What’s the Difference Between Medicare and Private Health Insurance?

Do I need private health insurance? Doesn’t Medicare cover the cost of everything anyway?

Australian residents are covered by the free, public health system (Medicare) and they can choose if they want to also be covered by private health insurance as well. What’s the difference between public and private health?

The table below displays a snapshot of 5-Star hospital & extras policies on Canstar’s database with links to providers’ websites, sorted by provider name (alphabetically). Please note the results are based on a couple aged under 35 in NSW, with no pregnancy cover.

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Difference between Medicare and private health insurance

The main difference is that Medicare pays for patients to be treated in the public health system and private health insurance pays for patients to be treated in the private health system. Differences between the two systems include how much patients pay for treatment (the gap between doctors’ and hospitals’ fees and the benefit from Medicare or insurance), how long they wait for treatment, what doctor treats them, and even what they pay in tax each year.

In the table below, we’ve summarised the main differences between Medicare and private health insurance:

Medicare (Public System) Private Health Insurance
Medicare  Private Health Insurance

Cost of being in the system

Patients who have an income above the threshold amount pay a 2% Medicare Levy on their income at tax time in order to help the government pay for the public health system and the benefits of Medicare and Pharmaceutical Benefits Scheme (PBS).

The Medicare Levy Surcharge may also apply to high-income earners who make more than $180,000 a year (for families) and $90,000 a year individually. Starting at 1%, there is a 0.25% increase in the surcharge across each tier, which you can see in greater detail here.

The cost of private health insurance is borne by you and is paid to your health insurance provider in the form of premiums. The cost of these premiums increases every year as the cost of healthcare rises in conjunction with an ageing population, and depending on your age, health status and location, your hospital & extras package could easily cost more than $4,000 a year. To see a complete breakdown of average health insurance premiums, click here.

You may also have to consider the cost of Lifetime Health Cover Loading (LHC). LHC tries to ‘encourage’ people to take out health insurance when they’re young; Australians have until the 1st of July after their 31st birthday to take out an adequate level of private health insurance or be charged an extra 2% on their premiums every year after they turn 30.

Cost of treatment

Patients receive free or subsidised treatment by doctors, specialists, optometrists, and accommodation in public hospital as a public patient.
Patients only pay the gap between the fees charged by the doctor, hospital, or pharmacist and the benefit paid by Medicare or the Pharmaceutical Benefits Scheme (PBS). If the doctor or hospital bulk-bills the patient and does not charge more than the Medicare/PBS benefit, there is no gap and the patient pays $0.
Patients receive 75% of the fee listed in the Medicare Benefit Schedule (MBS) for treatment as a private patient in a public or private hospital, not including accommodation, surgery theatre fees, or medicines.
The Medicare Safety Net increases the benefit for patients who have already paid a certain amount (more than the threshold) in out-of-pocket gap payments that year.
Patients pay the gap between the doctor or hospital fees and the benefit paid by their health insurer. Different insurers and policies may pay a benefit of just a portion of the cost or up to 100%, so the amount the patient pays varies depending on choice of insurer and choice of policy.

Waiting list for treatment

Public system waiting lists are notorious for being long, with frequent delays. Waiting lists for elective or non-emergency surgeries range from 1 month to 1 year. The wait for free dental treatment in rural areas is more than 2 years (NOHA). Patients with private health insurance have a much shorter wait. Private patients can even choose their treatment date for some surgeries (e.g. elective C-section).

Choice of doctor

In the public system, you are seen by whatever doctor is on call at the time you are admitted to hospital or the time you get an appointment. Private health insurance allows you to choose a preferred doctor to treat you. However, this is subject to availability, meaning if you are admitted to hospital while your doctor is already seeing to another patient or surgery, you will be seen by the on-call doctor instead.

Staying in hospital

Public patients stay in public rooms or wards, usually with about 4-6 people per room. Private health insurance patients have the option of choosing to stay in a private hospital. Some policies will cover the cost of a shared room in a private hospital, and some policies will cover the cost of a private room in a public or private hospital. However, note that this is subject to availability, meaning you don’t get a private room unless one is free.

Different types of treatments

At present, there is no Medicare benefit to help you pay for dental, optical, chiropractic, physiotherapy, or alternative/complementary therapies. You would pay the full fee for such services on your own. Health insurance policies that include extras cover (ancillary cover) will cover part or all of the cost of treatments such as dental, optical, chiropractic, physiotherapy, and more (depending on choice of policy).

Medicare Levy Surcharge

The Medicare Levy Surcharge is an extra tax of up to 1.5% that high income earners ($90,000 for singles, $180,000 for couples) pay on their income if they do not have private health insurance. Having health insurance means high income earners can avoid paying the Medicare Levy Surcharge.

Lifetime Health Cover (LHC) Loading

Lifetime Health Cover (LHC) loading is an extra charge that increases your health insurance premiums if you did not have health insurance when you turned 30. Premium prices increase by 2% for every year you did not have health insurance after your 30th birthday. Obtaining private health insurance before turning 31 ensures that you do not pay Lifetime Health Cover loading as long as you maintain the policy.

Private health insurance vs Medicare

Australia’s public health system, with Medicare and the medicines available on the government-subsidised Pharmaceutical Benefits Scheme (PBS) list, offers a lot for Australian patients. In the public system, Australian residents can see a GP for free, and have surgery in a public hospital or buy medication for a lower cost.

However, the public system is not recommended for everything. Dental treatment, even a simple check-up or clean, is not covered by Medicare.

If you don’t have private health insurance, and you are not eligible for the public clinic, your only option would be to pay in full for dental treatment.

The many benefits of taking out private health insurance should be quite clear, but of course, it depends on whether or not you can afford a policy that covers what you need. Canstar can help you there.

Canstar researches and rates health insurance for different profiles such as young singles, couples, older singles, families, and more. It compares health insurance policies and providers on price and value, coverage and benefits, and terms and conditions of coverage.

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