Pros and cons of private health insurance

Is private health insurance worth it? 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, and the rules around levies and rebates are just some of the factors at play when weighing up the pros and cons of private health insurance.

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.

Public vs private health insurance: What’s the difference?

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

There are some healthcare costs – such as a visit to your GP or an X-ray in hospital – which may be covered or partly covered by Medicare through the public health system, depending on your circumstances and the location you visit. But there are also certain healthcare costs that aren’t covered by Medicare at all. Private health insurance policies are designed to cover some or all of those out-of-pocket costs. It could also cover you for treatment in a private hospital, or if you decide to be treated as a private patient in a public hospital.

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.

Around half of Austrailians have some form of private health insurance. According to Australian Prudential Regulation Authority (APRA) quarterly private health insurance statistics for March 2023, 45.1% of the population have hospital cover and 55.0% have some form of extras cover.

Potential advantages of private health insurance

1. Shorter waiting times

One potential advantage of private health insurance is a higher chance to have a shorter waiting period for certain hospital treatments such as elective surgery.

Elective surgery is a term used for surgeries that are not conducted as a result of an emergency presentation but still medically necessary and may even be required urgently. This type of surgery can include anything from cataract surgery to joint replacements.

Going through the public system for elective surgery often involves longer waiting times. According to figures from the Australian Institute of Health and Welfare (AIHW), the wait list for elective surgery in the public hospital system can vary significantly depending on what the procedure is for. In 2021 to 2022, AIHW reports that 50% of patients waited at least 40 days for admission from elective surgery waiting lists.

Excluding an emergency health context (such as a pandemic), private health insurance members generally have shorter waiting periods. In some cases, private patients 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 is unlikely to be pushed back.

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 usually placed in a room to share with other admitted patients. 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 or family member can stay with you.

3. Dental covered by private health insurance

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. There are some exceptions though, such as for public dental services and basic dental services for children that meet the eligibility requirements.

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 have private health insurance, your policy may cover all or part of the dental treatment costs. This can include services and treatments from check ups through to major dental work like root canals or wisdom tooth extractions. The exact amount your policy will cover for will depend on your insurance provider, so it could be worth checking with them or reading your policy documents, such as a Private Health insurance Statement (PHIS) or Product Disclosure Statement (PDS), if you’re unsure.

4. Claim money back on non-Medicare health services

Many people sign up for private health insurance to receive a rebate on ‘general’ health services that are not covered by Medicare. For example, extras cover often covers part or the whole cost for general health services such as dental, optical, chiropractic and physiotherapy.

In addition, private health insurance members have the option of adding pregnancy (obstetrics) 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. But keep in mind, there is usually a 12-month waiting period for pregnancy cover through a private health insurance policy.

5. Select your doctor, specialist or surgeon

Having a private health insurance policy generally allows you to select your preferred doctor, specialist or surgeon in a private medical setting. As with the availability of a private room, your preferred doctor or surgeon is still a matter of availability in the private system.

In a public hospital though, your doctor will be the one on duty at the time of your admission, treatment or operation. You do not get to decide who your doctor is.

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 in 2023-2024 is over $93,000,/year as a single, or $186,000/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.

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, starting on 1 July following your 31st birthday.

For example, if you are 40 years old as of January this year, and have never taken out a private health insurance policy until now, your additional LHC loading would be an extra 20% each year (2% times 10 years). This hypothetical example is based on the Australian Government’s LHC calculator, and assumes Medicare coverage for a person who was not overseas on 1 July of their 31st birthday.

PrivateHealth.gov.au, managed by the Private Health Insurance Ombudsman, says you must hold onto your private hospital cover and pay the LHC loading for 10 continuous years before the LHC loading is removed. Having an appropriate private hospital insurance policy in place could help you eliminate or minimise the effect of the LHC loading.

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Potential drawbacks of private health insurance

Now that we’ve looked at the potential advantages of private health insurance, here are some potential drawbacks and reasons why people might decide not to take out a health insurance policy.

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. Canstar research shows the average annual cost of combined hospital and extras health insurance for singles is $3,017 for those under 36, $3,456 for those between 36 to 59, and $3,829 for those aged 60 and over.

Since 1 April 2019, health funds have had the option of offering discounts for younger customers, which may bring premiums down for those customers, separate to any interim cost savings for health insurance that may also apply.

Learn more: How much does private health insurance cost?

2. Complex products

For some, the variety of products on offer and the range of policy inclusions can be overwhelming and challenging to understand. Health insurance reforms introduced in 2019 were aimed to simplify the products on offer. Private health insurance providers in Australia are now required by law to categorise their hospital cover into one of four tiers – Gold, Silver, Bronze and Basic. These four categories are standardised across all health insurance providers.

3. Excluded treatments

Depending on the policy, if you end up needing treatment in hospital, you might still not be covered. Some health insurance policies may have specific exclusions or terms and conditions for certain treatments. It’s a good idea to read the Private Health Information Statement provided to you, as well as any other important documentation, before signing up.

Learn more: Common Health insurance inclusions, exclusions & restrictions

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 up having to pay a substantial amount, as an excess for example, albeit less than you might pay without insurance in place. It’s a good idea to ask for a quote from health providers and to talk this through with your health insurance provider, so you can more accurately predict costs.

Cover image source: visivastudio/Shutterstock.com