If you’ve never been part of a health fund before, you may be wondering whether private health insurance is actually all it’s cracked up to be. You might well think, “I’m young and fit and don’t plan on getting sick any time soon, so what’s the point?” or even “The public health system is fine – why should I pay any more for further health coverage?” But maybe you’re thinking about starting a family in the next few years, and with lots of little surprises surely coming your way, you’re considering if you’d rather be covered for those. Or, you could be starting to consider your financial future as you head towards retirement, as well as thinking about your general health later in life. You might also be aware there might be some tax benefits to taking out private health insurance, and be interested in looking into these as well.
There are a number of important issues to consider when taking out health insurance, including the level of cover that you choose, the cost of premiums and excesses, waiting periods and the services that you may or may not be covered for. In this article, we’ll answer some of the key questions you might have in this area, including:
- What is private health insurance?
- What does private health insurance cover?
- What are the potential benefits of private health insurance?
- What are the drawbacks of private health insurance?
- When might you decide that private health insurance is worth it?
- When might you decide that private health insurance is not worth it?
What is private health insurance?
Private health insurance is a scheme that exists to help individuals and families cover the costs of healthcare. While all eligible Australians are guaranteed access to a range of health and hospital services via our publicly funded Medicare system, private health insurance exists to cover things that Medicare does not. It can also provide benefits over and above those that Medicare provides. It is optional, and can be purchased from a range of different private health funds.
Health insurance premiums vary in price, depending on the policy.
What does private health insurance cover?
Private health insurance is split into two components: hospital and extras cover. Depending on your needs, you can choose a policy that covers either or both. Ambulance cover is also available as a third component in some states (but not Queensland or Tasmania though, where this service is covered by Medicare).
The hospital component of private health insurance covers the cost of in-hospital treatment by a doctor or specialist, and can also cover expenses like accommodation in a private room. With health insurance that includes hospital cover, you can generally choose your own doctor, choose to be treated in a private hospital (or as a private patient in a public hospital), and have more flexibility in the scheduling of appointments and procedures.
The extras component of private health insurance covers the cost of services that are not covered by Medicare. This can include general and major dental treatments, optical products like glasses and frames, and physiotherapy.
What are the potential benefits of private health insurance?
So you may be wondering what you can get from a health insurance premium. Here we have summarised some of the potential benefits.
You can enjoy shorter wait times for surgery
Waiting lists in the public hospital system can be long, especially for elective surgeries, which are those that are planned ahead of time. Per the most recent figures from the Australian Institute of Health and Welfare (AIHW), 50% of patients waited at least 41 days for admission from elective surgery waiting lists in 2018–19.
One of the key benefits of private hospital insurance is that it may allow you to ‘skip the queue’ and enjoy a shorter waiting period for elective surgery.
You can lock in a date for your surgery
In the public hospital system, priority patient order means that even if you are booked in for a procedure, it might be pushed back if your surgeon needs to operate on a patient who is in more urgent need of care. By contrast, private health insurance can allow you to lock in a date for your procedure, giving you more peace of mind that it will go ahead as planned.
You can choose your doctor
In the public hospital system, your doctor or specialist will be the one who is on duty at the time of your operation. Many private health funds, however, will give members the opportunity to choose their own doctor or specialist as a component of their hospital cover. Canstar finance expert Steve Mickenbecker said this was one of the main benefits of taking out private health insurance.
“You might not know much about specialists, but your GP might, and if they can recommend a doctor who is right for your particular needs, you might well want to be treated by that doctor,” Mr Mickenbecker said.
“Another example is childbirth. You might want to be treated by the one doctor all the way through your pregnancy, and you probably won’t get that in the public system,” he continued.
“Likewise, you might have a chronic condition that needs treatment on an ongoing basis, and you might want consistency with the same doctor, rather than having to explain your condition to a series of new doctors.”
You can stay in a private room
In the public hospital system, you can find yourself sharing a room with other patients, which may not be ideal if you wish to have privacy. With private health insurance that includes hospital cover, you can request a private room. Bear in mind that rooms are always subject to availability, so you are not guaranteed one.
You can avoid the Medicare Levy Surcharge
The Medicare Levy Surcharge is a levy paid by Australian taxpayers who earn above a certain income threshold and do not have private hospital insurance. At the time of writing, if your annual income is over $90,000 as a single person or $180,000 as a couple or family, the levy is likely to apply, ranging from 1–1.5% of your annual income. The federal government advises that individuals or couples with an appropriate level of health cover will avoid paying the surcharge, so taking out health insurance could save you money at tax time.
