What are junk policies and why are they available?
So-called 'junk policies' provide cover for a handful of in-patient services; this can often just be 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 policies 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 high out-of-pocket costs.
These policies do not assist in reducing the burden on the public hospital system, which is an essential function of private health insurance. It is also questionable if consumers who hold these policies fully understand the limitations of their cover until it's too late.
What does the future hold?
As part of the Private Health Insurance Reform, which began to roll-out in April 2019, health insurers are required to categorise their policies as either Gold, Silver, Bronze or Basic. These tiers are determined by the clinical categories they cover. Establishing the Basic category means these junk policies have been officially endorsed, and while the tiers should assist consumers in understanding the level of cover they hold, we still consider these policies problematic.
We understand 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 health incidents. However, we don’t agree that the solution is junk policies. These type of policies 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
At Doctors' Health Fund, we don't offer any Basic policies because it's important to us that our members have adequate cover. Our Smart Starter Bronze Plus policy strikes the right balance between affordability and value; 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.
We believe our Smart Starter Bronze Plus provides better value for money when compared to the junk policies available from other health funds, as it covers services above the minimum required in the Bronze tier.