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Health insurance premiums are set to rise (again). Here’s what you can do.

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Has a private health insurance premium increase notice made you wonder how you’re going to stretch your budget further?  Then take a moment to make sure you’re still getting value for money.

Health insurance premiums are set to rise an average of 2.74% from April 1. However, policyholders can be impacted by a premium change above or below the industry average depending on where they live, the type of cover, and their insurer.  Premium increases range from 0.5% at St Lukes Medical and Hospital Benefits Association to 5.47% at CBHS Corporate Health Pty Ltd.  And with last year’s premium increases only taking effect in October, it may seem like the rises are coming thick and fast.

So what can you do about it?

Check your excess
Paying an excess if you need a hospital stay is one way to reduce your premium. In 2019, some insurers introduced a $750 excess.  If you think you can avoid a hospital stay in the next couple of years, opting for a higher excess can lower your premium.

Be aware of your benefits
Considering a switch? Basing a decision to switch solely on price may not serve you well. It’s important to run a health check over the benefits, exclusions, and limits of your current policy.  And check the impact on benefit waiting periods before switching. When you change funds you’re entitled to keep the waiting periods you’ve already served and receive a refund of any premiums you’ve paid in advance.

If you upgrade your cover or change to a policy with a lower excess or gap fees you are likely to have to serve a new waiting period for the difference in cover. Again, check the fine print. Insurers often offer sign-up bonuses to encourage people to switch at this time of year. They can include waiving two- and six-month waiting periods.

Waiting periods for extras vary. They can be 12 months for major dental services and 36 months for hearing aids. You can claim a once-only waiting period exemption for mental health services. Extras have limits on what you can claim depending on the level of cover. The more comprehensive the cover the higher the limits are likely to be.

Compare and contrast
Perhaps you can reduce your premium by taking out hospital cover and extras cover with different insurers. The website, privatehealth.gov.au, is one way to check out the full range of hospital cover and extras cover options. Comparison sites can make it easier to check policy features offered by different insurers but they may not include restricted membership options offered by the likes of the defence and education sectors.

Pay in advance
Renewing your policy before April 1 is a great way to get round the price hike.

Secure a discount
There are other ways to trim your premium. Some insurers offer a discount if you pay by direct debit. Alternatively, check if you can get a corporate discount. Or there may be a youth discount offered for those aged 18-29.

As you can see, it may pay to do a little investigating before simply absorbing this year’s premium increase.

Make your school holidays road trip a safe one

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Snacks and the perfect Spotify playlist are all you need to think about when you’re hitting the road on the school holidays, right? Not exactly.

With Easter marking the beginning of the school holidays in most states, the roads are likely to be crammed. Tempers can fray and vehicles towing caravans, horse trailers and boats can make it slow-going. Throw some bad weather into the mix and you have all the right ingredients for everything from driver distraction to disaster. If you want your road trip to run smoothly and safely, start by doing some solid prep. Here are four ways to make sure you – and your car – are ready to go the distance.

Plot your course

Tempted to drive with barely a break to your destination? Think again. Scheduling a stop every couple of hours not only ensures you arrive fresher you get to have some fun along the way. So, plan that leisurely lunch or a stroll around an interesting town or coastal village, and enjoy the journey. Planning your trip well might also mean thinking ahead about fuel stops if you’re heading to the outback. Be aware of road conditions if the weather is turning sour and daylight hours if you’re heading to regional areas where wildlife might be on the move at dusk and dawn.

Check your vehicle

Beginning a holiday with a breakdown is no laughing matter. Before taking off on a road trip have your brakes, tyres, engine, and electrics checked. Getting a mechanic to give your vehicle the once-over can save you from an unscheduled stop on the side of the highway. If you plan to tow a caravan, boat, or trailer double-check your vehicle’s carrying and towing capacity. Whenever you change drivers make sure the seat is comfortable for a long trip; your back supported; and the rear vision mirror adjusted.

