're considering health insurance, then this is the option you need. It will cover you against a big $50,000 cost that you are unlikely to be able to fund out of your emergency savings.

Policies usually provide separate cover amounts for surgical and non-surgical admissions. These range across insurers, from $25,000 through to $250,000.

You are able to choose the excess (from zero, to several thousand, dollars) which best fits your need. As you get older and premiums get very expensive, a higher excess may help keep the cost manageable.

Option 2 - Diagnostic tests and specialist fees

Before you are admitted to hospital, you will require the services of a specialist and probably undergo diagnostic tests. If you are admitted to hospital as a result, the costs associated with the specialist and tests will be covered under option 1. However, if no hospital admission is required, these costs will be still covered if you have selected cover under this option.

Tests and specialist visits may end up costing $1,500, for example. While considerably less than a hospital admission, $1,500 is still a substantial cost for most people. Having cover under this option means that you can visit the specialist and have the recommended tests without financial concern. While you will eventually be seen under the public health system, using your insurance to see a specialist next week, instead of in six months time, can be a worthwhile investment in both your health and emotional wellbeing.

Cover usually includes all specialist visits and recommended diagnostic testing. Most health insurers will have an annual cost limit, per person, under this option. However, most policies do not have an excess.

Option 3 - Additional options

You can choose to add extra options, such as GP visits and dental care, to your policy.

the Shape of Money does not recommend insuring for additional options, such as GP visits. Your insurance premium should be targeted to those bigger costs which you cannot fund out of your day-to-day spending. GP and dental costs are best funded out of your weekly budget.

Southern Cross policies

If you have a policy through Southern Cross, you may want to examine the policy document carefully to ensure that you have a good understanding of what is not covered.

Some Southern Cross policies pay only 80% of the cost. That means you will be required to pay $10,000 on a $50,000 claim. All procedures and tests are specified. This makes it difficult to understand what is actually excluded. This contrasts with other health insurers, which offer more comprehensive cover. For example, rather than specifying that X and Y tests are covered, other insurers will say that all tests are covered. Southern Cross also specify the maximum cost of the treatment. This may or may not leave you out of pocket.

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