• iSelf Team

Self-Insuring: Can It Make your Health Insurance more Affordable?

Most Australians view Health Insurance in two ways. To have or to have not. With the main reason for having not, being price and affordability.

But things are rarely as black and white as that, particularly when talking about Health Insurance. There is, in fact, another option, and it's one that can help you afford protection for you and your loved ones where it really matters.

Let's talk about self-insuring.

But First, what is Health Insurance?

To understand how self-insuring works and its potential cost savings, we first need to understand a little about Australian Health Insurance.

In Australia Health Insurance is separated into two categories - hospital cover and extras cover.

  • Hospital cover helps to pay for private treatments during in-hospital stays.

  • Extras cover is for eligible treatments offered outside of hospital; things like dental, physio and chiro.

Of the two, hospital cover is more of a must-have.

Hospital cover guards you against the often substantial and unforeseen costs associated with the unpredictability of health but can also remove the Medicare levy surcharge at tax time. Additionally, it helps in managing other loadings you may face if you don't have hospital insurance, namely the Lifetime Health Cover Loading.

Extras, on the other hand, can be thought of as almost more of a budgeting tool. The premiums you pay cover you, in part or whole, for specific treatments with reasonably well-defined costs. Extras alone do not protect you against the costs associated with the unpredictability of health nor save you on the taxes and loadings mentioned above.

So, what is Self-Insuring?

Self-insuring is an alternative to both insuring and being uninsured.

Unlike Health Insurance, where you pay a premium to your provider to cover your health costs, self-insurance is where you set money aside to cover those costs yourself. If the health costs don't arise, then you get to save what you didn't spend. In essence, you become the insurer.

The difference between being self-insured and uninsured is in the practice and discipline of putting money aside to cover potential health costs. Self-insuring ensures there is a pool of funds available to pay those bills should they arise.

Should I Self-Insure?

The value of self-insurance will vary depending on your situation. To some, it could be a significant cost-saver, to others, it won't.

Self-insuring is best utilised in low-risk situations with minimal financial exposure. This is where the risk of covering costs yourself is somewhat known, and unexpected health events won't lead to a substantial financial burden.

Self-insuring hospital cover is a significant risk. The cost of private in-patient treatments can be incredibly high, and public hospital waiting lists can be lengthy. Additionally, and as we read above, there's also the tax and loading issues to be considered.

Extras cover, on the other hand, is far more predictable. Every year you might go to the dentist for a check-up, get a new pair of glasses, or visit the physio a handful of times. You're also taking a far smaller financial risk, and in some cases no risk at all.

So should I self-insure? Let's look at an example.

Let's say you're an individual who believes in protecting yourself and having the best in hospital insurance. You have Gold-level cover and extras, paying $45 per week for your Health Insurance, $11 of which is for extras. This means you spend $572 on extras annually. But do you actually utilise enough health treatments to get that back?

For many people, the answer to that question is no. In this case, self-insuring extras could be a great option as it could reduce your Health Insurance costs by up to 20-30%.

Self-Insuring: The Pros and Cons.

For extras, the pros of self-insuring are obvious. You'll stop paying for what you don't use, and potentially save hundreds of dollars every year, with little risk of a financial blow-out.

The cons are of course setting aside funds to cover potential costs, that if incurred, you'll be paying yourself.

For hospital cover, however, the pros and cons are slightly different. The advantages are you will save on the more expensive part of your health insurance. However, the disadvantages are;

  1. A health emergency could be financially debilitating;

  2. You may face long waiting periods to get treatment; and

  3. Depending on your circumstances, you could be exposed to additional taxes and loadings.

How iSelf Can Help.

Putting aside being insured or not, the question then becomes do I choose extras or self-insure? Thankfully, making the right choice is simple. It just requires some quick number crunching.

If you already have extras, request a claims statement from your insurer. Check how much you spent on your extras last year versus how much you claimed and received back. If you received back more than you paid, excellent! If you paid more than you received back, it might be worth cancelling your extras and self-insuring.

Otherwise, iSelf is here to help. Perhaps you want to check the numbers further. Maybe you aren't currently covered by Private Health Insurance. Whatever the case, the iSelf is here to help. Use the iSelf Health Wizard to undertake your extras check-up. The extras check-up will compare the cost of extras cover versus what you might get back for those covered. If what you might be expected to get back is less than what you pay - why not remove extras and self-insure? If not, keep extras.

Extras are a good option for some. But for many self-insuring extras could be an even better option to help manage the affordability of Health Insurance, especially that of having the best in hospital insurance.

The best path will depend on your situation. But taking the time to work it out could help make your Health Insurance more affordable while ensuring that you and your loved ones are truly protected.

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