Pack once and well

When you’re in a last-minute panic trying to get out of the house, you can end up shoving everything into the car and hoping for the best. Here’s why that might work against you: at best the rattle of a poorly packed car can be a distraction; at worst a bike or kayak that’s not properly secured can cause an accident. Throwing luggage, sporting equipment, and food supplies into the boot can also make it difficult to find anything. To avoid the frustrations and complications of an overloaded car take the time to pack once and well.

Stay alert

Yawning? Rubbing your eyes? Drifting in and out of your lane or your speed going up and down for no reason? Making mistakes? Seeing things jump out from the side of the road? These are some of the warning signs of fatigue and pressing on towards your destination is one reason why crashes happen. If possible switch drivers when you’re getting fatigued; or pull over for a cat nap. Make sure you’re well-rested when you set out. And keep everyone in the car hydrated and prevent attacks of the ‘hangries’ by having healthy snacks at the ready.

Be safe and enjoy your break.

What we can learn from our money personality

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Perhaps your father pins his financial dreams on a lottery ticket. Or your mother only buys home-brand products.

As we grow up our personalities are shaped by our role models and their ways of thinking; and the same is true of our money personalities.  Becoming aware of how our personality influences our approach to money can help us change for the better.

See if you recognise yourself in one of these five money personalities. Or maybe these could apply to family or friends who could benefit from understanding their money personality a little more.

Living large Lennie

Lennie loves nothing better than to shout everyone a round or two at the pub.  Come payday he splurges on gifts for family and friends. He’s most likely to be spotted driving a nice car and having a flutter at the TAB. Generosity is admirable. But Lennie is spending beyond what he can actually afford. Learning to distinguish between needs and wants could make a big difference to him.

To begin taking responsibility for his money he could set himself a splurge budget.

Crisis Chris

There was a lot of financial drama in Chris’s family and now he’s in the same boat. He’s avoiding calls from debt collectors, juggling multiple credit cards, and thinking about bankruptcy.  Ashamed of his situation he’s withdrawn from friends and family.

Reaching out would help Chris plot a course for managing the unpaid bills and credit card debts and set a goal of building an emergency fund.

Frittering Fiona

It’s past midnight and Fiona is scrolling through online marketplaces.  She hadn’t planned to buy new makeup or a rug, but she didn’t want to miss out on a bargain.  “I work hard. I deserve it,” she says to herself as she pounces on her latest purchase.  But in the cold light of day she wonders why money slips through her fingers.
To truly treat herself Fiona could focus on what she would love in the medium- to long-term. Her own home? An extended holiday? Or retiring at 40?

By clarifying her deeper aspirations she will find it easier to resist the short-term spending hit.

Price-conscious Polly

Freebies are guaranteed to make Polly’s eyes light up. Cheapest is best. But her price consciousness could cost her in the long run. She’s racking up big mobile bills because she opted for the $35 plan instead of the $50 one.  She’s had a series of $50 vacuum-cleaners that conked out within a year. Plus, her cut-price home insurance policy didn’t cover accommodation after a fire.

To improve her financial outlook Polly needs to think about value when she spends. Will the item break easily? Is it covering all her needs?

Balanced Belinda

Belinda has a spending plan and sticks with it. Each payday she allocates some money to expenses and some to savings. She also sets aside an amount to treat herself. But leaving her savings in a low-interest account is letting her down. She’s thought about investing but she doesn’t know enough and is scared to take a risk.

Getting some financial education would help to get her savings working harder.

How to have better conversations about money in your relationship

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Money can be the cause of friction, fights, and relationship bust-ups.

Relationships Australia surveyed people about why they thought financial problems were likely to push couples apart. Almost one third thought it was because of people’s different priorities and expectations. Our ability to discuss money with our other-half, new love, siblings, parents, and business partners is all important.

Here are six ways to get better at talking about money.