You can be covered for dental care and other extras
Medicare generally does not cover dental care in Australia, meaning you’re likely to pay out of pocket for any kind of dental treatment, be it a simple check up and teeth cleaning or something more intensive like a root canal. The extras component of private health insurance can cover all or part of the cost of dental treatment, meaning that your out-of-pocket expenses are potentially a lot lower if you need a major procedure, as long as it’s included in your level of coverage and any waiting periods no longer apply.
In addition to dental care, extras cover generally includes a range of other services that Medicare does not, including physiotherapy, remedial massage, chiropractic services and optical services. Where you would normally pay the total cost of these services, extras cover will allow you to claim a portion back, up to your annual limits.
You can have ambulance cover
In most states, Medicare does not cover the cost of transport in an ambulance — Queensland and Tasmania are exceptions to this. Call-out fees in other states can approach $1,000, so taking out ambulance cover as part of your private health insurance means that you could avoid a potential financial burden if you need an ambulance trip to hospital.
What are the drawbacks of private health insurance?
While there are a number of benefits of having private health insurance, there are also some potential drawbacks to be aware of when considering your options.
Private health insurance can be costly
Simply put, private health insurance can be expensive, and individuals and families can pay thousands of dollars a year in premiums. Health insurance premiums also usually increase in price every year — on April 1, 2021, they rose by an average of 2.74% across Australia. Health insurance premiums are growing faster than inflation, leading to concerns that private health cover is becoming cost-prohibitive for many Aussies.
Annual limits apply
When choosing extras insurance, it is worth keeping in mind that most policies come with annual claim limits. It is important to check the details of your policy carefully to understand the limits that apply. For example, even the highest levels of extras cover will typically cover you for up to $1,000 worth of major dental procedures in a calendar year, which may leave you out of pocket if you require a significant amount of dental work. With some extras cover policies, you may be rewarded with higher claim limits over time for some items if you continue to retain your cover.
Some hospital treatments can be excluded
Most health funds offer a range of hospital cover packages, ranging from lower levels of cover, which exclude a number of treatments, through to higher ones with more inclusions. It is quite common for services such as pregnancy and birth and joint replacement to be excluded on lower levels of hospital cover. Even if you opt to switch to a more comprehensive package, you’ll likely find that you still need to serve out relevant waiting periods before being covered for the services that you need.
For this reason, when taking out hospital cover, it is very important to check which services are included and which are not. You may also be interested in health insurance deals and sign-up offers that are currently available.
There are four tiers of cover in the private hospital insurance system – the Basic Tier, the Bronze Tier, the Silver Tier and the Gold Tier, with the latter being the most comprehensive in terms of its inclusions. These tiers were standardised across all health funds as part of the federal government’s recent health insurance reforms, as a way to make private health insurance easier to understand for consumers.
You can find out more about the tiers of cover and what is included in our article on health insurance clinical categories.
Not all doctors have agreements with health funds
The doctors and specialists who see you in hospital will typically charge a ‘gap’ for their services — that is, an amount over and above the benefit that Medicare provides. If your health insurer has an agreement with a doctor or specialist then they will cover that gap, but if they do not, then it is up to the patient to cover it, and out-of-pocket costs can run to thousands of dollars.
Some extras can also be excluded
Much like the hospital component of private health insurance, extras cover can also exclude certain services, depending on your level of cover with your policy. For example, some basic extras packages will cover general dental services, like tooth cleaning and check-ups, but might not cover major dental treatments, like root canals.
When taking out extras cover, it is important to check the details of your policy carefully so you know what you are and are not covered for.
Your choice of provider may be limited
Many health funds have deals with certain ‘preferred’ providers who will offer discounted treatments or lower rates than others. You may be entitled to a higher rebate with these providers. While this might sound good, the flipside is that if your favourite provider does not have a deal with your health fund, the rebate you get there might be lower (if you are eligible for one).
This means, for example, that if you buy a pair of glasses from your favourite optometrist, the rebate you get there might be smaller than if you were to go to one of your health fund’s preferred optometrists. Likewise, your health fund’s preferred providers may not have the range of products or quality of service that your own preferred ones do.
