Is your health insurance a dud or a good deal?

Surgeons can earn $3 million while premiums soar, says Martyn Goddard

IS private health insurance a rip-off? Can you afford it? What happens if you downgrade?

As premiums rise and rise, more people are asking these questions. But in the bewildering array of insurers, each with multiple options, it can be close to impossible to assess whether your cover is a reasonably good deal or a dud.

For Tasmania, the big three insurers are Bupa, Medibank Private and St Lukes. Bupa and Medibank are both big for-profit companies; Tasmanian-based St Lukes is a not-for-profit, which means it is more likely to return earnings to policyholders in the form of increased benefits.

Overall, neither Bupa nor Medibank provide great value. Bupa skims 15c from every dollar of premiums in management fees, executive salaries and profits. For Medibank, that figure is closer to 17c in every dollar.

And with Bupa announcing about a third of its policies would no longer cover such basic items as hip or knee replacements and cataracts, they may become even less attractive for many consumers.

St Lukes has very high management overheads that cost the average customer $484 a year, the secondhighest of any open-membership fund in Australia. But its not-for-profit status means almost 90c in every dollar are returned as benefits. It could do a lot better if it could get its administration costs under control.

Some smaller funds return much more to their customers. On paper, the best in the last financial year was the NSW-based CDH Health, which has contracts to all Tasmanian private hospitals. They returned 99.2 per cent of premiums in the form of benefits — but by doing so, they incurred a loss of 10.8 per cent on their health insurance business. And they can’t keep that up for long.

Of the open-membership funds that anyone can join, HBF is the next best, returning 91.4 per cent.

But few of these results shoot the lights out. All compare poorly with Medicare, which has overheads of about 4 per cent.

If you qualify for a restricted-membership fund, have a look at them first. Most are non-profit and some pay out well above 90 per cent of their premium income as benefits to claimants.

Even here, not all give decent value. The worst, interestingly, are the funds serving doctors and Reserve Bank employees.

With all of these, the deal you get will always depend on the particular policy you sign up for. The overall figures are only a rough guide of where to start looking.

On top of the massive amounts being creamed off the top by most insurers, consumers are faced with premium increases that for decades have run at around three times the rate of wage growth.

In the past year – and for the first time in almost 20 years – people are not only downgrading their policies but dropping out of health insurance altogether. In Tasmania, there were 2000 fewer people with private hospital cover by the end of 2017 than the year before, even though the population had grown in that time.

Only 44 per cent of Tasmanians have private hospital cover at any level. Those with ancillary cover also fell as a proportion of population.

Under the present system, two groups are doing well: insurers and doctors.

Last financial year, Medibank Private made a before-tax profit of $632 million. Bupa’s result was $568 million and the industry as a whole made $1.822 billion.

In Hobart, top surgeons in the private sector can earn well in excess of $3 million a year.

And two groups are doing badly: private hospitals and patients.