Make regular appointments
Too often we wait until there’s a crisis to talk about money. Or we might discuss it when we’ve just come home from work. Then we wonder why it turns into a screaming match.  Stop the drama before it begins by scheduling a time to talk. Think about where and when you’ll talk. The environment, your mindset, and your expectations all impact the productivity of the conversation.

Be specific
Decide beforehand what is up for discussion. Trying to tackle every single financial decision, aspiration, and expense can lead to overwhelm and checking out. To keep the conversation humming along pick a single topic. It might be how to manage the mounting electricity bill. Or the interest rate you’re paying on your mortgage. Having the facts in front of you will help you stay on topic.

Share the time equally
Let each person involved in the conversation share their point of view without being interrupted. As with any conversation active listening helps people to feel they are being heard and understood. Ban personal attacks and playing the blame game. Having listened to each other’s point of view you can then share why you don’t agree with something they have said. People who remain curious and try not to make assumptions are going to achieve better results from tricky conversations.

Focus on the common ground
Focussing on solutions and compromises can prevent the conversation from getting bogged down. For instance, you may agree you would like to buy a house and the compromise lies in the timing of achieving your dream. Perhaps it is a seven-year goal instead of a three-year one. Recognise how your strengths can support each other. Someone may be spontaneous and take risks while someone else may be cautious and love tracking day-to-day spending. Instead of making your different approaches a point of conflict, use them to your advantage.

Celebrate progress
Improving our conversational skills takes practise. Making progress could include managing to have a conversation about money that doesn’t degenerate into sulks or silent treatment. It could also include agreeing to do further research on mortgage rates in the market or ways to make some additional income. You might make a commitment to set aside time regularly to discuss money or to create more transparency on how money is being spent and any ongoing debts or obligations.

Seek help
It can help to involve a third-party who is skilled at discussing financial topics. If you need more understanding and clarity on your money values and goals, scheduling an appointment with your financial adviser could be the best way to open a conversation about money.

Economic Update – April 2021

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Vaccination nationalism!

  • US COVID-19 infection rate starts to climb again despite vaccine rollout
  • US and global economic growth strong – but not yet inflationary
  • Bond yields rise strongly as inflation expectations increase in response to economic recovery and maintenance of stimulatory policy settings

The Big Picture

The race against COVID-19 continues but at very different speeds around the globe. Some countries have not yet started a vaccination programme and we have only just begun ours. We sadly found out at the end of March we hadn’t yet vaccinated all of the front-line health workers in Brisbane! The NSW and federal governments are in a stoush about vaccine shortages and misinformation.

The UK is well ahead of the US in terms of the proportion of their populations having been vaccinated but the US has delivered 150 million shots ‘into arms’.
While it might seem like a priority to get a whole nation’s population vaccinated first, the virus can only be eradicated when a sizeable proportion of the whole world’s nearly 8 billion people are immune through vaccination or having contracted the virus. And the longer some countries stay behind the vaccination curve, the greater is the chance of new, more virulent strains of the COVID-19 virus developing.

It is also important to note that those who have been vaccinated are not necessarily immune. The clinical trials data provide clear evidence that vaccinated people can contract the virus. Indeed, the efficacy rate of a vaccine is calculated from the relative infection rates of those who have been vaccinated versus those who haven’t (the placebo or control group).

Only 100% efficacy implies total immunity from vaccination. The best vaccine so far is about 95% effective. It is widely thought that 60% is the minimum rate to make a vaccine worthwhile.

One of the major public health problems now emerging is that some countries are practicing ‘vaccination nationalism’. They are unwilling to share the doses they have control over.

The European Union (EU) is pressuring member states not to supply orders from its production to nations outside the EU while there remains a backlog of unfulfilled orders within the EU. Australia’s orders for the vaccine have been hindered at least by France and Italy. We are well behind our objectives stated by the government a few months ago.

