In general terms, there are two main types of health insurance: hospital cover, and general treatment or ‘extras’ cover. Most insurers will let you buy these policies separately or as one combined policy, or you can mix and match hospital and extras policies across different health funds.

Hospital cover is classified across different tiers – either Basic, Bronze, Silver or Gold, depending on the level of cover provided. Some insurers may also choose to offer policies in between these tiers, which may feature the name of a category and the word ‘plus’ or a plus sign, such as Basic Plus or Bronze+.

If you’re looking for cheap health insurance, Basic hospital cover can be a budget-friendly option. This is the starting level of cover, but you won’t get insurance with all the bells and whistles.

Depending on your insurer, basic hospital insurance may only cover you for accidents, and pay for the cost of accommodation in a shared room in a public hospital, while only paying limited benefits (if any) towards the cost of a stay at a private hospital or even a private room in a public hospital.

In addition, a wide range of treatments can be excluded from Basic hospital cover, including brain-related conditions such as stroke, through to joint replacement or cataract surgery.

If you are looking for cheap health insurance that covers services such as general dental, optical or physio rather than hospital costs, it may be worth looking at a basic ‘extras’ policy.

Here too, this base level of cover will likely have restrictions on what you are insured for – and the extent of cover. You may only be insured for half the cost of the treatments included in the policy or have upper limits placed on the dollar value of costs that can be claimed.

Bear in mind that there are no standardised tiers of extras cover in Australia like there are for hospital cover, so different providers may use different words like ‘base’, ‘basic’, ‘simple’ or ‘starter’ to describe their cheapest policies.

Premiums on health insurance vary widely – not just based on your choice of health fund, but also depending on factors like your state or territory, your age, and whether you have previously held health cover. So, the best way to know how much you will pay for basic level hospital cover is to compare costs across a variety of health funds.

That said, the government’s PrivateHealth website suggests the cost of basic hospital cover for a 30-year-old single female in New South Wales with no existing health insurance cover and an annual income of $90,000 or less can start at about $94 per month or around $1,128 annually.

The cheapest policy in Canstar’s comparison tables for the same hypothetical policyholder would have a monthly premium of around $75, or $900 per year.

When it comes to a basic ‘extras’ only policy, PrivateHealth estimates that premiums for someone in the same situation can potentially be as low as $11 per month or about $132 annually.

Note, that all the figures are estimates only and calculated at the time of writing.

Bear in mind, with both types of health insurance – Basic hospital cover and basic or cheap extras cover – you may be asked to make a payment out-of-pocket when you go to make a claim.

For hospital cover, this is known as an ‘excess’ and is a set amount of money you agree to pay your insurer for each claim you make. As a general rule, opting for a higher excess when taking out a policy can result in cheaper premiums, with the obvious drawback that you would be left with a bigger bill should you need to make a claim.

For extras, you won’t be charged an excess but depending on your policy you may have to pay what’s known as a ‘gap’, which is the proportion of your medical costs that remains after your health insurance provider pays you a benefit.

As a hypothetical example, if a dental appointment cost you $200 and your insurer agreed to cover $100 of that, you would be left with a gap of $100.

Not everyone looking for cheap health insurance is motivated by medical needs. Taking out low cost cover can be a way for high-income earners to avoid the Medicare Levy Surcharge. This is an additional charge on top of the 2% standard Medicare Levy that most Australians have to pay.

The Australian Taxation Office (ATO) advises that the Medicare Levy Surcharge applies to singles earning over $90,000 annually, or families with annual income above $180,000, who don’t have private health insurance.

The Medicare Levy Surcharge can work out to 1.00%, 1.25% or 1.50% of your taxable income, depending on how much you earn. Despite the additional cost, it won’t entitle you to any extra health benefits beyond Medicare.

Taking out cheap health insurance can be a way to avoid the Medicare Levy Surcharge. The ATO says you will need to take out private patient hospital cover with an excess of $750 or less if you’re a single, or an excess of $1,500 or less if you are part of a couple or family.

Extras cover on its own will not let you bypass the Medicare Levy Surcharge.

For an idea of the possible savings of taking out cheap health insurance versus paying the Medicare Surcharge Levy, a hypothetical single person with a taxable income of $110,000 and no private hospital cover could pay a Medicare Levy Surcharge of 1.25% – equal to about $1,375 annually.

As we’ve seen, basic hospital cover may be available starting from about $900 for the year, which in this example works out to $475 less than the Medicare Levy Surcharge.