Medibank and NIB offer some of the worst of the "junk" health insurance policies on the market, providing little more than what is already offered under the universal healthcare scheme Medicare, say consumer advocates.
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Private health leaves patient in the lurch
John Grech had been paying private health insurance premiums for 20 years when his doctor told him he needed to be assessed for surgery.
As the federal government reviews the $19 billion private health insurance sector, leading consumer group Choice has rated Medibank's 'Young Hospital' and 'Accident Only' covers as "effectively useless" and likely to leave customers in the lurch.
"Our analysis shows that in many cases, junk policies cover less than one per cent of the services available in hospital, and exclude treatment for the most common serious illnesses such as cancer, stroke and heart disease," said Choice's Tom Godfrey.
"It's worth remembering every Australian already has health insurance via Medicare, so the question consumers should ask in assessing private cover is not 'What are the tax benefits?' but 'What does it mean for my healthcare?'."
Other junk policies - which only provide cover for a small number of procedures such as accidents, wisdom teeth, appendix surgery, but exclude other services and illnesses - include Australian Unity's 'Basic Hospital', Defence Health's 'Essentials Hospital', HIF's 'Gold Vital' and NIB's 'Basic Hospital' covers.
It has also branded policies only covering accident and ambulance services as junk. These include HCF's 'Accident Hospital Only' and Medibank's 'Accident Only' covers.
More than half a million Australians downgraded or dumped their all-inclusive health insurance policies in 2014-15, alarming government, medical and consumer bodies. The government has approved an average 5.59 per cent increase on premiums from April 1. The average cost of combined hospital and extras cover is expected to exceed $5000 for the first time for couples and families, forcing more consumers to reassess and search for more affordable cover.
Many are turning to cheap policies to avoid paying the Medicare Levy Surcharge. The surcharge is payable after income exceeds $90,000 for singles and $180,000 for couples. As demand grows, health funds are increasing policy limitations and exclusions, leaving patients with massive out-of-pocket expenses in their time of need.
The Australian Medical Association has backed Choice's call for the government to reconsider the eligibility of junk insurance policies for the Private Health Insurance Rebate or exemption from the Medicare Levy Surcharge and the Lifetime Health Cover Surcharge.
"It might be a cheap policy, it's great for the health funds because they sign people up and never have to pay anything out. But it's actually very bad for the people," said AMA president Dr Brian Owler, who wants an outright ban on junk policies.
"People need to have private health insurance that does what we want it to, which is to take pressure off the public hospital system and allow people to be treated in private hospitals."
Federal Health Minister Sussan Ley, who has yet to announce what action she will take following a major survey, said consumers wanted a quality, minimum-standard of cover introduced into the market.
"It's clear from my consultations the vast majority of Australians with private health insurance want to keep it, but they are fed up with tricky fine print that excludes them from certain services without their knowledge and sees them paying more," she told Fairfax Media.
"Just because you are looking for a basic health insurance product, doesn't mean it shouldn't provide quality coverage. The balance is out and therefore we need to fix it."
Ms Ley said both consumers and insurers had to question whether general coverage was still for a "rainy day" or whether its increased use to help pay for everyday health expenses required a rethink of its design.
Dr Rachel David, chief executive of health funds lobby Private Healthcare Australia, rejected the need for extra regulation and said the priority was for consumers to know what they're covered for and transparency.
She defended low premium policies, saying they were entry-level products for price-conscious, young adults.
"The more young people joining, it mitigates against the risk of just having older people. We acknowledge consumers of all ages need to be aware of what they're covered for. We agree the system has become confusing," she said.
"While comparison websites such as iSelect have helped, they also tend to divert people to products based on price."
Dr David denied junk insurance policies were more profitable and therefore heavily marketed.
Dr Owler, a neurosurgeon, said the PHA's reasoning about attracting young people was "rubbish", adding everyone needs decent coverage for unexpected illnesses and procedures.
"It's almost a common occurrence working in the private sector having patients coming along with various policies thinking they're covered when they're not. I've had a patient with a brain tumour, another who needed spinal surgery, both thought they had coverage."
A Medibank spokesman said the 'Young Hospital' and 'Accident Only' covers were designed for younger members - generally fit and healthy but want cover for private healthcare.
"In order to keep premiums affordable, we exclude services our members are unlikely to need at a young age, such as colonoscopies, joint replacement or heart surgery, or services they don't currently need, such as obstetrics," he said.
"As our members move through their lives, we offer a range of other products that cover different and additional services."
An NIB spokeswoman said the 'Basic Hospital' cover was a "great option" for those seeking to balance the level of cover with affordability.
"Consumers should always have the right to choose, not Choice. Our obligation is to provide them with the information necessary to make a decision," she said.
"People being able to take out cover they deem appropriate is good for the entire private health insurance system. Without these typically younger people, costs and premiums would be higher for everyone else."