Pros And Cons Of Private Health Insurance

Public or private? The question of whether to take out a health insurance policy or rely on the public system is not always an easy one to answer.

The cost of premiums and excesses, the complexity and variety of the products on offer, as well as the rules around levies and rebates are just some of the factors at play.

To help you understand what’s involved, we’ve compiled a list of some of the potential benefits of private health insurance. We’ve also outlined what a few possible drawbacks could be.

Private vs public health insurance

Private health insurance is designed to cover policyholders for certain hospital and medical expenses that aren’t covered under the public health system, Medicare, or where the patient chooses to be treated privately.

There are some healthcare costs – such as a visit to your GP or an x-ray in hospital for treating an illness – which may be covered or partly covered by Medicare through the public health system, depending on your circumstances. But there are also certain healthcare costs that aren’t covered by Medicare at all. This means that some treatments could leave you with a large bill if you don’t have private health insurance.

Private health insurance is generally divided into two main areas: hospital cover and general treatment (extras) cover. Depending on which state or territory you live in, ambulance cover may also be available as a third type of private health insurance.

If you’re comparing health insurance policies, the table below displays a snapshot of a hospital and extras policies currently available on Canstar’s database for a single female born in 1985 seeking cover in NSW without pregnancy cover. Please note the table is sorted by Star Rating (highest to lowest), followed by monthly premium (lowest to highest) and features links direct to the provider’s website. Use Canstar’s health insurance comparison selector to view a wide range of policies.

Potential advantages of private health insurance

1. Shorter waiting times

One potential benefit of private health insurance is that a shorter waiting period for receiving treatment may apply. This may be particularly helpful for elective surgery, which can often involve long waiting times.

Elective surgery is any surgery that is planned in advance rather than performed under emergency conditions. This type of surgery can include anything from cataract surgery to joint replacements.

According to figures from the Australian Institute of Health and Welfare (AIHW), the waiting list for elective surgery in the public hospital system can vary significantly depending on what the procedure is for. In 2018-19, of the most common elective surgeries, breast lump excision and/or biopsy had the shortest median waiting time at 16 days. Septoplasty surgery (to fix a deviated septum) had the longest average waiting time at 241 days.

The AIHW’s figures show that 50% of public patients were admitted for elective surgery within 41 days in 2018-19.

Private health insurance members generally can enjoy shorter waiting periods and, in some cases, can even decide when they are admitted to hospital.

In addition to waiting periods, priority patient order in the public system means that a patient’s operation may be pushed back so that the surgeon can operate on a more critical patient.

In contrast, those with private health insurance generally have the security of being able to schedule a ‘locked-in date’. This means that the operation will not be pushed back due to another patient needing surgery more urgently.

2. Private hospital rooms

Another potential benefit of private health insurance is the option of being treated in a private room. In a public hospital, you are often placed in a room with four to six other people with various conditions. Private health members are typically able to request a private room, which is usually subject to availability. If you’re expecting a baby, you may also have a better chance of getting a private room where your partner can stay with you.

3. Claim money back on non-Medicare health services

Many people sign up for private health insurance to receive a rebate on health services that are not covered by Medicare. For example, extras cover often covers you for services such as dental, optical, chiropractic and physiotherapy. Without private health insurance, getting a filling or buying new glasses may be quite expensive.

In addition, private health insurance members have the option of adding pregnancy to their hospital or extras cover. This would mean – usually in return for a more expensive premium – having access to certain pregnancy-related services which wouldn’t be available through Medicare. There is usually a 12-month waiting period for pregnancy cover through a private health insurance policy.

4. Dental covered by private health insurance

As noted above, going to the dentist is generally not covered by Medicare. Even the most basic treatments such as a dental check-up or clean and scale are generally not covered.

If you don’t have private health insurance that includes dental cover, you have two options: pay in full at a private dental clinic, or visit a state-run public dental clinic. Access to public dental clinics is generally limited, and eligibility may vary from state to state in Australia. Waiting lists for public dental treatment can also be lengthy, although certain groups may qualify for priority access.

If you choose to pay in full for private dental treatment, this can be expensive. According to the AIHW, in 2016-2017 individual out-of-pocket costs made up 58% of the $10.2 billion spent on dental services.

By contrast, if you have private health insurance, this may cover all or part of the cost of dental treatment. This can include things like check ups, all the way through to major dental work like root canals or wisdom tooth extraction. The exact amount your policy will cover you for will depend on your insurer, so it could be worth checking in with them or reading your Product Disclosure Statement (PDS) if you’re unsure.

5. Select your doctor or surgeon

Many private health insurance policies give members the ability to select their preferred doctor or surgeon to carry out an operation. In a public hospital, your doctor will be the one on duty at the time of your operation.

As with the availability of a private room, your preferred doctor or surgeon is still a matter of availability in the private system.

6. Avoid the Medicare Levy Surcharge

The Medicare Levy Surcharge was introduced to encourage those with higher levels of income to take out private health insurance policies and take pressure off the public health system.

According to the Australian Taxation Office (ATO) at the time of writing, if your income is over $90,000/year as a single, or $180,000/year as a couple, you may be subject to a surcharge of at least 1% of your income on top of the basic Medicare Levy. The levy surcharge can rise to as high as 1.5% for people in the highest income bracket.

The ATO advises that private health insurance members with a sufficient level of hospital cover are exempt from paying the Medicare Levy Surcharge.

7. Save long-term with Lifetime Health Cover

Lifetime Health Cover (LHC) was introduced to encourage young people to purchase a private health insurance policy to ease the dependence on the public health system. Under the LHC, a loading charge of 2% is added to your private health insurance premium for every year you are aged over 30 and don’t have hospital cover.

For example, if you are 40 years old and have never taken out a private health insurance policy until now, your additional LHC loading would be an extra 20% (2% x 10 years). The Private Health Insurance Ombudsman states that this can only be removed once you have had hospital cover over a 10-year continuous period.

Having an appropriate health insurance hospital policy in place could help you eliminate or minimise the effect of the LHC loading.

Potential drawbacks of private health insurance

Around half of Australians have private health insurance in place. According to APRA’s quarterly private health insurance statistics for May 2020, 43.8% of the population have hospital cover and 53.2% of the population have extras cover. This suggests that many people decide that, for them, the benefits of private health insurance don’t currently outweigh the disadvantages. In fact, APRA has warned that by 2022 only a handful of insurers could be left standing.

Here are some of the reasons why people might decide not to take out private health insurance.

1. The cost

Private health insurance can be expensive – depending on their policy, an individual, couple or family could pay thousands of dollars in premiums each year, with costs typically increasing annually. The federal government announced an average premium hike of 2.92% for 2020, for example. On the other hand, since 1 April 2019 health funds have had the option of offering discounts for younger customers, which may bring premiums down for those customers.

2. Complex products

For some, the huge variety of products on offer and the range of policy inclusions and exclusions can be overwhelming and challenging to understand. Health insurance reforms introduced in 2019 are aiming to simplify the products on offer.

3. Excluded treatments

Depending on the policy, if you end up needing treatment in hospital, you might still not be covered. Even a comprehensive policy may not cover every type of treatment or procedure.

4. Out of pocket costs

A private health insurance policy may only cover part of the cost of a treatment or procedure. So you could still end having to pay a substantial amount, as an excess for example, albeit less than you might pay without insurance in place.

To find out more about the reform changes, click here.

 

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