When could private health insurance be right for you?
There are a number of situations where taking out private health insurance could be right for you. For example, if you’re planning on starting a family, if you think you could benefit from extras cover, if you earn above $90,000 annually as a single or $180,000 as a couple, if you are over 31 and want to avoid paying more in future, or if you simply want peace of mind as you get older, private health insurance could be right for you.
→ Related: A guide to family health insurance
If you’re planning on starting a family
If you are planning on starting a family, then taking out private health insurance that includes hospital cover can have a number of benefits. While you can choose to have a baby in the public system, it is unlikely that you will have the same doctor all the way through the process, whereas private health insurance can allow you to choose a doctor that you like and are comfortable with. Similarly, private health insurance that includes hospital cover can allow you to request a private room, rather than being on a public ward.
If your family is growing, you may also find that you are taking more trips to the dentist or the optometrist. In this situation, taking out extras cover as part of your private health insurance could be beneficial, if you think you will save more than you are spending on premiums.
If you’re earning above $90k as a single or $180k as a couple
If you’re earning above $90,000 annually as a single or $180,000 as a family, and you don’t have private health insurance, you may find that you have to pay the Medicare Levy Surcharge at tax time. Depending on how much you’re earning, this amount could be higher than the amount you’d be paying in health insurance premiums. You may choose to take out hospital cover to avoid the Medicare Levy Surcharge, although if you do this, be sure to ask your health fund if the cover you have is sufficient for this as there is a minimum level of cover required according to the PrivateHealth website.
If you want peace of mind for the future
You never know what health challenges life will throw your way as we get older, or when you might find that you need to be admitted to hospital for treatment. Signing up for private hospital cover may be one way to alleviate your worries about this, and provide some peace of mind for yourself as you get older. Advantages may include being able to skip the waiting list and choose your own doctor and a private room. Bear in mind that you will need to serve all relevant waiting periods for your level of coverage before you are admitted to hospital. It is also worth noting that a health insurer may impose a 12 month waiting period on benefits for hospital treatment for pre-existing conditions.
If you’re over 31 and want to avoid paying more
For every year you put off getting private health insurance after the age of 31, it will get more expensive because of Lifetime Health Cover loading. Lifetime Health Cover loading applies a 2% increase in premiums per year for every year after your 30th birthday that you don’t purchase private health insurance. This may add up to a total surcharge of 70% once you reach 65 years of age, but doesn’t increase any further. The surcharge is removed if you’ve held an adequate level of private health insurance for 10 years consecutively.
If you think you’ll save money with extras cover
Mr Mickenbecker said extras cover could be viewed as a kind of ‘payment plan’ against the services you might need throughout any given year.
“If you want a new pair of glasses and a dental check-up every year, and if you foresee that you might see the physio a few times a year too, you might well ask: what will these things cost me, and will I use my private health insurance for it?” he said.
“If you can say ‘Yes, I think I’ll save money with extras insurance’, then that may be a good case for you to take it out.”
When could private health insurance not be right for you?
If you’re happy relying on the public system, if you’re young and healthy or if you feel you’re paying too much for services that you don’t use, then you may feel it is not the right time for you to take out private health insurance.
If you’re happy relying on the public system
Mr Mickenbecker noted that Australia has a robust public health system, and that if you have a serious illness, you should be able to get treated.
“If you have one of those conditions where you’d like to get your doctor of choice, you may value private health insurance,” he said. “Likewise, if you need to have elective surgery, you may just want to get it over and done with so you can get on with your life.”
“A lot of people, though, might say they don’t care if they don’t get the doctor of their choice, because they trust the public system,” he said.
If you’re young and healthy
If you’re under 31, healthy, don’t intend to start a family in the near future and are earning under $90,000 annually, then you may feel there is no urgency for you to take out private health insurance. You may find down the line that you are paying more in the Medicare Levy Surcharge than you would be if you were to take out a low level of hospital cover, and at that point, you may decide to re-evaluate your choices.
If you feel you’re paying too much for services you don’t use
If you have health insurance but there are some services you don’t claim on regularly, you may feel you want to cut back. For example, if you are paying for extras cover but your premiums are higher than the amount of money you are saving with claims for services like optical and physio, then you might decide to forgo this component of your private health insurance.
Cover image source: NDAB Creativity/Shutterstock.com
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