The US, from President Biden’s speeches, has on order many more doses than it needs this year. Bloomberg reported that the US had secured twice the number of doses needed to vaccinate everyone. Given many in the US do not want to be vaccinated, it is logical that some of the US’ stockholding would be better directed elsewhere. The US just offered 1.5 million doses to Canada ‘on loan’ even though it has secured so much more than it needs in the immediate future.

The third wave of US infections peaked after its holiday season at around 250,000 new cases per day on a 7-day moving average. That infection rate almost got down to 50,000 per day in early March but it has started to climb steadily to around 65,000 per day in spite of the success of its vaccination programme.
There have been other issues hampering the fight against the virus – specifically regarding the AstraZeneca (AZ) vaccine. This vaccine is especially important as it is the planned solution for most of the world including Australia. AZ is reportedly new to the vaccine business and seems to have over-promised. Deliveries are reportedly well behind schedule.

Three unrelated problems have emerged with the AZ variant. The first was that, due to a bungle over administering the correct dosages, it emerged that it might not be sufficiently efficacious for the over 65s – the people who are at most risk.

A significant number of countries in the EU and beyond then stopped vaccinating that age group with the AZ vaccine – and some suspended the vaccine altogether. It later appeared that the evidence wasn’t sufficiently strong to warrant suspension of its use consequently, many countries started reversing their earlier decisions.
The second issue related to blood clots. Some people – but not that many – suffer from blood clots whether or not they have been vaccinated with any relevant drug. In the trials, some thought too many people in the AZ vaccinated group – as opposed to the placebo or control group – contracted blood clots.

The numbers of people so affected in each group are so small that it was hard to form a compelling statistical relationship. The jury is now swinging back to the fact that AZ does not cause blood clotting but, perhaps, those with certain pre-existing conditions might avoid AZ.

Nevertheless, effective from the end of March both Germany and Canada have suspended vaccinations for the under 60 and 55 age groups, respectively. There seems to be no consensus!

The third issue with AZ is the manner in which the results of the trials have been disseminated. It seems to have been a case of distributing information by press release rather than by the traditional scientific reports.

AZ had produced a number of sets of seemingly conflicting data. Then, in late March, AZ announced again by press release that it had concluded its large US trials and the vaccine was 79% efficacious – quite a good number and better than in some other earlier trials. Then, two days later at 12:20 am (Washington DC time) a US regulator called AZ to task over the nature of the data they were using!

While AZ came back and lowered its efficacy rating from 79% to 76%, we expect there is more to come on this matter.

We reasonably surmise from all of these events that AZ is as safe to take as any other vaccine but there isn’t great clarity over its efficacy. It certainly seems to be a lot better than nothing but, perhaps, we should continue to practice social distancing etc after having been vaccinated with AZ – or, until we know better.

The major prevailing economic fear at the moment is that inflation will return and require central banks to start hiking interest rates sooner than previously expected. It is true, much of the economic data has exceeded expectations but catch-up is different from reaching new highs.

The US Federal Reserve (Fed) is now expecting 6.5% US growth in 2021. Since US GDP ended 2020 behind its 2019 level, 6.5% in 2021 will only have the US, by the end of 2021, where it would have been after two years of ‘normal’ growth in 2020 and 2021.

There are also 9.5 million unemployed in the US who haven’t yet got the jobs back that they lost in the shut-downs. Inflation woes look a very long way off to us. But it is encouraging to see strong economic progress.

China released an encouraging plan for ‘quality’ growth over the next five years at a rate above 6% per annum. While there are many significant geopolitical concerns about China, the strength of its economy is not one of them.

Australia is also experiencing strong growth in GDP and in house prices – but GDP is still largely playing catch up. The house-price conundrum is causing many to scratch their heads. Latest data also put US house price growth over the last 12 months at 11.2% which is the strongest in 15 years.

Our overall assessment is that the developed world is starting to return to normal but we see occasional resurgences of infections and shut downs here and elsewhere for at least the rest of 2021. And markets seem set to follow recent momentum along with all of the ample stimulus from both central banks and governments.

