When many people consider the importance of private health insurance, extras are often front-of-mind. Being covered for a new pair of glasses each year, limiting physiotherapy expenses and regular dental check-ups are reasons we often hear to justify private health insurance. While it can be daunting choosing a policy from the huge range of alternatives, it pays to do some quick calculations that can quickly rule in/out certain policies, and give you a handy framework to give you the confidence to choose.
Step 1: Predict what you’ll use
When you’re looking at hospital cover, it can be very challenging to predict why you may end up in hospital. There may be some things you can relatively safely rule out (e.g. weight loss surgery if you’re not overweight). And it may be easy to prioritise other cover (e.g. pregnancy if you are looking to start a family, or knee reconstructions if you play football). But choosing the right level of cover will usually involve a significant degree of guesswork. Given the cost of an uninsured private hospital stay can set you back tens of thousands of dollars, it often makes sense to err on the side of over-insuring.
But extras cover is different. For example, you already know if you wear glasses. Even if you may need glasses in the future, you’ll often see the warning signs (or not!) ahead of time. This will give you a chance to upgrade your policy and serve any waiting periods before you actually need glasses. Some people regularly see the phsyio or get massages, and others don’t – you already know which group you fall into. Of course, there are unknowns that can suddenly change with extras. You may not have seen a phsyio in the past, but a pulled back may require regular sessions going forward. And you may need expensive dental work after cracking a tooth during a meal – a fact that you obviously would have had no warning for.
Still, while you can (and should) build in a buffer to allow for the unknowns, it helps to estimate what extras services you are likely to use. Review any invoices or receipts you have in your filing cabinet, or just guesstimate. Everyone’s will be different, but it could be as simple as:
- A couple of hundred for a dental checkup (times two if you usually go twice a year)
- $250 for a new pair of glasses each year
- A few hundred to cover your physio appointments
- A couple of hundred to cover a massage every few months
Step 2: Know your limits
We discussed above how hard it is to predict what you may need to go hospital for. But knowing what you get back for hospital stays is also notoriously difficult to work out. You typically need to know the exact procedure and how much your doctor/surgeon charges. You then need to call the insurer to understand how much they’re likely to cover.
While extras limits aren’t totally transparent, they are much more readily available. Firstly, category limits are always advertised – this lists the maximum your insurer will pay for each category of extras (e.g. major dental, optical, phsyio, etc.). Armed with these limits, you can already do a rough calculation on whether your extras cover may be worth it. If your yearly premiums are $1,200 and the category limits add up to more than $1,200, it’s a good start. If they don’t, you’re better off with another policy.
But even if your category limits seem generous, it pays to dig a little deeper. How much can you actually get back for any given service? A $500 acupuncture limit might sound good, but what if your policy only covers $20 from each session? That means you’d need to go 25 times per year (twice a month, every month!) to receive the full benefit. Equally, some of the category limits may be in areas that you’re unlikely to use much. You will always have $600 leftover from a $1,000 general dental limit if you know you pay $200 for a regular check-up and you have 2 regular check-ups per year.
Step 3: Do the maths
The last step is probably obvious after you’ve been through the first two. Compare the cost of extras with how much you may get back (based on what you’re likely to claim for and the policy limits). The policy is only worth it if you’re getting back more than you’re putting in.
It really is that simple – there are no tax penalties for not having extras cover (unlike hospital cover). Some people cover their extras by putting money aside for when it’s needed, but that doesn’t work for everyone. And there’s nothing wrong with getting extras cover – just make sure you’re choosing a policy that’s giving you great value!
If you want more information on the difference between hospital and extras coverage, we recommend reading our article in the Knowledge Bank.