Health fund members have discovered that the best way to avoid means-testing of the nation’s $5 billion private health insurance rebate is to prepay their premiums. After the means test on private health fund subsidies was approved by the Senate, almost 2 and a half million health fund members will start paying up to $1300 more each year for health cover starting July 1. Health insurers all across Australia braced for a huge increase of members choosing to prepay premiums after the Australian Taxation Office sent out letters warning consumers about the changes.
In fact, the Australian Taxation Office sent out 1.35 million letters while private heath funds sent out an additional 2.5 million letters to alert members that the rebate would be scaled back significantly for those in higher income brackets starting July 1. Consumers could receive a 30 percent rebate for up to 18 months by paying premiums in full upfront.
The savings are tremendous. Health fund members stand to save up to $1,800 just by continuing to claim the rebate for an extra 18 months on a yearly $4,000 family policy. This amount increases based on age, possibly qualifying for the higher 35 percent and 40 percent rebates. Funds began to report an increase in inquiries from members who wanted to go ahead and pay premiums upfront before July 1.
The nation’s biggest fund, Medibank Private, has a 28 per cent market share and about 3.7 million insured members. The fund sent out a letter and five-page brochure giving a clear explanation of the changes to about 1.5 million policy-holders. It informed members of the option to pay their premiums in advance so that they could claim their current rebate percentage.
Medibank, alongside West Australia-based HBF, members are allowed to prepay their premiums in full until December 31, 2013 which is beyond the date of the next federal election. If it wins government, the Coalition has vowed to repeal the means-test. However, the Coalition has not specified a date or revealed how they would replace the 2.4 billion dollars via savings over a three year period that the government is forecasting.
Bupa is Australia’s next biggest fund. The fund contacted 500,000 policyholders whom they believe will be affected by the means-test. Bupa is also offering members the option to pay a full 12 months upfront. According to a representative for HBF, one of the nation’s largest funds who has close to 450,000 policy-holders and over 900,000 insured members, almost 600 HBF policyholders had chosen to prepay their premiums to avoid the rebate means-testing.
With the new changes, those who received a 30% rebate would drop to a 20% rebate starting July 1 for singles who earn more than $84,000 or for families who earn over $168,000. Singles who earn under $97,000 and families who earn under $194,000, the rebate would fall down to 10%. Singles earning over $130,000 and families earnings over $260,000 would see the rebate disappear.
Over 50% of Australians have some type of private health insurance. These changes will mean that rebate will go from 30% to 20% starting on July 1 for single people that earn more than $84,000 or families that earn over $168,000. Single people that earn over $97,000 ($194,000 for family health insurance policies) will see this rebate lower to 10%. Single people who earn over $130,000 ($260,000 for families) will see it disappear completely.
The prepayments flooding health funds would not affect forecast budget savings because all extra premiums paid before June 30 would require that the rebates be booked onto 2011-2012 accounts. No doubt about it, the best and most effect way for health fund members to avoid means-testing and save money is to prepaying their premiums in full.