Health Insurance…yes or no?
The argument has been waged for many years – do I take out health insurance or do I invest the same amount each year and if I get sick, the money will be available (and it’s earning me interest!)?
As with any type of insurance the decision is a personal one. Many people go without car, home or life insurance, thinking that the money is better spent or invested elsewhere… they are willing to take that risk. But how many of us have actually sat down and weighed up the differences between taking out health insurance or not, particularly with the government penalties on those not covered by a private health fund?
Could this be you?
Paul is a 30-year-old family man who pays $2,000 per year for basic health cover. By age 70 he would have contributed around $200,000 (adjusted for inflation). For this amount, he and his family are covered for hospital (with elective surgery) and ancillary medical costs, although still subject to his insurer’s hospital excess.
If Paul and his wife decided to cancel their health fund insurance and invest the $2,000 per year, assuming the $2,000 is indexed at 4% pa and the investment returns 7% pa, by age 70 their investment would be worth around $786,000! They would have to pay all of the costs of having a doctor of their own choice, in a hospital of their choice plus any other associated specialist costs. Paul will also pay the Medicare Levy Surcharge on his taxable income, which can be thousands of dollars (see below).
$786,000 sounds much better in your pocket than giving away $200,000 for something that will never usually cost that much… but how many of us are prepared to put away that amount of money and never touch it? That’s the tough question.
The Medicare Levy Surcharge
If you earn over $90,000pa as an individual or $180,000pa as a family and don’t have private health insurance, you will be charged the Medicare Levy Surcharge as outlined in the following table:
|No change||Tier 1||Tier 2||Tier 3|
|Single threshold||$90,000 or less||$90,001 - $105,000||$105,001 - $140,000||$140,001 or more|
|Family threshold||$180,000 or less||$180,001 - $210,000||$210,001 - $280,000||$280,001 or more|
If you’re a high-income earner this could amount to a hefty sum and wipe out any potential tax refund at the end of each year (or you may even have to pay extra tax).
But it still might be worth sitting down and doing your sums. Another option is to take out the most basic hospital cover and invest the difference you would be paying for full private health cover in your “own health fund”. Then when you get your tax refund, add that to your growing kitty. You might not end up with as much as the above case study, but if you’re willing to work out the difference, you might still be well ahead.
Insurance should be seen as just that – Insurance. We always hope we won’t need it but it’s there in case we experience unforeseen emergencies.
There are always alternatives and their associated upsides and downsides. In the end, the decision is up to you.
For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.
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