What does excess mean in health insurance?

Plunging yourself into the ins and outs of private health insurance can sometimes feel like wading through quicksand, especially when you keep coming across terms like ‘excess’. But we’re here to help, because learning about things like what excess means is an important part of the decision-making process.

Simply put, excess is the amount you agree to pay out-of-pocket towards the cost of your healthcare before your insurance kicks in to cover the rest. This amount is predetermined when you sign up for your policy and will depend on the type of cover you choose, your tier of hospital cover and whether you choose a higher or lower excess amount.

So it’s time to rip off the Band-Aid and go into the specifics of how excess works in private health insurance.

Health insurance excess is the out-of-pocket amount you’ve agreed to pay towards the cost of your medical bills. Only after it’s been paid will your insurance handle the rest. It’s like a deductible in other insurance policies. When you sign up for private health insurance, you choose your excess amount. This amount can range from a couple of hundred dollars to more than a thousand for families and couples. The higher the excess, the lower your premiums will be.

For example, let’s say you have a policy with a $500 excess. If you need to undergo an insured procedure that costs $5,000 and you’ve already paid the excess amount, your health insurer will cover the remaining $4,500 of the bill (or up to a predetermined percentage that’s outlined in your PDS).

Be aware that since 2019, when the Australian government raised the permitted voluntary excess levels, some health insurers have allowed you to accept a maximum excess amount of $750 if you’re a single, and $1,500 if you’re on a couple or family policy.

If you’re thinking about whether you should go with a higher or lower excess, it really depends on your individual circumstances and current financial position. A higher excess means you’ll pay more out-of-pocket upfront when you need medical treatment, but your premiums will generally be lower. On the other hand, a lower excess means you’ll pay less upfront, but your premiums will likely be higher.

If you’re generally healthy and don’t expect to require regular medical care, then going for a higher excess could help you save money with the lower premiums. But if you anticipate needing medical treatments more often or if you’re concerned about covering the cost of a high excess in case of an emergency, a lower excess might be more suitable for you.

As you’re making your decision, consider factors like your budget, health needs, risk tolerance and more when deciding on the right excess amount for your private health insurance policy. It’s also a good idea to review your policy at least once a year to see whether it’s still meeting your needs – you can then adjust your excess accordingly if your circumstances ever change.

Pros

• A higher excess usually means lower monthly premiums, saving you money in the long run.
• You can choose how much you’re willing to pay out-of-pocket for medical expenses.
• If you rarely visit the hospital, a higher excess can be cost-effective.
• You can be more selective about seeking treatment for minor issues.

Cons

• You’ll need to pay more upfront if you require medical care.
• If unexpected medical expenses arise, you could have to foot a very large out-of-pocket bill.
• Higher excess amounts might not be feasible if you’re on a tight budget or have significant medical needs.
• Fear of paying a high excess might mean you avoid getting necessary medical care.

Pros

• With a lower excess, you’ll pay less out of pocket when you need medical care.
• Lower excess amounts make healthcare more affordable, particularly in emergencies.
• You’ll have a clearer understanding of your potential out-of-pocket expenses.
• If you think you’ll need medical care fairly often in the near future, a lower excess could potentially give you more financial relief.

Cons

• Lower excess amounts often come with higher monthly premiums, resulting in increased overall healthcare costs.
• You might have less control over your healthcare expenses since you’re paying a higher portion through premiums.

You typically pay your hospital excess every time you’re admitted to a hospital as a private patient. While every insurer is different, in most circumstances you’ll only have to pay the excess once per member per calendar year – no matter how often you end up needing to go to the hospital. That should be good news whether or not you have a high or low excess.

In any event, some health funds may have specific rules regarding excess payments, so it’s a good idea to check your policy details very carefully. When your excess payment is due, either the hospital itself or your health fund will inform you of the amount you owe.

Yes, you can typically change your excess amount, but it depends on your health insurance policy and the options offered by your health fund. If you want to adjust your excess, you’ll need to speak to your health fund directly. They can provide you with information on the excess options available to you and guide you through the process of changing your excess amount.

Keep in mind that changing your excess will probably impact your premiums, so consider whether it fits in your current budget before making any major adjustments.

Despite the word ‘excess’ being there, it doesn’t have anything to do with the excess you manage. In other words, what we’ve been discussing here. Instead, it relates directly to your premiums.

As the ATO states in response to a customer who asked why they have to make an unexpected extra payment to the tax office: “You’ve claimed too much private health insurance rebate. When this happens, we recover the excess amount via your tax return. Private health insurance rebates are based on your income thresholds. If you want to be sure the info is right, compare your statement from your health fund with the prefilled info on your tax return. See if the figures match up.”

At the end of the day, choosing the ‘right amount’ of excess for your health insurance is about finding a balance between upfront costs and ongoing premiums. Consider your health needs, budget and risk tolerance carefully.

While a lower excess generally means more immediate savings, it might mean you’re stuck with higher premiums over the long term. Ultimately, it’s up to you to weigh the pros and cons and make the most informed decision for your needs.