Health insurance can be a little confusing, especially if you’ve never had it before. Fortunately, it doesn’t have to be. We’ve cut through the jargon and explained common health insurance concepts to help you find the right cover for you.
Health insurance can be a way to gain peace of mind and access treatment without waiting at the end of a long list. Despite this, only 1.42 million Kiwis have private health insurance, according to our data. Why?
For one, health insurance policy documents can be long and difficult for those outside the industry to understand. If you want to purchase health insurance, a good financial adviser can break everything down, but in the meantime we’ll get you started by answering 10 common health insurance questions.
1. What are pre-existing conditions?
Pre-existing conditions are health conditions that existed before you applied for insurance. It’s important you tell your insurer about these during your application because they may affect your cover.
Most insurers cover pre-existing conditions after a certain amount of time (known as a stand down period - see question 4), or with special requirements.
2. What is an excess and how is it applied?
Your excess is the amount of money you’ll pay when you make an insurance claim. In some cases your insurer might pay you the amount of your claim minus the excess. In other cases you'll need to pay the excess or remainder to your provider.
Most insurers provide a range of excess options. Typically, the higher your excess, the lower the premium you'll pay, and vice versa.
3. What is disclosure (and what happens if I fail to disclose something)?
When you apply for insurance you have a duty to share all relevant information with the insurer.
If you do not disclose something relevant your insurer may reject your claim, reduce a payout, increase your premiums or cancel the insurance contract.
4. What are exclusions and stand down periods?
Exclusions are things that are not covered under your policy, and can be found in your policy document.
Stand down periods are the amount of time you must hold your policy before your cover will begin. Depending on your policy, these may down periods may only apply to certain conditions.
5. What's the difference between PHARMAC and Non-PHARMAC drugs?
PHARMAC drugs are drugs that are subsidised by the government, while Non-PHARMAC drugs are not. This can mean that non-PHARMAC drugs can be very expensive.
Private health insurance can be a way to access Non-PHARMAC drugs, but different policies offer different levels of cover for them. Some cover none at all, while others cover Non-PHARMAC drugs only for certain conditions. To find out what your policy does and does not cover, check your policy document, or talk to your insurer or a financial adviser.
6. What does pre-approval mean, why is it important and what does it mean if I don’t get it?
Pre-approval is when your insurer confirms that the cost of a specific treatment of procedure you need is covered under your policy. You will usually need to apply to your insurer for pre-approval for claims over a certain amount of money.
If your pre-approval is declined you don’t have to accept the decision if you believe it's wrong. You can raise your concern with the insurer, and ask for the pre-approval to be reevaluated. If that doesn’t work you can make a complaint to the Insurance & Financial Services Ombudsman.
7. What does continuation mean?
If you’ve got health insurance through your employer or industry body, continuation allows you to continue your policy if you leave that employer (as long as you continue paying your premiums).
Your premiums may change in this situation, so it's best to check with your insurer what the premium will be for you to continue your cover after you leave your employer.
8. How is Policy Suspension different to Policy Cancellation?
Policy suspension is when you put your policy on hold to be continued at a later date. During a suspension you won’t need to pay premiums but you also won’t be able to claim under your policy. This can be an option if you’re going overseas and will be covered by travel insurance, or if you’re experiencing financial hardship and can’t afford your premiums. When you’re ready you can continue your policy without completing a full application.
Different insurance providers will have different approaches to policy suspension, so it's best to check with them how this works if you are thinking about this.
Policy cancellation is when you stop your policy completely. You’ll stop paying premiums, all cover will cease and you may need to make a new application if you want your cover to resume.
9. How are premiums determined?
Your insurance premium, or the amount you pay for insurance, is decided by a number of factors. Insurers might:
- Charge higher premiums if you’re older. This is called rating for age.
- Charge higher premiums if your medical history indicates you're likely to make a high number of claims in future. This is called experience rating.
- Take into account medical inflation, or the increasing cost of medical treatments and procedures. This means your premiums may increase every year.
The flipside of experience and age rating is that if you’re young and have an uneventful medical history, insurers may charge you less for cover.
10. What is underwriting and what does it mean for my policy?
Underwriting is when an insurer assesses the degree of risk an applicant presents under their policy. During this process they’ll take a look at the lifestyle and health information you provide and decide whether to accept your application, what your premiums will be and what conditions or exclusions your policy will include.
Ultimately health insurance is all about having peace of mind and knowing that you’ll have access to medical care sooner when you need it.
But the key to getting the most out of any policy is to understand it. Take the time to read your policy document and don’t be shy - ask your insurer (or adviser) as many questions as you like until you fully understand your cover.
Interested in learning more about insurance?
- Take a look at our resources page
- Watch our video on insurance and mental health with Sharron Botica
These 10 health insurance terms explained is general information only. The views and opinions expressed do not necessarily reflect those of the FSC. It is not intended to constitute legal or financial advice and does not take your individual circumstances and financial situation into account. We encourage you to seek assistance from a trusted financial adviser, legal or other professional advice.
The names of any third parties are additional resources that you access at your own risk and the FSC takes no responsibility for any third party content.
The FSC and its employees make no express or implied representations or give any warranties regarding this blog, and we accept no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a result of any error, omission or misrepresentation in this blog.
12 April 2022.
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