Asset Classes

Australian Equities 

The ASX 200 had another strong positive month – making it six in a row – but the index stands well short of its February 2020 peak.
We are noting that returns in different sectors have been behaving quite differently in recent months. Investors are presumably trying to work out how best to set their portfolio ‘styles’ for a post-pandemic world or, indeed, see their way through any consequent volatility.

International Equities 

The S&P 500 reached fresh all-time highs again in March. This index had a very strong month along with the London FTSE and the German DAX. China and emerging markets did not fare well.

The US Federal Reserve (Fed) has clearly stated that it will support quantitative easing (QE) or bond purchases for some time to come and it will give clear warning long before it plans to start to ‘taper’ the programme.  That, and the trillions of dollars of fiscal stimulus being pumped into the US economy should ensure the momentum in US equities continues.

Our current estimate for the yield on the S&P 500 is about 1.6% (a little lower than historic averages) which is about the same as the 10-yr US Treasury yield. Given the prospect for capital gains in equities, we see the yield comparison still very much favouring equities for this year and possibly a lot longer.

Bonds and Interest Rates

The US 10-yr bond yield surge in February this year has largely dissipated. Since the yield is only back to pre-covid rates which we all thought at the time were low, we don’t see the current near 1.75% as problematic.

The Fed came out from its March meeting with a more optimistic view of the US economy. It upped its 2021 growth forecast from 4.2% (made in December) to 6.5%. It predicted 2022 and 2023 growth to be 3.2% and 2.2%, respectively. It expects the unemployment rate to fall to 4.5% by the end of this year.

The growth forecasts might have been enough to ‘frighten the horses’ a little but its inflation forecasts certainly did. Because of the price effects at the start of the COVID-shutdowns, there will be a ‘base-year’ effect in the inflation data series in 2021. The Fed expects a temporary increase to 2.4% (above the old target but not what the Fed has more recently been discussing) in the middle of 2021. That it expects inflation to then immediately dip down to below 2% means that we shouldn’t be bothered about consequent rate hikes. The bond market appears somewhat sceptical of this on the basis that ‘why would you have consequent interest rate rises if it were not in response to rising inflation?’

All seems more or less settled on the interest rate front again but we did observe a couple of weeks of jitters in bonds and equities during March.

The Reserve Bank of Australia (RBA) announced a doubling of its QE purchases to help lower longer run yields on its government bonds. We are not expecting the RBA to raise its overnight rate to stem the recent house price surge. Up 3% in one quarter is a big house price leap but the latest prices are only slightly above those at the March 2020 peak.

In spite of all of the chatter during February and March this year, we fully expect interest rates to stay relatively low for at least up to 2023 both here and in the US.

Other Assets 

Prices of the major commodities (copper, iron ore and oil) had risen strongly in the year-to-date but they have all seen some pull back in March. Gold prices were down over the year and the month.

The Australian dollar against the greenback lost a little ground in March and is at a low point for the year-to-date.

Regional Review

Australia

The GDP growth for 2020 December quarter came in at 3.1% p.a., down from 3.4% in the previous quarter. While the last two quarters of 2020 were indeed strong, GDP is still  1.1% below the 2019 level. In a normal year we might expect growth of, say, 2.5% so we finished 2020 at about -3.6% behind where we would have been in a normal year. Hence the stronger level in the short term is not the basis for inflation fears!

The household savings ratio, which is also published in the GDP report, showed a fall from 18.7% to 12%. That is still quite a bit above what we think is healthy for a strong economy. It’s rapid return following the spike in the shutdown is warmly welcomed. Our economy is starting to get back on track. People are feeling more secure about spending and have more options on which to spend!

Our labour force data too are improving. The latest unemployment rate was down to 5.8% after 89,000 jobs were created in the month. The peak in March 2020 was 7.5%. JobKeeper payments ceased near the end of March so there could be some fall out from that.

