What are junk policies and why are they available?
So-called junk policies provide cover for a handful of in-patient services; often just the minimum required to qualify as a ‘compliant health insurance policy’. Having the policy allows the consumer to avoid paying the Medicare Levy Surcharge and Lifetime Health Cover loading. That’s why they are also referred to as ‘tax-avoidance’ policies. The list of exclusions is long, and they are better defined by their limited ‘inclusions’.
In addition, even for the few services that are covered, they usually only provide benefits at public hospital rates. This means the patient either chooses a public hospital (with no out-of-pocket costs); or a private hospital with potentially significant out-of-pocket costs being the difference between the public hospital and private hospital fees.
These policies do not assist in reducing the burden on the public hospital system; an important function of private health insurance. It is also questionable if consumers who hold these policies fully understand their cover and the shortfalls.
What does the future hold?
As part of the Private Health Insurance Reforms announced by the Australian Federal Government in 2018, health insurers are required to categorise their policies as Gold, Silver, Bronze or Basic. Establishing the Basic category means these policies have been officially endorsed, and while the categorisation should assist consumers in understanding the level of cover they hold, we still consider these policies problematic.
We accept that affordability is a big issue in private health cover; especially for young people who, in reality, are at a much lower risk of encountering a health incident. However, we don’t agree that the solution is junk policies. This will most likely leave those consumers disillusioned with their health insurer, should they need to claim only to find they may not be covered.
Our stance on junk policies
We believe we have struck the right balance between affordability and value in our Smart Starter policy. It is well priced, but, at the same time offers cover for multiple services. In fact, it provides cover for 25 out of the total 38 clinical categories defined under the new system, although two of these, mental health and rehabilitation, are restricted covers. Smart Starter is classified as Bronze ‘Plus’, meaning it covers services above the minimum required in the Bronze category.
We believe our Smart Starter provides better value for money when compared to the junk policies available from other health funds.