Petrol. Groceries. Electricity. Rent. The cost-of-living crisis is squeezing household budgets from every direction, and private health insurance premiums have just joined the list.
From April 1, the average premium rose by 4.41% . Consumer group Choice notes average premiums for some gold cover policies have risen 7.89-25% .
Many people absorb these increases without question. Others may be tempted to cancel their policy.
But there is another option - negotiating a better deal with your insurance company.
Here's what to think about before picking up the phone.
Why we just keep paying
Human behaviour explains why so many of us renew our health insurance policies without changing our cover or negotiating a better deal.
We're so afraid of making the wrong change that this prevents us from taking action. Economists call this " loss aversion ". What this means in practice is we are psychologically fearful of removing items from our existing cover (even if we replace them with something else).
Health insurance policies are also complex documents we can struggle to understand. This contributes to what economists call " bounded rationality ". In other words, we choose what to do about our private health insurance based on simplified rules and not on deep analysis. This is especially the case when the topic feels complex and the stakes are high.
Then there are the multiple options available, often requiring significant legal and health literacy to make sense of. Research looking at elderly people suggests they would make better decisions if the policies contained fewer options to choose between.
So it's no wonder we often settle for what is a "good enough" decision rather than what's optimal. And once made, we rarely revisit this decision. Economists have a term for this too - " status quo bias ".
Why not just cancel?
If looking for a better deal - either with your existing health insurer or with another - sounds too hard it might be tempting to cancel your policy. Whether that makes financial sense depends on your age, health and income.
But cancelling can come with several stings.
If you cancel hospital cover, you may face the Medicare Levy Surcharge . This is up to 1.5% of your income.
If you cancel now and come back later, you may need to pay the Lifetime Health Cover loading. This adds 2% to your premium for hospital cover for every year you're aged over 30. This penalty lasts a decade.
If, after cancelling you wish to rejoin, you'll also have to sit out waiting periods for certain conditions.
Don't just accept it - negotiate
Health funds have a powerful reason to say "yes" to negotiating with you.
When healthy people cancel their policies, this leaves behind an older and sicker pool of insured people. This forces up premiums, pushing even more people to cancel their policies. Economists call this the " death spiral ".
However, plans tend to have set prices. This makes it hard to negotiate the price of your plan directly. So you'd be better off negotiating other aspects of your policy. For that, you need to do a little homework.
Homework before negotiating
1. Optimise your excess, cover and extras
Would you accept a higher excess? This is the sum you'd need to pay before the policy pays out on a claim. A higher excess means a cheaper premium.
You can reconsider the level of cover for hospital and extras, and the level of cover doesn't have to be the same. For example, you can have basic hospital cover with top level extras cover.
Why pay for extras if you never use them? Remember you don't need to include all the extras on offer. You can set them to reflect what you actually use, and save money by removing those you don't need.
2. Know what you need
Many people set up their plan in early adulthood and do not review this over time (they set and forget). Our medical needs also change over time and you could be paying for things you no longer need.
Why pay for paediatric care if you have no children? You can add that onto your policy later if you need it.
Also remember to add and remove people from your policy as the make-up of your household changes.
3. Find a better deal to bargain with
Next it is important to know the cost of competitors' premiums for similar policies that suit your needs. You can use comparison sites to seek a comparable product to use as a bargaining tool with your current provider.
Your existing insurer will ask for details of that comparison product, so do your research. Be prepared to answer questions about whether this product is really a good comparison.
4. Ask what they will offer to keep you
Don't be afraid to ask what deals and promotions your existing health insurer can offer to keep your business.
5. Strike at the right moment
Finally, you should review your policy annually, and this is the best time of year to do so, now policies have just increased.
It is when providers are most willing to negotiate and when the deals for switching to a different provider tend to be the most generous.
Before you switch
Before you switch, take time to read the new policy and compare it to your old one. Watch out for differences in waiting times and cover for pre-existing conditions. Check reviews for providers about their customer support and service.
You can contact the Commonwealth Ombudsman for free, general advice on private health insurance, including comparing policies.
The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.