We have a lot to thank state and federal government policies for over the pandemic outbreak. There was another 3-day lockdown announced for Brisbane because of four people having tested positive. Rapid response, short-lived shutdowns have kept off public health control at the top end of comparable nations.

With very few residents having been vaccinated we are relying on limited interaction with people from outside of our group. Until we – and those who wish to visit – are close to herd immunity we cannot get back to ‘normal’ life. Masks, hand washing and social distancing will be needed for many months to come.

The OECD published updated forecasts for Australian growth. In December 2020, the agency predicted growth of 3.2% for 2021. That prediction is now 4.5% with 3.1% predicted for 2022.

China 

China set its new five-year plan during March. It is targeting a modest 6% plus growth in an attempt to focus on quality (sustainable) growth rather than some of the boom-bust policies of recent years.

The monthly data on retail sales, industrial output and fixed asset investment shot the lights out at over 30% in each case for the latest 12-month period. Of course, the numbers are so high because it is 12 months since the data plummeted on the start of the fierce China shut-down brought on by its COVID-19 response.

US

President Biden was initially aiming to oversee 100 million vaccinations in the first 100 days in office. It looks like that figure will turn out to be more like 200 million. Since each person needs two doses for maximum immunity there is still quite a way to go. Indeed, as nearly half of certain groups such as ‘male republicans’ say they will not or may not take the jab, it is far from clear that herd immunity will be reached any time soon.

From boisterous interchanges in congress, it seems that some senators want those vaccinated to freely meet without masks etc. Indeed, Biden, said as much for gatherings indoors of fully vaccinated people. We fear that US citizens may push back too soon against distancing measures in turn slowing the elimination of COVID-19.

The rate of infections did start to climb again in the last couple of weeks of March even though vaccinations were well ahead of plan. The seven-day average of new infections ended March at over 25% above the March low!

US economic data are quite reasonable given the shutdown. 2020 December quarter growth was revised up to 4.3% from 4.1% and inflation (core personal consumer expenditure) was only 0.1% or 1.4% over the year.

The $1.9 trillion relief package only just started to be distributed in mid-March. Its full effect will not be seen for some time. On top of that, Biden wants a further $2 trillion dollars spent on infrastructure. Somebody is going to have to pay for this and people aren’t queueing up for the opportunity. He is recommending to hike the corporate tax rate to 28% from the 21% that Trump had introduced by cutting the previous rate from 35%. That discussion could mark the end of the presidential honeymoon.

Once the infrastructure bill goes through – as it does seem to be popular – Biden plans to turn to health and other personal issues. They will have to be paid for too!
In an unusual turn of events, Biden stated in a speech in March that he now plans to stand for re-election in 2024. He ruled that out before the last election. He will be 81 next time and 85 at the end of that term if he is successful. Sadly, he tripped three times on global TV trying to do ‘an Obama’ running up the steps to Airforce 1. As anyone in their seventies or older will tell you – it isn’t easy – which is why the rest of us all use the sky-bridge! While athleticism is not a prerequisite for good government it is not a good look for confidence building.

Europe 

The UK and the EU are going toe-to-toe over vaccine supply. The EU is restricting export of vaccines while they have unfulfilled orders. Italy and France interfered with exports to Australia. A regulator ‘found’ 49 million doses of AZ suspiciously not on display in an Italian factory! Big political games are being played. And AZ is well behind its production targets.

Nonetheless, the UK is ahead of the curve in its vaccination programme and it is maintaining its ‘roadmap’ for re-opening its economy by June. Germany, on the other hand, is just considering new lockdowns.

Rest of the World

After six days blocking the whole of the Suez Canal, the massive container ship, Ever Given, has been re-floated and an end to the blockage disruption is in sight.
Japan has announced that it will not allow overseas spectators at the Tokyo Olympics. That means there are of the order of 900,000 tickets to be refunded. That has to hurt. It’s not clear what happens with hotel reservations and travel bookings. Somebody has to lose a lot of money. In hindsight it might have been better to have cancelled the games last year.