What is the difference between Medicare and private health insurance?

Finance Journalist · 7 September 2020
In Australia, you can choose to have Medicare cover only or have a combination of Medicare and private health insurance. So, what’s the difference between the two?

What is Medicare?

Medicare is Australia’s universal health insurance scheme. It is available to all Australian citizens and most Australian residents. Medicare gives you access to a range of health services and medications for free or at a lower cost.

Under Medicare, you can be treated as a public patient at a public hospital for free. However, as a public patient, you can’t choose your doctor or what hospital you are treated at, and you may be put on a waiting list for non-emergency treatment.

Medicare also helps to cover the cost of seeing doctors, specialists and some other health professionals out of hospital. For example, Medicare subsidises consultation fees for doctors, tests and exams by doctors (such as x-rays) and eye tests by optometrists. If your doctor bulk bills, Medicare will cover all the costs and you won’t need to pay anything yourself (known as an “out-of-pocket” expense).

If you see a doctor or get tests regularly, Medicare Safety Nets may help you lower your out-of-pocket costs further. You can register for Medicare Safety Nets as a family or couple. Individuals with no dependents are automatically registered. Find out more at Services Australia.

Having a Medicare card also allows you to access the Pharmaceutical Benefits Scheme (PBS). This scheme subsidises the cost of a range of prescription medicines.

However, Medicare doesn’t cover everything. For example, it doesn’t cover the cost of ambulance services and it generally doesn’t provide benefits for out-of-hospital services such as dental and physiotherapy. Instead, this can be covered by private health insurance.

What is private health insurance?

Private health insurance allows you to be treated in a hospital as a private patient and can help pay for health care costs that are not typically covered by Medicare (such as dental, physiotherapy and optical). Private health insurance can be purchased from a registered health insurer and you will need to pay regular premiums to maintain your cover.

Private health insurance can include hospital cover, extras cover or combined hospital and extras cover. You may also be able to get ambulance cover as a separate or combined policy (except in Queensland and Tasmania, where the state governments fund this service at no cost to residents).

If you have hospital cover, you can be treated as a private patient in a private or public hospital and you can choose your own doctor. Medicare will help pay some of the costs if the medical service is listed on the Medicare Benefits Schedule (MBS). Depending on your policy, your health insurer may pay for all or some of the remaining costs of your treatment and some or all of your hospital costs (such as accommodation).

If you have extras cover, this can provide cover for out-of-hospital services that are not covered by Medicare. Depending on your policy, you may be covered for some of the cost of services such as dental, chiropractic, physiotherapy and optical, including glasses and contact lenses.

What is the difference between Medicare and private health insurance?

The main differences are that Medicare only covers the cost of your treatment as a public patient and a set range of non-hospital health services. Private health insurance can give you more choice about the type of health services used and more coverage for different types of services.

We’ve summarised some of the main differences in the table below:

Service Medicare Private health insurance
In-hospital services As a public patient:

  • Medicare will cover the cost of your treatment in a public hospital
  • You cannot choose your hospital, doctor or specialist
As a private patient:

  • Medicare will cover some of your doctors’ costs. Your health insurer will cover some or all of your remaining doctors’ costs and some or all of your hospital costs (such as accommodation) if you have passed any applicable waiting periods. There could be out-of-pocket expenses, known as gap payments, you may also need to pay an excess amount.
  • You can choose your hospital, doctor and specialist
Out-of-hospital services by a doctor or specialist
  • Medicare covers some or all of the costs of visiting a doctor or a specialist
  • Medicare also covers most tests and exams (such as x-rays and pathology tests)
  • By law, private health insurance does not cover out-of-hospital medical services including GP visits, consultations with specialists in their rooms or diagnostic imaging and tests
Other out of hospital services
  • Medicare covers some out of hospital services in limited circumstances. For example, it covers eye checks by optometrists and dental care for some children
  • Your health insurer may cover out of hospital services such as dental, physiotherapy, occupational therapy, chiropractic, optical and psychology (depending on your policy)
  • PBS covers part of the cost of some prescription medicines
  • Your health insurer may cover some prescription medicines not covered by the PBS (depending on your policy)
  • Medicare does not cover this. However, you may be covered for ambulance services by your state or territory government
  • Some policies include ambulance cover

Another factor to consider is the cost. Medicare is partly funded by the Medicare levy, which is typically 2% of your taxable income. This is collected in the same way as income tax. The government also charges the Medicare levy surcharge if you don’t have an appropriate level of hospital cover and your income is above a certain amount (currently $90,000 for singles and $180,000 for families).

If you decide to take out private health insurance, you will also have to pay regular premiums to your insurer. The government also charges a lifetime health cover loading on top of your premium if you don’t take out and maintain hospital cover from the year you turn 31.

If you’re comparing health insurance policies, the table below displays some of the hospital and extras policies currently available on Canstar’s database for a 30-year-old single female seeking cover in NSW without pregnancy cover. Please note the table is sorted by Star Rating (highest to lowest), followed by provider name (alphabetical). Use Canstar’s health insurance comparison selector to view a wide range of policies.

You can compare a wider range of policies using Canstar’s health insurance comparison tables. Canstar also researches and rates a range of hospital, extras and packaged hospital and extras policies. Find out which ones received a 5-Star rating.

This article was reviewed by our Sub-Editor Jacqueline Belesky and Senior Finance Journalist Amanda Horswill before it was updated, as part of our fact-checking process.

Main image source: Robyn Mackenzie (Shutterstock). 

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